Consultation on United Utilities’
statement of risks, strengths
and weaknesses 2015/16
Our 2015-20 annual
performance reporting
United Utilities’ performance reporting
Consultation on our statement of risks, strengths
and weaknesses 2015/16
About this document
The purpose of this document is to seek views on this statement which we have produced highlighting the
risks, strengths and weaknesses associated with providing performance reporting information to
customers and other stakeholders. This statement will form the foundation of our assurance plan that will
be prepared (and which we will consult on) in advance of the publication of our 2015/16 Annual
Performance Report in July 2016.
About us
United Utilities is the UK’s largest listed water company. Through its subsidiary United Utilities Water
Limited, it manages the regulated water and wastewater network in the North West of England, providing
services to around seven million people and businesses.
Achieving our vision
Our vision is to become a leading North West service provider and one of the best UK water and
wastewater companies. We will deliver this by providing the best service to customers at the lowest
sustainable cost and in a responsible manner.
Our customer promises
Our business plan is underpinned by the outcomes represented by our customer promises.
We promise to: provide great water; dispose of wastewater; give value for money; deliver a service
customers can rely on and protect and enhance the environment.
Our statement of risks, strengths and weaknesses is a key element of this document and summarises:
•
That we have understood and are responding to the requirements of Ofwat’s company
monitoring framework;
•
How our regulatory reporting assurance framework is designed to ensure that our reporting
meets our stakeholders expectations and exceeds Ofwat’s requirements;
•
Our initial assessment of the risks, strengths and weaknesses affecting our 2015/16 reporting;
and
•
The key areas where we are seeking feedback to further inform the nature and assurance of our
future reporting processes
This statement is supported by three appendices, which provide more detail on our plans and proposals.
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Consultation on our statement of risks, strengths and weaknesses 2015/16
How to respond
We welcome all views on our statement of risk, strengths and weaknesses and the assurance plans that we
are putting in place to manage these risks and are specifically seeking feedback from our North West
customers and stakeholder on:
•
•
•
•
Do you have any views on our approach to this risk assessment?
Do you have any comments on the risks, strengths and weaknesses highlighted?
What areas of our performance are most important to you?
Are there any other specific aspects of performance that you would like us to report against?
As it is our intention to ensure that we have listened to and reflected this feedback in our Final Assurance
Plan and Annual Performance Report, we would appreciate your feedback before 31st December 2015 to
us at [email protected] or you can write to us at:
Business Plan 2015-20 Consultation
United Utilities
Lingley Mere Business Park
Lingley Green Avenue
Great Sankey
Warrington WA5 3LP
Foreword from Andrea Cook, Chair of YourVoice
United Utilities’ YourVoice panel plays an integral part in monitoring, challenging and reporting on
the delivery of the company’s 2015-20 business plan commitments to customers and stakeholders as
agreed with the water regulator, Ofwat. The panel also looks at how the company can continue to
capture and strengthen the views of its customers in its activities. You can read more about the work
of the panel at unitedutilities.com/yourvoice
“I’m pleased to introduce the first customer and stakeholder consultation from United Utilities on how it
plans to report its annual performance against its business plan commitments. Myself and my YourVoice
panel colleagues are committed to our role as customer representatives, being fully independent from
UU and impartial in our views.
“We’ll be examining the proposed approach to the assurance of UU’s annual performance reporting very
closely, to make sure that the final plans reflect both our own, but also wider customer and stakeholder
feedback. We want to ensure everyone in the North West can have confidence in the progress that
United Utilities is making against its promises to the communities it serves about the water and
wastewater service it provides. I’d like to take this opportunity to urge customers and stakeholders to
send feedback on this proposal to [email protected] and the panel will ensure your views are heard.
We will do all we can to ensure we are your voice.”
