Ofwat chief executive Regina Finn's relationship with the industry has become strained over the regulator's handling of "Section 13" licence modifications. Utility Week has discovered she also faces pressure internally after a staff survey revealed that nearly half (49 per cent) have no confidence in the executive team.

In Ofwat’s December 2012 staff survey only 19 per cent of the regulators employees expressed confidence in the executive team, compared with a 39 per cent civil service average. Positive responses by Ofwat employees fell by 5 per cent from last year.

One staff member said: “I now have little or no respect for a number of (executive team) members as leaders of this organisation or confidence in the direction of travel for Ofwat”.

More than half (52 per cent) of those surveyed said they did not feel that Ofwat was well managed. “Ofwat’s ineffective leadership has driven the organisation into the ground,” an employee said. Many felt that a lack of management had led to an over-reliance on consultants to ensure that projects met their deadlines.

“There is a fundamental problem with [the executive team] as a group – in that there is often a lack of clear direction about what is wanted and decision making,” an employee said.

These concerns follow calls in late 2012 from Pennon chairman Ken Harvey for change at the top of the water regulator, as he spoke out against its handling of Section 13 licence modification proposals.

Since 2011, the regulator has been locked in a battle with water companies on its plan to build more flexibility into their licence conditions, with a view to introducing competition in parts of the water sector.

Ofwat’s initial proposals were almost universally rejected by the industry, which said they created too much uncertainty for investors. The regulator, which did not appear to have anticipated the objection, made great play of talking to water company bosses and investors before producing a second proposal in October 2012. However, it still failed to come up with something the companies were comfortable with.

Following Jonson Cox’s arrival as chairman, the regulator finally made a third proposal in December that water companies appear willing to accept. Northumbrian Water this week became the first supplier to accept the proposals and others are expected to follow.

The water companies’ concerns were echoed by Ofwat employees left dissatisfied with the regulator’s strategy.

“Our strategy is muddled and seems to be driven by the desire to win a fight with the water companies rather than wanting what is best for its stakeholders,” an employee said.

“I have no idea what the real strategy is, and I have no idea how the organisation is supposed to change over time to respond to it,” said another.

Ofwat employees also hinted that the regulator’s strained relationship with water companies could be down to a lack of strategic management. An exodus of senior staff has left Ofwat reliant on consultants to fill key roles at short notice.

“[There are] not enough staff left that have previous knowledge of setting price limits,” an employee said. “This is actually a fault in Ofwat’s strategy rather than the delivery directors, we did the reorganisation too late, and should not have brought in as many delivery directors from outside.”

Another staff member said Ofwat would fail to deliver an effective challenge at price review 2014.

Staff described a breakdown in trust and leadership with the executive team and said morale is at its lowest in a decade.

“The organisation is dysfunctional. Fundamentally there is a lack of trust”, and employee said. “I think the low morale is impacting the performance of staff to deliver and I think that this is a barrier to some staff going the extra mile to ensure delivery”.

Responding to the survey Ofwat said it placed a “high priority” on investing on and engaging with staff. “We carry out an internal staff survey every year,” a spokesman said. “As with any survey, it identifies things that are going well and things which could work better – that’s why we do it. We will continue to listen to, engage and work with all our staff.”

Will Finn be able to claw back the respect of industry and staff, under Cox’s chairmanship, or is it time for her to exit? The next few weeks will be critical.

By Anthony Tshibangu