Letter from the Editor: Ofwat’s new naughty list

Little by little, a jigsaw is being assembled that will decide water company determinations in PR19.

In a review which is anchored more firmly than ever before in the performance record of companies, rather than the jam tomorrow promises of business plans, the insights provided by tools such as Ofwat’s company monitoring framework (CMF) are telling.

Ofwat established the CMF in 2015 as a shiny new mechanism for tracking the quality and transparency of water company data and their presentation of corporate information. And the regulator has been clear that it considers the framework an important barometer for water company accountability, as well as a gauge for the trust and confidence they can expect to command from stakeholders.

With accountability, trust and confidence absolutely core to the PR19 methodology, companies that consistently fail to meet Ofwat’s framework expectations clearly have little hope of submitting ambitious business plans that will be considered credible by the regulator.

Severn Trent, hotly tipped as a contender for Ofwat’s “exceptional” category for PR19 business plans, will have been disappointed, therefore, to be shunted out of the CMF’s “self-assurance” group for the sector’s leaders on data and corporate assurance.

But it’s the companies on the bottom rung of the 2017 CMF assessment that really need to take stock.

The companies singled out in “prescribed assurance” will have raised few eyebrows in the sector. Bristol, Southern and Thames Water are all acknowledged as industry laggards when it comes to their ability to deliver on key outcome delivery incentives or exhibit the transparency the regulator increasingly demands. In particular, it will come as little surprise that Ofwat expressed “serious concerns” about the quality of Thames’s published financial information, which has prompted torrid criticism in the national press of late – most notably from the Financial Times.

These companies can never have had realistic expectations of receiving “exceptional” stamps, or even fast-track status, for their PR19 business plans. But with such a clear signal from Ofwat that it lacks confidence in their ability to provide robust information or to foster confidence, they must now focus all their efforts on avoiding the penalties associated with a “significant scrutiny” categorisation for AMP7. There’s not much time left to rectify errant ways.