Utility Week

UTILITY WEEK | 15TH - 21ST DECEMBER 2017 | 21 Operations & Assets Reiterating the importance of this improvement, the spokesperson adds: "If stakeholders are to have trust and confi- dence in the information companies provide, they need to be able to understand it and believe that it is a fair and balanced view of how a company is performing." The 2017 assessment: company movements Overall, the 2017 CMF assessment delivered relatively little movement in terms of water company categorisation when compared with 2016. And Ofwat is satisfied that the three companies now occupying the "self- assurance" category can consistently display "solid processes to gather, test and present information". In addition to Thames, the only other companies to move categories were Severn Trent, Northumbrian Water and Yorkshire Water. Severn Trent was demoted to "tar- geted" this year, having previously been in the self-assurance group, swapping places with Northumbrian Water, which moved out of targeted assurance. Meanwhile, Yorkshire Water moved out of prescribed assurance and into targeted. The regulator says Severn Trent met its expectations in "many areas", yet the com- pany "had not consistently met the high standards expected in order to be assessed for self-assurance". While ten companies are now listed in the targeted assurance category, Ofwat says they generally did "many things well" but still have room for improvement. Companies in the targeted or prescribed categories must now carry out a risks, strengths and weaknesses exercise and pub- lish a statement based on the findings. They must also consult stakeholders and publish dra assurance plans on the areas identified as risks and weaknesses. Consultation on these exercises should be carried out by end of January 2018, Ofwat says. The regulator's spokesperson says: "Stakeholders need confidence that all the information companies share and publish is of sufficient quality and is explained in a clear and transparent way. The CMF seeks to encourage companies to do this and to ensure companies don't just see this as something that matters at a price review. We were very clear in the dra methodology published in September of the importance of good assurance and it will form part of our assessment of the quality of business plans." Alarm bells For companies sitting in the prescribed assurance category, this message from the regulator should ring alarm bells. A failure to show real zeal in addressing CMF issues, alongside other shortcomings, could land a company in the "significant scrutiny" for business plan assessment, a precursor to a poor final determination in PR19. But the framework's laggards are cer- tainly not being reticent in displaying a pro- active approach to improvement. If they stick at this, and report robustly on the measures they are taking to allay Ofwat's concerns, they may yet create better foundations for their business plans, and their ongoing rela- tionship with the regulator. Take Thames as an example. The com- pany has had a high public profile recently for all the wrong reasons. But it has largely responded with openness and has taken sig- nificant steps to repair its reputation. A week prior to the release of the CMF report, Thames announced the appoint- ment of former SSE chief executive Ian Marchant as its new independent chairman. He has been tasked with leading a review of the company's corporate structure and governance. The company has also promised to close its offshore banking arrangements in the Cayman Islands as it looks to ensure the "best possible transparency" for customers and stakeholders with regards to its financial structure. The company has shown penitence for "letting customers down" by missing its leakage targets and has pledged to return £40 million of penalties to customers. Thames clearly hoped that this kind of positive PR activity would make an impact on the regulator's assessments. A spokesperson for the company tells Utility Week: "In view of the extensive efforts we are making to be open and transparent about the performance of our business, we are disappointed by Ofwat's decision to classify Thames Water as 'prescribed'. We will be working hard to rebuild trust and achieve 'self-assured' status as quickly as possible." However, Ofwat wants more. Although it has welcomed Thames' action to increase its financial transparency, a recent report detailing water company performance against the financial monitoring framework found that Thames had allowed "a series of errors" to creep into published financial information. These errors were sufficient in volume and importance to merit "serious concern", said Ofwat. Thames and all its contemporar- ies in the prescribed assurance CMF group, will need to deliver exceptional attention to detail now if they are to soothe the worries they have roused at the regulator. Constructive criticism: company responses to 'prescribed assurance' assessment: • Bristol Water says it notes Ofwat has seen evidence of improvement from last year's assessment, but accepts "more has to be done". The company has already acted, having launched a consultation on its "risks, strengths and weak- nesses on Information". • Dee Valley Water says: "We're very pleased that Ofwat has seen and highlighted the improvements we've already made at Dee Valley, together with its high expectations for future reporting. We look for- ward to working together over the next 12 months to ensure we provide even greater assurance for our customers." • Southern Water says: "We remain committed to providing clear, transparent and accurate data to our regulators as well as making sure all the information we present to our customers and stakeholders is accurate and engaging. "We have dedicated teams working on those areas Ofwat has highlighted as needing continuing improvement and would like to thank our regula- tor for their feedback – which recognises the 'significant progress' we have made over the last year as well as providing helpful guidance on where we can demonstrate best practice."

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