Water companies trying to create financial arrangements otherwise prohibited by their licence, which might include things like intercompany loans up to the parent company, will have to clearly show how the arrangements serve customers’ interests or they will be blocked by Ofwat, new guidance shows.
Water companies’ licences set out that if they want to enter into certain arrangements that are otherwise prohibited, they must get consent from Ofwat first.
Ofwat is consulting on new guidance around this process and setting out more clearly that such consent would be given only if these requests help the company to remain financially resilient and work in customers’ interests.
As an example, in the future, it is very unlikely that Ofwat would give consent for water companies to make a loan to their parent company.
This is the latest step by Ofwat in its programme of work to make sure water companies are financially resilient and act in customers’ interests.
Following Ofwat’s interventions, companies are already unwinding some such arrangements. Anglian Water has ensured the repayment of a £1.6bn intercompany loan, Southern Water has arranged the repayment of £628m of an intercompany loan, Thames Water of £250m of an intercompany loan and South Staffordshire Water the repayment of a £15m intercompany loan.
Ofwat’s Chief Executive, Rachel Fletcher, said:
“There is a clear framework in place to protect customers and their interests. Occasionally, water companies have reason to want to stretch beyond those conditions. When they do, we need to review it and consider the implications for customers.
“Today we are setting out guidance, which is very simple: we won’t allow companies to take on financial arrangements if they are not in customers’ interest and do not help the company’s financial resilience. There is a high bar for companies to clear and we want to set it out plainly for
all to see.”
Ofwat welcomes thoughts on its proposed guidance on approach by 3 September 2019. GO HERE to download the guidance and how to respond to the consultation.
Water regulator Ofwat is seeking views from interested parties about the development and implementation of a bilateral market in water resources in England.
A bilateral market would allow water resource providers, other than the incumbent water company, to contract directly for the supply of water resources with retailers operating in the business retail market.
Many organisations with water abstraction rights use water for their own purposes and currently do not supply any surplus water they may have within their abstraction licences to meet water companies’ needs. Other significant entities with abstraction rights could include, farmers, landowners, non-governmental organisations and large industrial users such as brewers and power generators.
Ofwat are keen to hear from a wide range of stakeholders, particularly potential participants in a bilateral market, such as potential third party suppliers of water resources and retailers in the business retail market. They are also interested in views on some of the policy issues that would need to be addressed in order for a bilateral market to be successfully established, and how such a market could complement or conflict with other means of providing water resources.
The call for information is open until Friday 6 September and can be accessed on the Ofwat website.
Water regulator Ofwat has today given its initial assessment of water companies’ business plans for 2020-25.
Three water companies – Severn Trent, South West Water and United Utilities – delivered such high-quality plans that they have already been given the green light by Ofwat.
The plans from those three companies set out how they will cut bills by up to £70 in real terms while significantly improving support for vulnerable customers, and deliver real change in the areas that matter most to customers, like cutting leakage.
In the coming months, the remaining water companies will have to strengthen their plans so they too deliver for customers. Four companies – Affinity Water, Hafren Dyfrdwy, Thames Water and Southern Water – have the most work to do in order to meet the tough challenges Ofwat has laid down for the sector.
Across the board, water companies are proposing significant improvements for customers in the period 2020-25, including:
- Help for up to 1.5 million customers struggling to pay their water bills;
- A 15% reduction in leakage – the equivalent of more than 170 billion litres of water per year, which would save enough water for three months’ worth of daily showers for everyone in England and Wales;
- Cutting greenhouse gas emissions by 45%, the equivalent of taking 360,000 cars off the road;
- Up to 80% reduction in pollution incidents; and,
- At least £10bn worth of extra investment to meet more stringent environmental standards, connect new homes and meet increased demand over the coming years.
Ofwat Chief Executive, Rachel Fletcher said:
“We have challenged all water companies to deliver more for less for customers over the next five years.
They’ve listened to the customers they serve. We’re seeing an increased focus on the things closest to people’s hearts such as keeping bills affordable, cutting leakage, protecting the environment and helping those most in need. Three companies have already stepped up to the mark with high quality plans and stretching commitments to customers for the next five years. The rest of the sector now needs to meet this high standard so that customers across the country get better and more efficient services”.
Water regulator Ofwat has today published its revised board leadership, transparency, and governance 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.
Among the changes announced today by the regulator, is 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 take action where they are not aligned with its purpose.
The revised Principles have also been streamlined and consolidated to make companies’ responsibilities clearer and to emphasise the importance of strong board leadership in the sector.
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; the regulator intends to kick-start this process in spring 2019.
Water regulator Ofwat has proposed a number of changes to its Regulatory Accounting Guidelines (RAGs) which set out in detail how water companies must treat particular items where disclosure and reporting requirements go further than those normally required under company law.
Companies must use these guidelines to complete their annual performance report, which is in turn used by Ofwat and other stakeholders to allow easy comparison of each company’s performance.
Under the changes proposed by Ofwat, water companies would face expanded disclosure requirements in a number of areas including:
- Greater transparency and clarity about the financial returns to companies’ equity holders each year; and,
- A requirement for companies to report on the money they receive from customers and spend each year to reinforce their networks, and an explanation for the difference.
The RAGs have been amended to take account of an exercise carried out by Ofwat in December 2018 to set out all water companies’ licence obligations in clearer, more accessible language.
