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Letters to Regulatory Directors
RD 25/04 16 December 2004 Dear Regulatory Director MONITORING PLAN 2005-10 In December 2003, we published the 'monitoring' plan information requirements for consultation and invited comments on:
We had 14 responses to the consultation, of which two had no comments or concerns about the information requirements proposed. This letter sets out the main issues raised by respondents, our main conclusions arising from the consultation and next steps. Copies of the full responses will be placed in the Ofwat library. A copy of the final reporting requirements has been sent to companies, reporters, WaterVoice Committees and respondents to the consultation. A copy of the reporting requirements has also been placed on the Ofwat website. Issues raised by responses to the consultation paper are summarised below. 1. Issue: Monitoring companies' progress A number of companies raised concerns that there may be confusion caused by the naming convention of the 'monitoring' plan. It may imply that we would be using this plan as the basis for 'monitoring' companies' performance and not our final determinations. One company raised queries on individual data lines and where we currently collected the information for monitoring purposes. Response: The purpose of this plan is for companies to provide a public description of what customers will receive for the price limits set. The plan should set out the company strategy for 2005-10 – its commitments on drinking water quality and environmental improvements, services to customers, and maintaining serviceability to customers, and prices, consistent with the final determination. As the plan should be consistent with the final determination we do not recognise that the naming convention leads to confusion. We will monitor companies' compliance with the expectations set down in our final determination through the annual June returns. The 'monitoring plan' will support this process and enable others to put the annual information into a proper context. On submission of the monitoring plan we will carry out a consistency check of the plan with the final determination. If we identify inconsistencies with the final determination we will see whether these are fully explained in the text. If not we will give the company the opportunity to revise its plan prior to placing it in the public domain. If we are unable to agree, we will append a note to the company's plan setting out our regulatory expectations. We will also copy this note to the relevant WaterVoice Committee. The June return for 2005-10 will be reviewed with companies and other stakeholders to ensure that the information we collect for the period 2005-10 is that which is necessary for Ofwat to monitor performance and compliance with our final determinations. The board overview should report on the performance of the company in delivering the main outputs set out in its final determination. 2. Issue: The proposed format Generally, respondents welcomed the proposed format, particularly the alignment to the public domain version of the companies' business plans. WaterVoice felt that the information could be better structured, with the inclusion of two additional tables and reporting in each year of the five years 2005 -10. One company also provided revised table layouts because of concerns that the proposed table layout did not make clear the distinction between output commitments which are specifically required and levels of activity or demand from customers that have been assumed for the purposes of setting price limits, but which are not of themselves output expectations. A number of companies also raised the issue of alignment of the plan with the format of the final determination. Response: Amendments have been made to reflect some of the points raised by WaterVoice and Severn Trent, including two additional tables. We have included the facility for companies to report on a year by year basis in tables 3, 4, 5 and 6. As the final determination table 1 sets out performance expectations by 2007-08 and 2009-10 we expect companies as a mandatory requirement to report on progress in 2007-08 and 2009-10. It will be for companies to decide whether to report for the intervening years. Severn Trent's concern is that it would be difficult for readers to gain a clear understanding of which data items in the tables are commitments and which are assumptions. As a minimum we require each company to submit numerical information in a series of prescribed tables. However, we do not expect the company to prepare its plan just as a series of commentaries on the prescribed tables. The plan should allow interested parties to read it as a whole, drawing on the numerical information as necessary. We therefore expect companies to draw a distinction between what is a defined output or commitment and what are assumptions. We have also highlighted as 'red text' those items which we recognise as indicative activity/output assumptions rather than defined output expectations. The data requirements have also been amended to include the outputs set out in our final determinations. 3. Range and scope of the information and whether there is any further data that is necessary to inform customers and other stakeholders. 3.1 Issue: Unnecessary data Comments centred on those data items where measures may be outside of the company's control, such as those that may be affected by the weather or third party activity. Response: We recognise that there are aspects of bathing water and river water quality compliance that are outside of the control of companies. However, historically water and sewerage companies have had key impacts on water quality. The Environment Agency report to Ofwat does explain if any failures are not due to water and sewerage company activities. We have, however, deleted the requirement on bathing waters, as performance of sewage treatment works is dealt with adequately in other lines. We also recognise that extreme weather conditions can affect the incidence of flooding, but as now, our annual monitoring will take account of this. 3.2 Issue: Service enhancements Comments related to the lack of information in the proposed plan on service enhancement outputs, such as specific projects to enhance service levels. Response: The reporting requirements for table 3 (for the water service) request that companies set out their planned performance against the DG indicators. We have amended table 3 to include an additional two lines of data that should allow companies to set out details of service enhancements which are not captured by the DG indicators. The specified data lines for the sewerage service cover the outputs required for 2005-10. 3.3 Issue: Reporting of drinking water and environment quality schemes 1. Northumbrian Water requested the inclusion of the expected schedule of agreed schemes and agreed with United Utilities that the change protocol should be included. 2. WaterVoice suggested the inclusion of blocks of data on scheme delivery against quality drivers. 3. Yorkshire Water said that tables 5 and 6 (now tables 7 and 8) merge activity for quality and maintenance. It would be more helpful to move the quality outputs to tables 3 and 4 and delete the activity for maintenance purposes. 