Ofwat chair writes to water firms about governance principles

Ofwat is close to finalising the wording of the new licence condition for water companies to meet principles concerning board leadership, transparency and governance.

Jonson Cox, chair of the water regulator, said Ofwat is “impressed” by the level of company engagement with the principles so far following the publication last month.

In a letter sent on Friday (22 February) to the chairs of the largest licensed water companies and infrastructure providers in England and Wales, Cox said: “A majority of companies have now agreed to be held by the ambitious standards of governance as set out in the principles.”

The revamped principles put a “strong focus on purpose, values and culture,” according to the regulator.

Cox highlighted that seven companies – Anglian Water, Bristol Water, SES Water, South East Water, South Staffs Water, Southern Water and Wessex Water – have already indicated they will endorse the principles by accepting a licence condition to meet the objectives.

They join the five companies – Severn Trent, Hafren Dyfrdwy, Thames Water, Portsmouth Water and South West Water – who already have a licence condition to meet the principles.

First introduced in 2014, Ofwat launched a review of its principles last year, following “public concerns raised over corporate behaviours” in the water sector.

Changes announced by the regulator last month include a specific requirement for water company boards to establish their company’s purpose, strategy and values and to be satisfied that these and its culture reflect the needs of all those it serves.

Boards will be expected to monitor and assess the culture and values of the company and act where they are not aligned with its purpose.

Ofwat also “streamlined and consolidated” the revised principles to make companies’ responsibilities clearer and to emphasise the importance of “strong board leadership” in the sector.

Cox said the revised principles are a “vital tool” for the sector to give customers and other stakeholders the confidence that in the future companies will:

• have a clear purpose that reflects the needs of all they serve;
• be run on a standalone basis, free from wider group interests;
• have well-run boards, with clearly focused and well-run committees; and
• have sufficient independent challenge to ensure the needs of customers and other stakeholders are addressed.

The new principles will come into effect from 1 April 2019. Ofwat is proposing to consult further on amending companies’ licences to make the objectives mandatory.

Cox said: “We will soon be writing to all companies seeking agreement to the text of the licence condition. We will aim to publish a formal consultation under the Water Industry Act 1991 on this licence condition in spring 2019.”