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Consultation on our statement of risks, strengths and weaknesses 2015/16
Contents
Our statement of risks, strengths and weaknesses
4
Appendix 1: Our monitoring and reporting framework
11
1.1
1.2
1.3
11
13
14
Summary of the requirements of Ofwat’s company monitoring framework
Processes for complying with these requirements
Annual review timeline
Appendix 2: Our regulatory reporting assurance framework
17
2.1
2.2
2.3
2.4
2.5
2.6
2.7
17
18
21
22
24
27
30
AMP6 reporting requirements
Additional transparency and publications
Independent challenge and review
Measurement and data capture
Risk based assurance
Governance and accountability
Targeted audit and assurance
Appendix 3: Regulatory reporting of risks, strengths and weaknesses
32
3.1
3.2
3.3
32
32
34
Context
Target areas
Summary of assurance approach for targeted areas
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Consultation on our statement of risks, strengths and weaknesses 2015/16
Our statement of risks, strength and weaknesses
Background and context
In June 2015, Ofwat published its company monitoring framework for the 2015-20 period (known as
AMP6). This describes how Ofwat will oversee the information that the largest 18 largest water and
sewerage and water only companies in England and Wales provide to customers. The framework supports
Ofwat’s vision for the water sector in England and Wales where customers and wider society have trust
and confidence in vital public water and wastewater services.
The purpose of the framework is to ensure that stakeholders can rely on the information provided by
water companies and to make sure that the assurance of this information is provided in a way that can
help to build trust and confidence. There are two distinct elements to the framework; a) the data
assurance activities that companies put in place to provide accurate data and b) the wider assurance that
they provide to demonstrate that they are listening to customers and delivering services they want and can
afford.
As part of the development of the framework, Ofwat assessed companies against three categories: selfassurance, targeted assurance and prescribed assurance.
The framework requires all companies to provide explicit sign off on the assurance that has been provided;
full transparency on the audit procedures and; a summary of the outcome of the assurance that has been
carried out.
Along with 14 of the 18 water companies in the UK, we were assessed as being in the targeted assurance
category, which means that in addition to basic reporting requirements, we’re also required to carry out an
exercise with stakeholders to establish focus areas to target, and to publish a statement on this in the
Autumn of each year, prior to the provision of information.
For specific areas that this stakeholder feedback highlights, we are then required to publish a Draft
Assurance Plan and engage again with stakeholders before confirming our Final Assurance Plan.
Our approach
We fully support Ofwat’s vision for the water sector in England and Wales, where customers, the
environment and wider society have trust and confidence in vital public water and wastewater services.
We are accountable to our customers for delivering the services they need and want, at a price that they
can afford. We have engaged with over 27,000 customers and worked with our PR14 Customer Challenge
Group, now known as YourVoice, to develop a business plan for the AMP6 period (2015-20), which aims to
reflects our customers’ views and strike the appropriate balance between improving service and reducing
cost.
Our business plan was designed to be challenging, with further substantial cost and performance pressures
being added by Ofwat through the price determination process. The target service levels, expenditure
levels and resultant customer bill impacts developed through this process are set out in the Final
Determination (UU Specific appendix ), which was published by Ofwat in December 2014.
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All water companies in the UK and Wales will report on their financial and operational performance against
this determination, in a new annual performance report in July each year, beginning in July 2016. This
report will include information that specifically responds to feedback from our customers and
stakeholders, together with information that is designed to be comparative across the sector.
We believe that reliable measurement, assurance and transparent reporting of our performance is
essential to maintain the confidence of our customers, investors, stakeholders and regulators and to
support the objectives of Ofwat’s company monitoring framework.
This statement summarises how we will ensure that the data assurance activities that we have put in place
provide reliable, accurate and complete data and that the wider review and assurance activities that we
undertake allow us to effectively demonstrate that we are listening to customers and delivering the
services that they want and can afford.
Our approach to the monitoring and reporting framework 1
We have adopted an approach to ensure that we meet the requirements of Ofwat’s AMP6 company
monitoring framework. The process is designed to ensure that our Board is provided with robust data in a
timely manner that it requires to explicitly sign off the assurance of our data and also to ensure that we will
consult effectively with our customers and other stakeholders on the content and format of our reporting.
We have established a new annual review cycle, involving the participation of our new customer forum,
the YourVoice panel, designed to listen to and incorporate the feedback and priorities of our customers
and other stakeholders.
When mature, the publication of the new annual performance report will be both the start and finish of
this annual reporting cycle. This will allow lessons learnt from the last report to be assessed effectively,
new risks to be identified and managed, and a continual improvement cycle to be established.
As 2015/16 is the first year in the AMP6 cycle and the planned review process is not yet fully established,
the approach adopted for the first year of the AMP, 2015/16 will vary slightly from subsequent years.
