Annual performance report

All companies (including small water companies) will need to submit a single, annual performance report for 2015-16 onwards to demonstrate compliance with their separate price controls. The annual performance report will include a baseline level of information. It will use audited information that can be reconciled back to statutory accounts where appropriate.

We have asked companies to publish an annual performance report because water companies’ statutory accounts are not detailed enough for us to assess their performance.  The reports should be accessible to all stakeholders so that they show how the sector is delivering for its customers, environment and wider society.

The financial components of the annual performance report are based on our existing regulatory accounts framework but widened so that all stakeholders can consistently assess companies’ relative and absolute performance.

The report does not replace the requirements for companies to develop and take ownership for their own reporting on how they are delivering for their customers.

The annual performance report should include the following information.

Section Content
1. Regulatory financial reporting A baseline level of historical cost financial information aligned to the way in which price controls (and associated regulatory performance commitments and incentives) have been set.
2. Price control and additional segmental reporting Further disaggregation of revenue and costs, to allow stakeholders to review companies’ performance against final determinations.
3. Performance summary A high-level report of the performance of the appointed business, including outcome delivery and the regulatory financial results of the regulated business. As a minimum it will include reporting on outcomes and delivery service levels and cost performance.
4. Additional regulatory information Additional financial and non-financial information, including (but not limited to), additional accounting policies, financeability statement, current cost reporting, totex analysis.

In section 4, companies are required to show totex to split by wholesale upstream services and calculate unit costs. This was previously collected on a trial basis. Following our continuing work with the regulatory accounts working group, and our early thoughts on price setting for 2019, we have slightly revised the upstream services categories for 2015-16. As each company has the flexibility to choose the cost drive it decides is the most appropriate for each service we are continuing to ask companies to publish some additional extra information separately from annual performance report on their website. This comprises:

  • a methodology statement for upstream services totex reporting
  • a commentary on significant movements in the year
  • explanations of the main factors causing changes to their costs (‘cost drivers’) for each of the upstream services they provide
  • an explanation as to why the cost drivers they have chosen are the most appropriate. Where the most appropriate cost driver information is not available we expect companies to use the next most appropriate and explain their reasoning.

Regulatory accounting

In preparing the annual performance report water companies must follow our regulatory accounting guidelines.  These help ensure that the annual performance report is prepared consistently and in line with our overall regulatory reporting framework.

We made changes to align the RAGs with the new regulatory framework, and to reflect the changes in accounting standards which companies will be implementing for their statutory and regulatory reporting from 1 April 2015. The requirements are set in accordance with condition F of companies’ licences. The revised RAGs are summarised below and are applicable for reporting periods 2015-16 onwards. Please note these were updated in October 2015 to reflect changes required by the PR14 reconciliation rulebook and further engagement with companies.

RAG 1.06 – Principles and guidelines for regulatory reporting under the ‘new UK GAAP’ regime.

This guideline sets out the basis on which companies are required to present information within the annual performance report, including the impact of GAAP changes, differences between regulatory and statutory accounts, and current cost accounting requirements,

RAG 2.05 – Guideline for the classification of costs across the price controls

This guideline covers the principles and cost drivers to be used to allocate historic cost capital and operating costs within the annual performance report.

RAG 3.08 – Guidelines for the format and disclosures for the annual performance report

This guideline sets out the format and the pro forma tables together with the associated disclosures required within the annual performance report.

RAG 4.05 – Guideline for the table definitions for the annual performance report

This guideline presents line definitions for the tables outlined in RAG 3.

RAG 5.06 – Guideline for transfer pricing

RAG 5 contains guidance on applying transfer pricing rules on transactions with associate companies, and the non-appointed business. It has been updated to reflect guidance for transactions between price control business units.