Ofwat has set out the final framework and assurance process for overseeing the quality of the information that the largest 18 monopoly water and wastewater and water only companies in England and Wales provide to their customers.

Earlier this year Ofwat set out the basic information it would require monopoly water companies to report in an annual performance report from 2015-16 onwards, together with new arrangements that require water companies to take ownership of the information they collect and to provide customers and stakeholders with assurance that the information can be trusted.

The regulator has also placed the water companies in one of three categories - self assurance, targeted assurance or prescribed assurance.

Ofwat is further strengthening its assurance processes for monitoring water companies’ performance against their AMP6 business plans via specific additional assurance requirements as follows:

1. Self assurance – Alongside each set of information they provide, the Boards of the water companies must provide:

• explicit sign off on the assurance that they are providing;
• full transparency on the audit procedures; and
• a summary of the outcome of the assurance that their company has carried out.

2. Targeted assurance - In addition to meeting the requirements for the self-assurance category, companies in the targeted category are required to:

• carry out an exercise with stakeholders to target issues to address; and
• publish a statement on this in the autumn of each year in advance of submitting information.

For issues a company targets, they are required to publish draft assurance plans and speak with and listen to stakeholders before confirming final plans, but only in these targeted areas.

3. Prescribed assurance - In addition to meeting the requirements of self-assurance and targeted categories, companies in the prescribed category are required to publish their assurance plans for all information in advance of reporting. This is so that stakeholders (including Ofwat) can gain confidence and if necessary provide comments or guidance that the company would need to respond to.

Ofwat said the risks, strengths and weaknesses exercise that a prescribed company carries out with stakeholders will highlight the areas of reporting that have the most significance or are of greatest risk to customers. For these areas the company will need to incorporate independent external assurance as part of its assurance plans.

Where a company demonstrates that it is able to provide appropriate assurance, Ofwat will then reduce the level of prescription on the process it must carry out in deciding on how it provides assurance. If a company provides information in a way that reduces the trust and confidence customers can place in it, Ofwat will step in to increase the prescription in order to protect customers.

For self assurance, only two companies – Affinity Water and South West Water – will have no additional assurance requirements from April 2015. Dee Valley Water is the only company subject to even more extensive assurance requirements which will be prescribed for all information that it is required to submit, with the remaining fifteen companies subject to more prescriptive assurance requirements in targeted areas.

Performance reporting to be reflected in next price review

Ofwat is also working with key stakeholders, including other water sector regulators, to develop an assessment framework and performance dashboards for monitoring the progress that the sector makes towards the regulator’s vision for it. Further information on these will be provided later in the year.

Ofwat said that it is considering how best to reflect their performance in 2015-20 in their settlement at the next price review in 2019 as part of developing the policy framework for PR19.

This includes:

• the extent to which they have delivered for customers, the environment and society;

• the quality of their continuing engagement with their customers; and

• the quality of their reporting.

Ofwat expects to make use of the information published by companies between 2015-16 to 2019-20 to inform its decision making in 2019 and to apply higher scrutiny to the price controls of those companies that “do not have a proven track record.”

The regulator is also separately currently developing a further tool, the financial monitoring framework, which Ofwat will use to monitor companies’ financial structures and financial stability.