Ross makes her mark at Ofwat

Change starts at the top. That must be what Ofwat chief executive Cathryn Ross believes as she gets the regulator in shape to deliver a “challenging and difficult” price review in 2019.

The evolution of the senior leadership team, announced for consultation last week, sees two high profile roles disappear and four new positions created, all reporting in to Ross.

This flat structure will replace the hierarchy that was cobbled together and required the outside assistance of a delivery partner to get PR14 through the door. It is designed to meet the challenges of the Thames Tideway Tunnel, maintaining investor confidence, and meeting the new requirements of the Water Act.

What’s set to change?

The previous senior leadership team was a hangover from the difficulties and internal turmoil Ofwat faced in delivering PR14, which saw the previous chief executive Regina Finn resign in the middle of the price review process in May 2013.

To compound matters, Ofwat had just emerged from a bruising set of spending cuts as part of the Comprehensive Spending Review, which saw its budget slashed by 10 per cent and staff numbers scaled back by 45.

To get PR14 delivered on time, Sonia Brown was promoted to the newly created role of chief regulation officer, and PwC brought in as the official delivery partner. This was about “keeping PR14 on the road,” according to Ross, and the running repairs and patches worked, with the price review successfully delivered.

However, Brown’s promotion to chief regulation officer created a “hierarchy” in the senior leadership team and is now “problematic in the post-PR14 Ofwat”, Ross said.

The new structure

The new structure would see Brown’s role as chief regulation officer and the senior director of finance and networks position, held by Keith Mason disappear, although Ross insists it is nothing personal. “It is about the posts within the senior leadership team and the structure and not about people,” she told Utility Week.

Four new jobs are set to be created – senior director of strategy and planning; senior director, Water 2020; senior director finance and governance; and senior director Thames Tideway. Although Brown and Mason have been told they can apply for one of these new roles, they have not been placed in one already.

Other members of the senior leadership team have been transferred across into the new set up. Richard Khaldi will remain in post as senior director of customers and casework; Bev Messinger, currently senior director of operations will take on a new role as senior director of business improvement; Claire Forbes will remain senior director of corporate communications; and Elizabeth Hillman will remain general counsel.

Ross says this new, flat structure of seven directors and a general counsel will ensure the regulator has the “capability to deliver strong, competent, committed, clear leadership corporately, across programmes and resource pools and with our stakeholders”.

PR19 challenges

Ross and Ofwat chairman Jonson Cox expect PR19 to be less traumatic than its predecessor, though they admit it could be “potentially quite a difficult time” because of the new challenges the sector faces.

Those challenges are maintain investor confidence in the sector, delivering the Water Act reforms such as the new resilience duty, and helping to integrate the Thames Tideway Tunnel project into the regulatory regime.

The new senior director role for the Thames Tideway Tunnel may only exist for a couple of years, but the new director will be tasked with being the main point of contact for infrastructure provider Bazalgette.

Ross expects there to be significant “ongoing engagement” from Ofwat on the super sewer project, so creating the new role ensures sufficient senior management capacity and leaves the rest of the senior team free to deal with the other pressing issues.

The “benign financial climate” of recent years is predicted to end as interest rates creep up. It is down to Ofwat to ensure the knock-on effect does not create pressure on the companies, leading to a higher cost of capital and ultimately higher costs to customers.

The challenge is to keep the balance between investor confidence and affordability. It is the conundrum of delivering more for less, and as Ross says, “that’s the challenge we’re getting in shape to deliver”.

Add in the small matter of market opening, and you see the regulator has a mountain to climb over the next few years, with necessarily limited resources. The water market and political and economic climate it operates in are changing – so the regulator is changing as well, starting at the top.