Editor’s letter: ‘Resilience in the round’ has real bite

Ofwat is asking a lot of water companies - but it's their job to prepare for the worst, says Jane Gray

Ofwat has challenged water companies to square up to their worst imaginings of what might go wrong for their businesses and build holistic resilience strategies that address corporate, financial and operational risks.

It’s a broad definition of resilience which has unnerved some sector leaders, with worries privately expressed that Ofwat is asking companies to encompass too much in its approach and setting the bar for resilience in PR19 business plans too high.

Some companies do have cause to worry. Look at Ofwat’s company monitoring framework assessment for 2016 and it’s clear that some companies will struggle to deliver the corporate resilience Ofwat is asking for. The regulator expressed disappointment with six companies last year for their shortcomings on board governance. And when it comes to financial resilience, again Ofwat saw significant room for improvement on strategic points – such as tax ­transparency – but also business fundamentals, such as reporting consistent and robust data.

Then too, there are new and rising resilience threats for water companies. Cyber-crime and fraud are now the most prominent types of crime in the UK, and the increasing incidence of extreme weather events has caused a realisation that traditional methods of relying on historic climate data to define the need for resilience investments in infrastructure are no longer fit for purpose.

These changes and rising expectations will push water companies to develop new skills and expertise for creating robust plans – not only to prevent resilience risks from arising, but to respond, recover and learn from incidents that, almost inevitably, will come to pass. Getting these skills in place in time for the next price review (which offers no glide path for companies to ease in to meeting performance commitments) is a big ask.

But Ofwat has shown little inclination to pander to complaints about its broad and demanding approach. The Water Act 2014 upped the ante on the regulator to show that it is taking tangible action to make the water sector better prepared and able to cope with manifold and interconnected threats from climate change, population growth, malicious attacks and unexpected financial implosions.

The regulator has taken resilience in the round to its heart and, as Cathryn Ross told companies last week, delivering this is now “no more or less than a water company’s job”.