Risk and Compliance
Statement 2013/14
Purpose of this statement
The purpose of this statement is:
• To confirm that we have complied with all our relevant statutory, licence and regulatory obligations;
• To confirm that we are taking appropriate steps to manage or mitigate the risks we face; and
• To explain any significant matters relevant to our performance in 2013/14
The statement starts with a review of our business over 2013/14 and then sets out how we manage risk and uncertainty, explains our approach to regulatory compliance and assurance and sets out our statement of compliance. It should be read alongside our Annual Performance Report for 2013/14.
Business Review
Affinity Water supplies water to around 3.6 million people in the South East of England, an area which the Secretary of State has determined to be of serious water stress. In June 2014 we published our Water Resources Management Plan. This sets out our Plan to manage our water resources over the next 25 years in the most effective and efficient manner, whilst taking responsibility for the impact we have on our local environment.
Our Plan includes our proposals to reduce our daily water abstraction over the next 5 years by 42 million litres per day (MLD) and a further 27 MLD over AMP7. This represents nearly 6% of our resource base and is necessary to reduce the environmental impact our current abstraction has on certain chalk streams and river catchments. There are very limited cost effective alternative sources of water for our supply area. We therefore plan to replace these lost water resources by reducing leakage, working with customers to reduce consumption through metering and promoting water efficiency as well as bringing in new supplies from neighbouring companies.
In December we submitted our business plan for the next regulatory period, which will run from 2015 to 2020.
Over 12,500 customers responded to our consultations and helped shape the Business Plan. Having assessed our work, Ofwat announced in April 2014 that Affinity Water’s Business Plan for 2015-2020 had achieved its highest recognition of “Enhanced” status. This means that Affinity Water can now move forward with delivering its plan.
Our financial performance in terms of operating efficiency improved again this year as we made operating efficiencies
of £7m. We are passing the benefits of efficiencies to customers, where in 2013/14 the average household bill fell by £4 in real terms. To further improve services for customers, we have invested £18m more than allowed in price limits in the first four years of the current price control period. A summary of our progress in meeting required capital expenditure outputs is appended.
Managing Risk and Uncertainty
We have an established framework for identifying, evaluating and managing the key risks we face, which we have been refreshing during the year. Strategic and operational risks are reviewed and discussed by senior management. A key aim is to foster a culture in which staff throughout the business manage all risks as part of their management of day to day operations. The Audit Committee reviews senior management’s work on risk management and reports to the Board on significant risks.
During 2014/15 we are developing our risk management processes and further integrating them into the operation and governance of our business. For 2013/14, we report in our Annual Report and Financial Statements on our risks under the key themes of:
• Economic, regulatory and political risks
• Competition and market reform risks
• Operational risks
• Financial risks
• People risks
Regulatory Compliance and Assurance
Our approach to achieving and assuring compliance with our licence and regulatory obligations is based on a sound system of internal controls and governance. Our Board and Audit Committee members carry out a range of activities to inform themselves about our compliance. During the year we appointed a Director of Regulation. This has strengthened our capabilities for monitoring regulatory compliance. The Director of Regulation is supported in discharging this responsibility by employees in the Regulation, Legal and Internal Audit teams.
We continue to employ a Reporter to scrutinise, challenge and give independent advice on the procedures we use to collect and report the information underpinning this compliance statement. As a result of the Reporter’s and
our Internal Audit Team’s scrutiny, we have identified the following areas for improvement. None of these are material risks to regulatory compliance or reporting of performance this year, but are areas we wish to address to mitigate compliance and performance risks in the longer term:
• In prior years, we identified the need to improve the accuracy of our categorisations of written
correspondence as either containing, or not containing customer complaints and whether customers’ calls were
‘unwanted’ for the purposes of the Service Incentive Mechanism (SIM). We improved guidance and training for customer service employees and reinforced our error checking processes. However, our sampling showed a higher number of erroneous categorisations than we expected. As the errors were in both directions and with no evidence of systematic bias, we concluded that there is no material effect on the SIM score. We tested this conclusion by calculating what our SIM score would have been if unwanted calls and written complaints were at the upper limit implied by our confidence
grade and found that the SIM score would not be materially changed.
• As we move to AMP6 and the new regulatory system of outcome delivery incentives (ODIs), we need to improve the consistency of reporting of certain water balance components, so that when assessing leakage ODI performance we can distinguish more clearly between leakage changes, resulting from weather and asset performance, as opposed to differences in measurement and assessment techniques. We also need to make certain improvements to reporting of supply interruptions caused by failures to warn and planned work overruns.