We have already engaged with the YourVoice panel and have agreed an approach for obtaining its
feedback and guidance on the nature of our reporting and on the assurance of the data on which it is
based. The views from the YourVoice panel 2, together with the feedback that we receive from our
customers and other stakeholders, will be used to develop our Final Assurance Plan and to influence the
coverage and format of our 2015/16 Annual Performance Report.
Our approach to assurance of our data and reporting 3
Coverage of our reports
Our annual performance report will cover key information to demonstrate how we are complying with our
regulatory and statutory obligations, and to track our performance against the delivery of our AMP6
business plan commitments 4.
See appendix 1
See appendix 2 section 2.3
3
See appendix 2
4
See appendix 2 section 2.1
1
2
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Transparency and publications
In addition to publishing the base information set out by Ofwat in our annual performance report, we will
also provide appropriate additional commentary to enable customers, investors and other stakeholders to
interpret the information within the report effectively, and to analyse our relative and absolute
performance.
We will also continue to provide additional, wide-ranging and specifically tailored reporting of our
performance and are actively seeking to further enhance the transparency of the underlying information
and messaging to customers and other stakeholders 5.
Independent challenge and review
A key part of the role of the YourVoice panel is to provide additional independent review and assurance of
our data. Minutes of the panel’s quarterly meetings will be shared with our Board, with the YourVoice
Chair attending a Board meeting at least annually. At this meeting, the Chair will discuss the panel’s
independent report and outline the findings of its review and challenge processes 6. YourVoice also has a
key role in ensuring that we are listening to customers and delivering services they want and can afford.
Measurement and data capture
The details of some elements of our business plan, such as outcome performance commitments, the
associated measures-of-success and delivery incentives can appear complex. To help clarify, we have
developed a series of detailed definition documents that explain how the outcomes, commitments,
measures and incentive (where applicable) all work together. These documents will be published on our
web site.
We have also set out clear, formal accountability for our financial and operational performance
information. Data that is required to support our regulatory reporting is measured and assured through a
robust and clearly documented process. Performance against our AMP6 commitments is actively
monitored, challenged and managed on an ongoing basis 7.
Risk based assurance processes
We already apply a structured risk assessment approach to underpin the assurance process supporting our
regulatory reporting. This is designed to ensure that any potential reporting risks are identified and
escalated appropriately. This approach has been refreshed to ensure that it complies with good practice
and covers all aspects of the company monitoring framework.
Our risk assessment process is used to determine the specific governance and assurance arrangements
that are applied to each part of our regulatory reporting. It is also used to ensure that any identified risks
are being actively monitored, with mitigating actions designed to address these risks being effectively
managed 8.
Governance and accountability
We are committed to the very highest standards of corporate governance and during the financial year
ending 31 March 2015, we have fully complied with the principles and the spirit of the UK Corporate
Governance Code and proactively published a long term viability statement.
See appendix 2 section 2.2
See appendix 2 section 2.3
7
See appendix 2 section 2.4
8
See appendix 2 section 2.5
5
6
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We have also already adopted the principles of transparent reporting. United Utilities Group PLC Annual
Report and Financial Statements for the year ended 31 March 2015 was prepared in accordance with the
principles published by the International Integrated Reporting Council in December 2013. In recognition of
this, the report has been awarded the Building Public Trust award for Reporting Excellence.
Our Board is directly accountable for the quality and transparency of the information that we provide on
our performance. To support this we have established comprehensive governance and accountability
regimes, which fully comply with our statutory and regulatory requirements 9.
Audit and assurance
The approach we are taking to audit and assure our data and reporting during AMP6 will continue to be
based upon the ‘Three lines of defence’ approach that we have successfully used for our AMP5 (2010-15)
regulatory reporting. This will ensure that we can effectively control, monitor and continually enhance the
governance and assurance of our regulatory data.
For the AMP6 period, our performance and reporting will be also reviewed and challenged by the
YourVoice panel. This review will now form an additional part of the third line of defence, with its findings
being presented to our Board, alongside the findings of our Corporate Audit team and the external
technical and financial auditors 10.
Risks, strengths and weaknesses in our reporting 11
We have used our risk assessment and assurance approach to determine the areas of greatest potential
risk to our 2015/16 Regulatory Reporting. This review has confirmed that our established systems of
governance and control are effective in identifying and managing reporting of risk levels. The risks
identified through this process have therefore generally been as a result of external changes in reporting
requirements as we make the transition from a reporting regime designed for AMP5 (2010-15) to a new
one for AMP6; and from internal change to processes, controls or information systems, as we change our
business to better address the future challenges and changes in the water industry.