4. The Environment Agency is developing a new Compliance Classification Scheme (CCS) for classifying non-compliance against all types of environmental permits. It believes this would provide a better compliance measure in 2005-10 than the ones included in the plan. It also states that compliance with descriptive consents should be included. In addition, the Environment Agency states its intention to work with the industry and Ofwat on the issue of compliance with volumetric flow limits in consents during 2005-10. It also states that information on sewage sludge should state whether the disposal or recovery is carried out in a satisfactory way. 5. Northumbrian Water raised the issue of monitoring consumer acceptability schemes and concerns if success were to be considered by the consideration of complaint reduction alone. Response 1. We do not consider it necessary to have the full list of projects in the monitoring plan, however companies may choose to include the list, if they wish to do so. We have published the list of quality enhancement projects (based on companies' business plans) included in the final determination for each company on our website. We will discuss company progress in delivering the work with the Drinking Water Inspectorate and the Environment Agency on an annual basis during 2005-10. Companies can explain to WaterVoice and their customers if there are significant changes to specific schemes. The change protocol has been published alongside our final determination. It will therefore not be included as part of the company monitoring plan. 2. In response to WaterVoice's suggestion that companies could report on a scheme by scheme basis against the quality drivers, we believe that this would misrepresent the amount of work and the size of the work programme that companies need to carry out during 2005-10. A scheme might meet several of the quality policy drivers. 3. The plan aims to give an overall picture of the activity and does not split into work driven by cost categories especially as many companies have taken an integrated approach to "between cost" categories. The reporting of planned activities (including for maintenance purposes) will enable WaterVoice and other stakeholders to appreciate the amount of work companies will need to carry out in order to comply with their quality obligations, maintaining serviceability and the outputs defined in our final determinations. 4. We realise that the CCS may have an impact on the methods of reporting compliance. This system is still under development and not yet at the stage where we could include it in these reporting requirements or where companies could set out their future performance against a new classification system. We may look to develop this as part of the June return during 2005-10 and also consider the reporting of descriptive consents in the June return. Compliance with volumetric flow limits is an area which as more information becomes available may require reporting in the Environment Agency annual report to Ofwat. It is not yet at the stage where we believe it would be appropriate to include it as part of these information requirements. We have made amendments to the reporting requirements to include whether the company deals with its sewage sludge in a satisfactory manner. We are not proposing to include the number of complaints in the plan. The specific outputs and effect on complaints of any consumer acceptability schemes will be a matter between companies and the DWI. It will be for the DWI to decide how these matters are recorded and reported, possibly in its annual report. 3.4 Issue: Maintenance of base service Northumbrian noted that it would be beneficial to include a list of substantive maintenance projects and the details of the agreed reporting process that will be required for notifying changes. The Environment Agency also suggested the inclusion of the number of pollution incidents as a measure of serviceability and the forecast number of drainage area plans. Response: We have included the facility in tables 3 and 5 of the reporting requirements for companies to report on substantive projects for maintaining base services. Companies may wish to set out further details of these projects in their supporting text. These 'substantive projects' should be consistent with those funded in final determinations and as set out in table 1 of each company's final determination. Progress on these projects will be monitored through the June returns and the reporting requirements will form part of the review for the June returns for 2005 - 10. We expect all companies to maintain their asset systems so that they can achieve and sustain stable serviceability – fitness for purpose – throughout the period and beyond. Pollution incidents are only one measure of serviceability. It would break from our usual approach of monitoring serviceability as a package rather than emphasising one indicator if we included pollution incidents. We do not believe it would be appropriate for companies to forecast the number of drainage area plans to be updated during 2005-10. We did not collect information from companies in the business plan on the forecast number of drainage area plans. We do however, request that companies report on drainage area plans carried out on an annual basis in the June return, as confirmation of the company's continued commitment to asset management planning, and to demonstrate that it has a programme of updating detailed drainage area plans. 3.5 Issue: Inclusion of the security of supply measure South West Water raised concerns about the inclusion of the security of supply index because they argue that it is not suited to measuring performance and because it is not at all clear what a security of supply value of less than 100 actually means. Response: We disagree. Companies' plans for security of supply should include target headroom to reflect the uncertainties attached to supply and demand in the future. Customers should be able to understand the concept of headroom, providing the company explains its planned security of supply index in an accessible way. The index is important because it reflects the company's ability to meet its commitments to supply water in a dry year without imposing demand restrictions such as hosepipe bans. 4. Issue: Whether guidance and line definitions are clear and succinct One company, Yorkshire Water, raised queries on some of the data definitions. Northumbrian Water specifically asked for guidance on reporting serviceability. Response: Data definitions in the final reporting requirements have been amended where appropriate to align with either the final business plan reporting requirements or the June return. Guidance on what to include in the text for serviceability has been provided. Companies are being asked to report their planned progress for 2007-08 and 2009-10 in tables 3 (for water services) and 5 (for sewerage services) to comply with how the outputs were defined in our final determinations. We have also included a glossary of terms as suggested by WaterVoice. Next Steps This paper sets out the main issues raised by respondents and our response. There may be matters of detail that we have not addressed in this document. If respondents wish further clarification on other points raised in their response, please write to Audrey Mason at the above address. The information capture system for the monitoring plan will be issued to companies in January 2005. Companies should submit the plan to Ofwat by no later than 7 March 2005. We would expect companies to publish their plans by no later than 7 April 2005. Yours sincerely BILL EMERY Director of Costs & Performance and Chief Engineer List of respondents Water and sewerage companies Anglian Water Services Ltd Northumbrian Water Ltd United Utilities plc Severn Trent Water Ltd South West Water Ltd Thames Water Utilities Ltd Yorkshire Water Services Ltd Water companies Bournemouth and West Hampshire Water plc Folkestone and Dover Water Ltd South Staffordshire Water plc Three Valleys Water plc Quality regulators Environment Agency Reporters and Auditors Strategic Management Consultants Organisations representing customer interests WaterVoice  |
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