Regulatory Outputs
The Board has reviewed the performance of the company against the regulatory outputs set at the Final Determination for PR09 for each of the three regions of our business. We comment in the Appendix to this statement on the delivery of these outputs.
The undertaking for the Roydon and Blackford mains cleaning will not be completed by 31st March 2015. This is mainly due to a number of discolouration events in the network that have occurred during the cleaning of some strategic trunk mains. We suspended work in October 2013 so that we could fully review our network access protocols, risk assessments and method statements. We have recommenced the programme in June 2014.
Compliance Statement 2013/14
We recognise the importance of demonstrating to our customers, stakeholders and regulators that we are
meeting the statutory and regulatory obligations that apply to our activities. We have set out in this statement, and our Annual Performance Report our compliance with and performance against certain key performance indicators, legal requirements and regulatory outputs. We have also identified the risks that we are facing and the steps we are taking to manage and mitigate those risks.
In preparing this statement we have considered, in particular, our compliance with those legal and regulatory obligations for which Ofwat is the enforcement authority.
In respect of these obligations, subject to the matters set out in this statement, we confirm that:
• We have a full understanding of, and are meeting, our statutory and regulatory obligations
• We have taken steps to understand and meet our customers’ expectations
• We are satisfied that we have sufficient processes and internal systems of control to meet our obligations
• We have appropriate systems and processes in place to allow us to identify, manage and review our risks
• Where we have identified material or potentially material risks, we have set out in this statement the steps we are taking to manage and or mitigate those risks
Alongside this statement, we are publishing our Annual Performance Report and Annual Report and Financial Statements and our Regulatory Financial Statements for the year ended 31 March 2014, in which we:
• Confirm that we have sufficient financial and
management resources available to us and systems of planning and internal control for at least the next 12 months to meet our obligations as a water undertaker
• Confirm that transactions with associated companies are at arms length (except where agreed by Ofwat) with no cross subsidy occurring
• Confirm that contracts entered into with associated companies include requirements concerning the standard of service to be provided, to ensure we can meet our obligations as a water undertaker
• Confirm that if a special administration order were to be made, we would have available sufficient rights and assets (other than financial reserves) to enable a special administrator to manage the affairs, business and property of our regulated activities; and
• Explain links between the standards of performance we achieve and directors’ and senior executives’ pay
Dr.Philip Nolan Chairman
Richard Bienfait Chief Executive Officer
Appendix
Output Region Comment
Exceptional Items
Blackford and Roydon manganese
removal, cleanse 1080km mains Central In progress but delayed pending review of discolouration risks from mains cleansing. Work will recommence in June 2014
Dovercourt new reservoir and
replacement pumping station East Complete
Trunk main TP03 (5.2km) Southeast Pipeline installed and will be commissioned by Sept 2014 Trunk main TP04 (2.5km) Southeast On Target
Mains TP28 (0.9km) Southeast Output removed through change protocol Drinking Water Quality
Kings Walden improvements Central Complete
Chorleywood improvements Central Complete and undertaking discharged Blackford manganese Central Mains cleaning delayed, (see exceptional items) Roydon manganese Central New treatment works installed, mains cleaning delayed
Chertsey metaldehyde Central On Target
Egham metaldehyde Central On Target
Iver metaldehyde Central On Target
Walton metaldehyde Central On Target
North Mymms metaldehyde Central On Target Anglian import metaldehyde Central On Target Essex and Suffolk import metaldehyde Central On Target
Ardleigh metaldehyde East On Target
Combined operations security Central Project delayed due to flooding but we are confident we can meet the deadline Designated site additional req. Central On Target
Denge Water Treatment Works Southeast Complete Environmental Obligations
Biodiversity Central On Target
Fish Screens Central Project delayed due to drought – Fish screens at Sunnymead and Egham will be installed in 2014
Upper Colne investigation Central On Target
Misbourne investigation Central Options appraisal complete
Upper Ver investigation Central Investigation and options appraisal complete Mid Ver investigation Central Investigation and options appraisal complete Mid Colne and Lakes investigation Central Investigation and options appraisal complete Mid Rib investigation Central Investigation complete
Catchment management officers Central On Target Denge AMP5 National Environment
Programme Study – Phase 1 Southeast On Target Little Stour National Environment
Programme Study – Phase 1 Southeast Complete Resilience
Resilience to flooding (29 sites) Central On Target Resilience to flooding (7 sites) Southeast On Target