The key target areas identified through this review are summarised below 12. Further details of the risk
assessment process, the feedback from this consultation, and our proposals to manage these potential risk
areas, will be covered in our Draft Assurance Plan 2015/16 which will be published in December 2015.
1.
Outcome delivery incentives (ODIs) (new requirement)
In preparation for AMP6 the new outcome delivery incentive performance data was incorporated into
2014/15 business score cards and regulatory reporting at month six, month nine and at year-end. This
entailed a review of the end to end ODI reporting process (including definition documents, methodologies,
data and performance and commitment statements) to allow us to understand our preparedness for
reporting the information in AMP6.
This process has allowed us to be well placed for our 2015/16 reporting. However, the reporting of our
ODIs will remain a high profile issue and we will set out details of the assurance we are applying to our
ODIs in our Draft and Final Assurance Plans.
See appendix 2 section 2.6
See appendix 2 section 2.7
11
See appendix 3
12
See appendix 3
9
10
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Consultation on our statement of risks, strengths and weaknesses 2015/16
2.
Price review and segmental reporting (new requirement)
The 2015/16 Annual Performance Report will require our income and expenditure to be reported
separately against each price control and accounting units. We have recently taken steps to allow us to
more effectively capture and report our costs in this way. There are some areas where the rules for
separating such costs are still to be fully defined and it would appear that different companies are
allocating costs to different accounting units in different ways. We need to allow customers and
stakeholders to look at our performance and compare it meaningfully with that of other companies; more
work will be required across the industry to achieve this.
3.
Prediction of future performance levels (new requirement)
The annual performance report will require companies to report actual performance and expenditure for
the report year under review and in some areas to also predict future performance levels for the
remainder of the AMP6 period. This predicted information will clearly be subject to greater uncertainty
than the historic data.
4.
Profile of water quality performance (changed expectations)
During the year we have experienced two major incidents one at the Sweetloves Water Treatment Works
in Bolton, Greater Manchester and one at the Franklaw Water Treatment Works, in Lancashire. These
incidents resulted in a loss of water supply (Bolton) and in customers needing to boil their water (both
Bolton and Franklaw).
As a consequence of these issues, we recognise that there is likely to be greater scrutiny on our ability to
provide great water; customers and stakeholders are likely to be more sensitive to our performance
around water supply and quality.
5.
Business retail market reform (new requirement)
Accountability for reporting of billing contacts, written complaints and associated guaranteed service
standards (GSS) transferred from Domestic Retail to Wholesale and/or Business Retail during 2014/15.
This transfer of responsibilities helps to set clear separation of accountabilities as we prepare for market
reform in 2017.
This preparation for market reform has also involved the implementation of a new non-household
customer management and billing system, Mecoms. With business process and systems changes such as
this comes inherent risk, and the business has worked hard to mitigate initial teething problems related to
the implementation of the new systems. We continue to closely monitor the situation to ensure the
changes we have made are robust and fit for the future, allowing us to deliver on our promises to both
household and non-household customers.
Summary of our assurance plans
We have used our risk assessment approach to target the assurance activities that will apply to our annual
performance report. All areas of the report will be subject to a structured three lines of defence
governance process 13 with internal in-year review processes being applied to the targeted areas and the
reported data being subject to detailed third party audit processes.
13
See appendix 3.3
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Further details
We have published three appendices to support this statement:
Appendix 1: Our monitoring and reporting framework – sets out the requirements and expectations of
Ofwat’s AMP6 (2015-20) company monitoring framework; the processes that we are putting in place to
meet these requirements and the timeline that we are adopting to develop, consult on and publish the
regulatory performance and assurance reports that form part of the framework.
Appendix 2: Our regulatory reporting assurance framework – sets out the assurance activities that we
have put in place to provide reliable, accurate and complete data, together with the wider assurance
activities that we are undertaking to ensure that we incorporate our customers and other stakeholders’
views and continue to deliver the services that they want and can afford.
