Water sector must address corporate behaviour concerns

Water companies must address concerns around corporate behaviour alongside producing their business plans for the upcoming price review, PR19, Ofwat’s chief executive has warned.

Rachel Fletcher has written to the CEOs of all water companies to set out how the regulator will progress with plans to put the sector “back in balance” in the coming months.

It follows Ofwat’s chairman Jonson Cox having set out a programme of reform in a letter to the environment secretary Michael Gove earlier this week.

Fletcher said: “Our goal is a thriving water sector that holds the trust and confidence of customers and wider society. The corporate behaviour of some companies, along with significant service failures, has damaged that trust.”

She added: “Much of the input we need from companies in the programme of work occurs while companies are devising their business plans for PR19 and the next regulatory period. The concerns around corporate behaviour and the damage to public trust mean this work cannot wait.”

The letter explains the aims of the work “complement and are consistent with the PR19 objectives of delivering more for less for customers, by improving resilience, affordability, service and innovation”.

Ofwat said it seeks to “clarify and make some targeted amendments to the PR19 approach” but its commitment to the overriding objectives and all other aspects of the PR19 methodology published in December 2017, “remain in place”.

Fletcher said she is looking to the water sector “to engage with customers and the wider public about how it can redefine its role and rebuild trust”.

“I expect individual companies to move quickly to make the changes needed to put customers’ interests at the heart of everything they do,” she said.

Ofwat outlined its approach “involves a substantial change of gear” as the regulator is considering a “new principles-based licence condition”.

“We want companies to shift their sights beyond compliance with individual licence conditions to take an enduring responsibility for meeting customers’ interests. This is essential if the sector is to hold public trust and confidence into the future,” Fletcher said.

Ofwat plans to reform company licences; address concerns around executive pay; increase transparency around dividends and profits; ensure companies are financially resilient and encourage companies to share financial outperformance from additional gearing with customers.

It will formally engage with water companies about the proposed licence changes next month.