Legitimacy debate
Ofwat chief, Cathryn Ross, sent a shot across the boughs in her speech at Moody’s water conference last week to the six companies that have so far “failed to provide us with long term viability statements going out at least five years”.
Noting that she herself will have stepped down as Ofwat boss by then, she nonetheless indicated their business plans could be marked down in the regulator’s PR19 assessment: “I’m struggling to see how the absence of those statements – and indeed in some cases the absence of assurance that companies and investors are doing what they need to do now to get their house in order – won’t undermine the credibility of the business plans we will get from those companies”.
Ross said Ofwat asked for these long term viability statements last year and needs the “assurance that companies and investors were doing what they needed to do to make the decisions they needed to make to secure the long term financial resilience of these long term businesses – rather than simply planning to come back cap in hand to customers at some point”. She added there is still an opportunity to put this right, but that “time is short”.
Elsewhere in her speech, Ross re-emphasised the critical need for companies to respond to the legitimacy challenges coming at them from politicians and the media, by demonstrating they are truly operating in society’s long term interest “rather than – as some suspect – solely operating in the best long term interests of their shareholders with customers and society getting what they can be persuaded to accept”.
She concluded on a positive note: that it was her belief the sector would seize the opportunity to respond. She said this was partly because some companies are already taking action (see Yorkshire Water deleverages) partly because of the public service ethos that still has currency; and partly because the challenge is questioning the very fundamentals of the model that underpins the sector.