Pub, cider and beer company Heineken UK, pub company Stonegate and textile rental and laundry service company Elis, have become the latest companies to be granted licences to self-supply in the business retail water market by economic regulator Ofwat.
Each business will now supply their own water and wastewater services; allowing them to provide their own retail services, such as meter readings. Self-supply can offer significant cost savings and flexibility for businesses with multiple premises or those using large amounts of water.
Now in its second year, the business retail water market is the largest of its kind in the world. The market allows businesses, public bodies and charities to ‘shop around’ and choose the best retailer for them, rather than having to use their local water supplier.
Other companies that have been granted self-supply licences include Coca-Cola European Partners, Greene King, Marston’s PLC, Whitbread and Blackpool Council.
Emma Kelso, Ofwat’s Senior Director for Customers and Casework, said:
“An increasing number of businesses are seeing the benefits of being in the business retail water market. All three companies are large users of water and their self-supply licence allows them to take control of their water; potentially generating efficiencies in water usage and costs. We hope to see more businesses take advantage of the opportunities they now have in the market.”
David Paterson, Corporate Affairs Director at Heineken UK said:
“Water is a critical resource for our business, used from growing crops to being a vital ingredient in our ciders and beers. Through our innovation programmes, we’ve been able to help the hospitality industry save 72 million pints of water when serving the perfect pint. But we know more can be done.
A self-supply license will allow us to monitor our water use across our supply chain more effectively, and help drive through further efficiencies from barley to bar, with our ‘Every Drop’ sustainable water plan.”
A spokesperson for Stonegate Pub Company said:
“Self-supply will enable us to drive operational efficiencies across our circa 700 pub estate as well as help in the mission to preserve one of our vital resources, water.”
Jeanette Fyfe, UK Procurement Manager at Elis said:
“By choosing to become a self-supplier, it has enabled us to identify services to suit our needs as a responsible business that uses a large volume of water in the processing of laundry.
Elis has always been a conscientious and efficient in the use of water as it is fundamental to our business, with over 40 sites supplying hotels, hospitals and businesses across the UK.
The ability to self-supply will enable us to work closely with water providers who clearly understand our business, our challenges and our ambitions to manage our water usage responsibility, efficiently and cost effectively.”
Water regulator Ofwat has recommended an overhaul of compensation arrangements for water customers who are left off supply.
The proposed changes, which come on the back of the regulator’s review into water companies’ handling of the ‘Beast from the East’ earlier this year, would see compensation payments for household customers increase to £30 for every 12 hour period they are left off supply.
At present, the Guaranteed Standards Scheme (GSS) entitles household customers to £20 after 12 hours without supply and a further £10 for every additional 24 hours they do not have water.
In addition to increased levels of compensation, further reforms proposed by Ofwat include:
- Requiring compensation payments to be automatic, cutting out the need for customers to go through the process of applying once their water has been restored; and,
- Removing a provision that delays payments to customers where supply interruptions have been caused by a burst or leak involving a ‘strategic main’.
Ofwat has today also written to four water companies (Thames Water, Severn Trent, Southern Water and South East Water) which were asked to provide a detailed, externally audited, action plan setting out how they are addressing the issues identified in Ofwat’s review.
As temperatures continue to fall, Ofwat has warned all water companies of the need to be better prepared to deal with all weather conditions, including thinking more carefully about identifying and supporting those in vulnerable circumstances like the elderly and people with serious medical conditions.
Ofwat Chief Executive, Rachel Fletcher said:
“Being left without a crucial public service like running water causes disruption and hardship and compensation arrangements should reflect the impact on people’s lives. The reforms we are proposing today will aim to ensure that compensation for future supply interruptions is fair, fast and free from hassle. As the mercury begins to fall once again, we expect all water companies to have learned serious lessons from this year’s ‘Beast from the East’ and to be better prepared to look after their customers, whatever the weather brings.”
Ofwat is today moving to strengthen water companies’ financial resilience by calling on them all to adopt a common set of standards. This would include strengthening requirements to maintain an investment grade credit rating and accepting restrictions on pay-outs to shareholders by any company put on a ‘negative watch’ by credit rating agencies.
The proposals, being consulted on today, are intended to further safeguard customers’ interests by ensuring water companies remain financially robust and continue to attract investment.
The changes will ensure all water companies have the same requirements to maintain an investment grade credit rating and ‘cash lock-up’ provisions embedded into their licences. Cash lock-up conditions ensure that if a water company is at risk of losing its investment grade rating, it is barred from making pay-outs to shareholders or removing money or assets from the business.
Ofwat has confirmed that two water companies, Thames Water and Portsmouth Water, have agreed to a suite of changes which today bring their licences up to the industry leading standard.
This is the latest measure from Ofwat to reform the water sector. In recent months, the regulator has also consulted on enshrining principles of good governance in all licences and taken steps to require companies to share with customers any financial gains they make from taking on high levels of debt.
Ofwat Chief Executive, Rachel Fletcher, said:
“This is the latest step in our programme to reform the water sector. These measures include strengthening requirements to maintain an investment grade credit rating which will protect customers by helping to make sure that water companies remain financially robust.”
“It is good to see more retailers joining the retail water market. Competition in the market is vital to enable customers to get an even better overall package from their water retailer. By shopping around, customers can not only benefit from the best value for money for their water and wastewater, but also from a number of improved services such as better billing and excellent customer service.”