Environment secretary Michael Gove has welcomed Ofwat’s proposed measures to “address concerns” about the financial practices of some water companies.
In a letter to Jonson Cox, Ofwat’s chairman, Gove writes: “I am fully supportive of all your proposals and agree that water companies should share with customers any additional returns above and beyond the financing costs assumed by Ofwat.”
Ofwat plans to reform company licences; address concerns around executive pay; increase transparency around dividends and profits; ensure companies are financially resilient and encourage companies to share financial outperformance from additional gearing with customers.
Gove praised the regulator for its “continued efforts” to improve the transparency of the water sector, particularly around dividend policies and the setting of executive pay.
He said the regulator’s stance aligns with the government’s aim to improve corporate governance and transparency.
Gove also hinted he wants to see privately owned water companies publish the ratio of CEO pay to the pay of their average workforce. The government is introducing legislation, which will require quoted companies to publish this information.
“I also welcome your proposals to make changes to water company licences, to put customers at the heart of water company activity and to provide better protections for the regulated part of the business,” Gove writes.
He hopes Ofwat can implement its proposals “in full without the need for government intervention or legislation” after water companies in England said they are “fully on board” with the reform programme proposed by Ofwat.
The secretary of state hosted a roundtable with several chief executives from water companies on Monday (16 April) ahead of his response to Cox today (18 April).
Gove outlines: “They committed to action in a range of areas, including tying executive pay and dividends more closely to performance improvements, sharing with customers additional gains from high gearing, and closing offshore financial structures in the coming months.”
Michael Roberts, chief executive of Water UK, said: “Companies fully support the need to resolve concerns about financing and governance arrangements in the sector, and are already taking swift action.
“We also want to build on our past investment of billions to deliver cleaner beaches and rivers, by investing in further improvements and taking action such as the industry’s free drinking water initiative, which aims to cut plastic bottle use by tens of millions a year.”
Gove said the government is ready to “revisit” how it can give Ofwat stronger powers to amend licences, including through legislation, if the regulator finds water companies are “not fully and promptly” cooperating with its proposals.