Link payouts to customer performance, says Ofwat

Water regulator boss hits back at "rip-off" claims

Management payouts at water companies must be linked to performance for customers, Ofwat chief executive Cathryn Ross has said.

Ross’s comments were made in a letter to the Financial Times, published today, in response to a recent article, Water privatisation looks little more than an organised rip-off.

The article examined water company finances, and particularly management payouts, concluding: “The regulator needs to look again at the generosity of its regime, and its cock-eyed governance.”

Ross hit back at the claims, writing: “The prices that customers pay are rigorously safeguarded by Ofwat through five-yearly price reviews. When determining price controls, we do not allow companies – including Thames Water – to pass on the costs of their financing arrangements beyond that of an efficient notionally-structured company.

“Far from taking ‘no interest in companies’ capital structures, as the article claims, we actively collect and analyse information on water companies to monitor their financial health and to identify any potential risks which may impact on service delivery and prove harmful to customers.”

In the letter, Ross referred to a Utility Week column by Ofwat chairman Jonson Cox, which called on Thames Water to make a number of changes including linking management rewards to customer performance.

She said Thames has “responded positively” and added that Ofwat expects other companies to follow suit: “In June, Ofwat’s Chair, Jonson Cox, publicly called on Thames Water to make a series of changes, including demonstrating that management rewards give appropriate weight to performance for customers’ as well as financial performance, and explaining transparently how those performance standards are set and assessed each year. Thames Water has now responded positively to this call, and we will be seeking changes from other companies in the same vein.”