Appendix 3: Regulatory reporting of risks, strengths and weaknesses – sets out a summary of the risks,
strengths and weaknesses that have been identified through our assurance and consultation processes for
our 2015/16 reporting cycle and summarises the actions that we are putting in place to manage these
risks.
Next steps and feedback
This statement of risks, strengths and weaknesses identifies the target areas that we are planning to focus
on in our 2015/16 regulatory reporting processes.
We will be providing more detail of our plans to ensure that these risks are adequately and transparently
managed, in a Draft Assurance Plan 2015/16. This plan will be published in December 2015 and will
include:
•
•
•
•
•
•
Conclusions of the initial feedback on this statement and demonstration of how this feedback
has been incorporated within the Draft Assurance Plan
Details of the risk assessment process that has informed the assurance plan
Conclusions from the risk assessment of a) the 2014/15 reporting process and b) our ongoing
internal reviews of our regulatory reporting, highlighting any changes in risk levels for 2015/16
compared to those in previous years
Key assumptions and any caveats affecting this year’s (2015/16) reporting
Details of the proposed initiatives and action plans that we are implementing to manage or
mitigate these target risk areas
Details the proposed governance and assurance process that we are implementing to ensure
customers can have confidence in our reporting.
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Following consultation on the Draft Assurance Plan, we will publish a Final Assurance Plan 2015/16. This
plan will be published before the end of the financial year and in advance of the reporting cycle and will
include:
•
•
•
•
Revisions to the risk assessment identified as a result of the internal nine month regulatory
reporting exercise
Summary of the stakeholder feedback and a demonstration of how this feedback has influenced
our Final Assurance Plan
A summary of the overall assurance approach that we will apply to our 2015/16 regulatory
reporting
Details of the specific activities that we are undertaking to manage the potentially higher risk
areas.
We believe that it is important that our customers and stakeholders have trust in the information that we
publish and that there is transparency of our reporting process. We are also keen to ensure that our
publications provide the information that our customers and stakeholders want, and is in a format that
they will appreciate.
We are seeking views and comments on the proposals outlined in this statement and supporting
appendices. The results of this feedback will be used to support the development of our assurance plans
and also to support the development of our first AMP6 annual performance report, which will be published
in July 2016.
You can find out more about how to send your feedback on this statement at the front of this document.
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Appendix 1: Our monitoring and reporting framework
This appendix to our statement of risk, strengths and weaknesses 2015/16 sets out the requirements
and expectations of Ofwat’s AMP6 company monitoring framework; the process that we are putting in
place to meet these requirements and the timeline that we are adopting to develop, consult on and
publish the regulatory performance and assurance reports that form part of the framework.
1.1
Summary of the requirements of Ofwat’s monitoring framework
In June 2015, Ofwat published its company monitoring framework for the 2015-20 period, which describes
how it will oversee the information that the largest 18 largest water and sewerage and water only
companies in England and Wales provide to customers. Under this framework each company has been
assigned to one of three categories, implying a different confidence rating and assurance requirements.
The categorisation and assurance requirements for each of these categories is set out in figure 1.1 below.
Figure 1.1 Ofwat’s monitoring framework – categorisation and assurance requirements
Assurance
Category
Assessment and assurance requirements
Selfassurance
Alongside each set of information they provide, the Boards of these
water companies must provide:
• explicit sign off on the assurance that they are providing;
• full transparency on the audit procedures; and
a summary of the outcome of the assurance that their company has
carried out
Targeted
assurance
Companies, in conversation with their stakeholders, are best placed to
identify where the risks, strengths and weaknesses arise in providing
the quality of information that stakeholders want and will trust.
In addition to meeting the requirements for the self-assurance
category, companies in the targeted category are required to:
• carry out an exercise with stakeholders to target issues to
address; and
• publish a statement on this in the autumn of each year in
advance of submitting information.
Company categorisation
South West Water
Affinity Water
Anglian Water, Bristol Water, Dwr
Cymru, Northumbrian Water,
Portsmouth Water, Severn Trent
Water, South East Water, South
Staffordshire Water, Southern
Water, Sutton & East Surrey Water,
Thames Water, United Utilities
Water, Wessex Water, Yorkshire
Water
For issues a company targets, they are required to publish Draft
Assurance Plans and speak with and listen to stakeholders before
confirming final plans, but only in these targeted areas
Prescribed
assurance
In addition to meeting the requirements of self-assurance and targeted
categories, companies in the prescribed category are required to
publish their assurance plans for all information in advance of
reporting. This is so that stakeholders (including Ofwat) can gain
confidence and if necessary provide comments or guidance that the
company would need to respond to.
