Water industry regulator Ofwat has written to the Chief Executives of a number of water companies to express increasing concerns regarding the quality of data and assurance in the revised business plans submitted on 27^th June.

The letter, dated 30 July, from Sonia Brown, Ofwat’s Chief Regulation Officer states:

“I wanted to write to you today because, as our assessment of your plan has progressed, we have become increasingly concerned over the quality of some of the information provided to us. This in turn raises questions about the assurance processes that you have undertaken."

Sonia Brown says the issue is of sufficient importance for Ofwat to publicly raise its concerns in the Draft Determination to be published on 29 August, commenting:

“ I wanted to tell you this now because we consider these to be important issues that you need to address but we recognise the period between Draft Determinations and the deadline for making representations on these (3 October) is tight.”

"I therefore wanted to give you as much time as possible to arrange for appropriate third party assurance in the areas listed below and to include this in any representations you wish to make by 3 October.”

 The upcoming Draft Determinations will set out the specific questions for the individual companies concerned where Ofwat will be seeking full third party assurance. According to the letter, the concerns relate specifically to financeability and assurance issues.

On financeability, Sonia Brown says Ofwat has identified “substantive issues” with the calculations underpinning the assessment of actual and/or notional financeability., commenting:

“These issues have had a significant impact on the calculation of financeability ratios, which raises serious concerns over your Board assurance of financeability. This reduces the weight that we can place on your assurance as a whole and makes interventions to the business plan more likely.“

She also points out that the revised business plan in question is still not in line with Ofwat’s revised cost allocation guidance and/ or that the cost drivers used are not appropriate, commenting:

 “It is also not evident that your company has undertaken adequate and transparent assurance in line with the revised guidance.”

The letter concludes by warning:

“If your company fails to demonstrate a strong track record of consistently meeting your obligations, including obligations to provide us with reliable, accurate and complete information, we may need to consider how this influences the way we monitor your compliance during the forthcoming regulatory period.”

“... we may put in place more onerous regulatory reporting requirements and/or a more onerous assurance regime from 2015-16 for companies where concerns remain at Final Determination.”

The as-yet unidentified companies will now be under considerable pressure to address the issues raised by Ofwat with a very tight timescale. To date, South West Water and Affinity Water were both awarded enhanced status for their Business Plans by Ofwat in April 2014, while Wessex Water while Northumbrian Water and Dwr Cymru Welsh Water received their Draft Determinations  in May