Utility Week

20 | 15TH - 21ST DECEMBER 2017 | UTILITY WEEK Operations & Assets Analysis O f the 17 largest water and wastewater companies and water-only compa- nies, Ofwat "does not have full confi- dence" in the quality of data of four of them: Bristol Water, Dee Valley Water, Southern Water and Thames Water. Consequently, they have all found them- selves in the "prescribed assurance" cat- egory within the regulator's 2017 company monitoring framework (CMF) assessment, published at the end of last month. It will have come as little surprise to many to see Thames Water demoted to the bottom rung of the framework's perfor- mance rankings, where it joins Bristol Water, Southern Water and Dee Valley (now part of Severn Trent). Although Thames met Ofwat's expecta- tions for many of the framework's measures, the regulator concluded that the significance of its concerns relating to two particular areas within the CMF – financial monitoring and outcomes – meant the company "did not instil sufficient confidence" about its ability to deliver, monitor and report performance. Ofwat's rulings in the year's CMF assess- ment are particularly relevant and sensitive in the shadow of the upcoming price review, PR19, which will determine the regulatory settlement for the next asset management plan (AMP) period, 2020-25. The regulator is clear that it considers the framework a key weapon in its arsenal as it battles for trust and confidence in the sec- tor. And the CMF's focus areas, including financial monitoring, the transparency and governance of boards, and the consistency and quality of reporting for stakeholders, are clearly relevant to the challenge Ofwat has laid down for companies in PR19, which is to set a new bar for the quality and robustness of business plans. This does not bode well for those compa- nies languishing in "prescribed assurance", and least of all for Thames, whose very pub- lic problems of late (it has been attacked for lack of financial transparency and failing to deliver value for customers) have already put it on a shaky footing for engaging with customers and delivering an AMP7 business plan that Ofwat can believe is credible – and has consumer support. Why the CMF matters to Ofwat The CMF is one of a suite of tools that Ofwat has introduced over the course of AMP6 to improve its ability to track and compare company performance against key "hygiene" factors, which impact their legitimacy. Data quality sits high in the rankings of these hygiene factors. As the 2017 CMF assessment states: "If stakeholders are to have trust and confidence that the sector is meeting its promises, and that it will be held to account if it doesn't, they need to also have confidence that information published is of high quality." Speaking to Utility Week, an Ofwat spokesperson explains further: "Water com- panies' boards are accountable for the qual- ity and transparency of the information they provide on their performance. As the regu- lator, we aim to help the sector build trust and confidence with customers and wider society. The company monitoring framework is an important tool to help us understand how well companies are doing on this and to encourage them to get better at the assur- ance they provide." Overall, Ofwat says it has observed improvement against the CMF's measure since it was introduced in 2015. More compa- nies are meeting its expectations and the reg- ulator's spokesperson claims it is generally "encouraged" by the signals this gives about the quality of submissions for the upcoming price review. "We are encouraged that companies responded to feedback and strived to improve," they say. Can we trust what you say? Data may be a small word, but it has a big impact for the water sector, especially when the reporting of facts and figures from some companies leaves a lot to be desired, says Katey Pigden. Category What it means Company Self-assurance Company must meet the minimum assurance Northumbrian Water requirements (set out in the position paper) but it South East Water has discretion to decide what additional assurance United Utilities arrangements to put in place. Targeted Company must meet the minimum assurance Affinity Water requirements. It must also carry out risks, strengths Anglian Water and weaknesses exercise; publish a statement on this Dwr Cymru Welsh Water exercise; and consult stakeholders and publish Portsmouth Water dra assurance plans on the areas identified as Severn Trent Water risks/weaknesses. SES Water South Staffordshire Water South West Water Wessex Water Yorkshire Water Prescribed Company must meet the minimum assurance Bristol Water requirements and the requirements for targeted Dee Valley Water companies, and its dra assurance plan must cover all Southern Water information. Areas of most significance or greatest risk Thames Water to customers require independent external assurance. It must publish its assurance plans for all information ahead of reporting and engage with stakeholders (and Ofwat) before it publishes its final assurance plans. AREAS OF ASSESSMENT: • Financial monitoring framework • Charges engagement assessment • Outcomes • Compliance with Ofwat's principles of board leadership, transparency and governance • Risk and compliance statement • Assurance plan • Data assurance summary • Casework

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