The boss of the UK’s largest water company expressed deep disappointment about Ofwat’s decision to place Thames Water in the “significant scrutiny” category in its initial assessment for PR19 business plans published today (31 January).
Speaking on BBC Radio 4’s Today programme earlier this morning Steve Robertson described what it feels like to be on the “naughty step”.
Sat alongside Ofwat’s chief executive Rachel Fletcher, Robertson said: “I’m a bit like a proud dad, we’ve got a lovely baby and we’ve just been told our baby is a bit ugly, so I am disappointed about that.”
Business presenter Dominic O’Connell suggested the business plan is not just ugly, adding “you’re going to have to cut a quarter off that baby”.
“Ofwat has said you’ve got to cut your costs by 25 per cent, can you do it?” he challenged Robertson.
The CEO of Thames admitted he is “very concerned about that”. “This plan is all about investment,” he said. Robertson referenced the car industry reducing its investment “in the context of Brexit”.
“We are one sector where we want to increase investment. Our customers have told us they prefer us to invest,” he said.
In its initial assessment of Thames Water’s business plan for 2020 to 2025, Ofwat said it welcomes the water company’s acknowledgment that “the reality that things haven’t gone as well as planned in recent years” and the fact it is making “substantial changes”.
Ofwat supports the “proposed transformation” of the way Thames Water delivers for customers.
“We have placed Thames Water in the significant scrutiny category. This categorisation is made after an in the round consideration of our assessment of Thames Water’s business plan across the nine test areas and the overall level of intervention in the plan required to protect the interests of customers,” it said.
Source: Ofwat’s PR19 initial assessment of plans:Thames Water company categorisation
The regulator outlined that while Thames Water’s plan “falls significantly short” of high quality in several areas, there are some high-quality elements to the document. It highlighted the company’s range of techniques to engage with customers as an example.
However, Ofwat is concerned with Thames Water’s costs. The regulator said: “Thames Water’s plan falls significantly short of our view of cost efficiency. Its costs are 25 per cent above our view of efficient and justified costs. Its water, wastewater and retail costs are all higher than our view on efficient costs.”
When asked what is meant by “significant scrutiny” on the Today programme, Fletcher said: “It means that there is a huge amount of work to do on those plans to meet the very high bar that we have set for the sector.
“But we have already seen three companies meet that standard – bringing down prices, delivering better service for customers and living up to commitments around executive pay and dividends. And that is something now that we are expecting all companies, including those in significant scrutiny to meet.”
She added: “We are expecting companies to make sure that they are financially resilient and have got capital structures that you would expect from delivering an essential service.”
Thames Water’s business plan, which puts forward a record £11.7 billion of investment, will have to be resubmitted to Ofwat by 1 April.
Robertson said: “We remain committed to our forward-looking plan, which prioritises investment over everything else – including shareholder dividends.”
Ofwat also placed Southern Water, Affinity Water and Hafren Dyfrdwy in the significant scrutiny category, while all the remaining companies have been categorised as “slow track”.