Ofwat has today set out a framework for how company performance and financial information will be reported by water companies to their customers and stakeholders.

The framework also sets out how Ofwat will use that information to ensure that customers are being protected.

Transparency of key performance and financial information is flagged up as an important part of Ofwat’s shared vision for the water sector in England and Wales. The regulator says that that effective performance information sharing and monitoring is crucial if this shared vision is to be achieved.

Commenting on the framework, Cathryn Ross, Ofwat Chief Executive said:

“We want to continue moving companies’ focus away from the regulator onto building relationships with their customers and stakeholders, and understanding what they want. We’ve put the onus on companies stepping up and taking the lead to make available the right information, properly assured. That’s vital if the sector is to have a clear and open conversation about whether it is delivering what customers and wider society want.

“Ofwat plays a vital role in stimulating that conversation but we expect the companies to lead it. We will focus on highlighting issues which may impact upon customers. For example, we will assess companies' financial resilience, the robustness of board leadership and the quality of the information companies publish.

“Transparency in itself will help build trust and confidence in the sector. More than this, if the sector has the right conversation on the basis of the information it publishes, this will help it to identify and manage risk, benefiting everyone over the long term.”

Ofwat has summarised its expectations on reporting and the package of monitoring tools to help it achieve its shared vision. This is information the regulator said it would expect an efficient, well-run company to already hold on their own performance. The package of measures is also not exhaustive in terms of the information companies will need to make available to customers and other stakeholders.

The framework also prescribes some common content and assurance for the annual performance report, allowing customers and stakeholders to compare the performance of individual companies to the rest of the sector. In the event of a lack of confidence in the information individual water companies provide about their performance, the regulator will step in to protect customers by increasing assurance requirements.

Ofwat has also signalled its expectation for companies to consider ongoing assurance and improvement –not just at price reviews and plans to look at ongoing assurance when assessing business plans at PR19.

Ofwat to publish financial information annually

On the financial framework, Ofwat said this is being introduced to enhance visibility and transparency of financial and capital structures in the sector and to enable it to monitor the financial resilience of the businesses that it regulates. Ofwat is planning to publish financial information on the sector annually, including a high-level review of that information which identifies key trends and significant changes.

Ofwat is also giving further consideration to expecting companies to stress test their business plans and provide information on the outcomes which could help it to assess industry financial resilience and any risks to customers posed by financial structures.

At the moment the financial monitoring framework only applies to regulated companies. However, Ofwat said it will also consider whether it needs to look beyond the regulatory ring-fence to examine the financial arrangements for holding companies.

Prototype dashboard to be further developed in next few months

Ofwat said it will also remain flexible in the areas it monitors and information it collects, so it can respond to customers and stakeholders interests, and developing risks and opportunities.

Ofwat said in its forward programme that it would consult on a strategic assessment framework for monitoring the state of progress against its shared vision both for the sector as a whole and for Ofwat as a regulator. The regulator sees the framework as being made up of two complementary parts; one for the sector as a whole (strategic dashboard) and one focused on how Ofwat itself is progressing.

Ofwat expects the strategic dashboard to be a collaborative tool owned by both the sector and those involved in its regulation, saying it has already spoken to regulators and industry bodies about how the sector might deliver this strategic dashboard. Water UK, the body which represents all the UK water companies, will be taking this forward with Ofwat and other stakeholders and will engage more broadly on a prototype dashboard in the next few months.

Click here to download the framework document