Fletcher outlines immediate-start legitimacy programme

Water companies will need to juggle existing PR19 business planning with a hectic programme of new work to address legitimacy issues in the coming six months.

On Friday, Ofwat chief executive Rachel Fletcher wrote to company chief executives setting out the work programme through to September. This followed Ofwat chair Jonson Cox’s letter to environment secretary Michael Gove on Tuesday setting out how Ofwat is going about addressing financing and public interest concerns.

Fletcher provided the following timetable:

April

Consult on PR19 sharing financing outperformance from high gearing.

Set out expectations around dividends and executive pay transparency, and how boards should approach making these payments.

Clarify expectations on financial resilience demonstration in PR19 business plans.

Consult on bringing all companies’ regulatory ring-fencing arrangements up to the standard of industry leaders.

May

Launch formal engagement with water companies on licence changes, including a common principles-based licence condition for companies to put customers at the heart of everything they do.

Engage on changes to strengthen Ofwat’s board leadership, transparency and governance principles.

June

Consult on changes to board leadership, transparency and governance principles.

Publish freeze/thaw review conclusions.

September

Finalise changes to board leadership, transparency and governance principles.

Publish licence change proposals, including on corporate governance, ring fencing and a public interest principle.

Fletcher said that aside from these “targeted amendments” to PR19, its final methodology and overarching objectives stood. She added that the legitimacy work could not wait and gave companies a heads up about additional costs: “As you would expect we are considering the impact of this programme of work on our budget. I will update you on this if necessary in due course.”

In his letter, Cox stopped short of asking the government for any new powers at this stage, but left the door open to ask for help on amending licences, should that prove necessary.

Beyond these specifics, Fletcher restated Cox’s wider message to the industry: that it should engage with customers and the wider public about how it can redefine its role and rebuild trust for the future. She told companies to act fast and report back by summer. She also reported: “To help progress this agenda and as Ofwat considers the regulatory framework post PR19, we will conduct our own work to understand what customers expect from a first class public service, and how those expectations may evolve over time.

“Together this work will have implications for how companies run their businesses, and for Ofwat’s role as a sector regulator. We will be engaging with the UK and Welsh governments, regulators and other stakeholders as part of this process.”

Sources:

https://www.ofwat.gov.uk/publication/implementation-letter-sent-to-water-company-ceos-from-rachel-fletcher-13-april-2018/

https://www.ofwat.gov.uk/publication/letter-jonson-cox-secretary-state-relating-behaviour-water-companies-9-april-2018/