Dee Valley Water
The risks, strengths and weaknesses exercise that a prescribed
company carries out with stakeholders will highlight the areas of
reporting that have the most significance or are of greatest risk to
customers. For these areas the company will need to incorporate
independent external assurance as part of its assurance plans.
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Ofwat made its initial assessment in February 2014 against companies’ performance within the 2014 price
review process, and against the broader regulatory framework. This was used to determine its overall level
of confidence in each water company’s ability to deliver, monitor and report their performance.
The assessment was based on the following considerations:
•
the overall quality of companies’ PR14 business plans;
•
the adequacy of companies’ subsequent assurance over PR14 business plan
•
revisions, and quality of supporting data;
•
the robustness of companies’ proposed arrangements for monitoring;
•
reporting and assurance of their outcomes to customers and stakeholders;
•
companies’ regulatory accounts;
•
the appropriateness of companies’ draft charges for 2015-16;
•
whether companies have needed to pursue formal enforcement action to investigate or secure
companies’ compliance against their existing obligations; and
•
whether companies have put in place arrangements to meet Ofwat’s principles of Board
leadership, transparency and corporate governance
Observations on the PR14 process were given the greatest weighting for the initial assessment due to the
timing of the assessment and the significance of the price review process.
The initial assessment of United Utilities placed us in the targeted assurance category, along with the
majority of the other UK water companies (see figure 1.1 above).
Details of the initial categorisation are set out in Ofwat’s company monitoring framework – initial
assessment.
As part of the company monitoring framework, Ofwat requires all targeted or prescribed companies to
undertake the activities set out in Figure 1.2 below.
Figure 1.2: Specified annual assurance processes
Activity
Engagement on risks
strengths and
weaknesses exercise
Description
Companies proactively engage to give stakeholders the opportunity to provide input to the
exercise
Publish risks, strengths
and weaknesses
statement
Companies complete and publish statements on their risks, strengths and weaknesses
exercise. They need to publish this before they can publish Draft Assurance Plans.
Companies must consider how they can effectively engage with stakeholders on assurance
plans when deciding on the timing of publication.
All statements must be published well in advance of the 30 November
Publish Draft
Assurance Plans
Engagement on
assurance plans
Revises categorisation
on website
Companies publish Draft Assurance Plans. They must consider how they will be able engage
stakeholders before publishing final plans when deciding on the timing.
Companies proactively engage to stakeholders the opportunity to provide comments on
assurance plans.
By 30 November, Ofwat will revise the categorisation.
This will follow the publication of the statement on risks, strengths and weaknesses for each of
the companies in the targeted category.
The first time that companies will be able to move from the targeted category to the selfassurance category will be 2016.
Companies publish Final Assurance Plans, providing responses to any comments they have
received
Publish Final
Assurance Plans
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1.2
Processes for complying with these requirements
The process that is being adopted to comply with the requirements of the company monitoring
framework, is illustrated in Figure 1.3 below.
Figure 1.3: AMP6 risk assessment and assurance process - overview
Regulatory information,
assurance & audit
outcomes from previous
reporting year
Assurance and risk
reduction activity
Risk assessment and
consultation
Targeted assurance
requirements
Final Assurance Plan
Stakeholder consultation
Ofwat reviews and
re-assesses
company
assurance category
Draft Assurance Plan
This diagram illustrates that published regulatory data and information, together with key supporting
information, will be subject to a structured risk assessment and consultation process.
The results of this risk assessment process are fed into the company’s risk management process, to ensure
that actions are initiated to reduce, manage or mitigate any identified risks. The risk assessment is also
used to inform the risk based governance and assurance plans for both the in-year and year-end regulatory
reporting processes.
Additionally we will now also be using the output from this risk assessment review to allow us to develop
and publish a new, annual statement of risks, strengths and weaknesses (this document) followed by a
Draft Assurance Plan.
Both these documents will be subject to consultation with our customers and other stakeholders, with the
new statement of risks, strengths and weaknesses forming the basis of Ofwat’s annual review of our
assurance category.
The feedback from this consultation will be used to ensure that our assurance activities are proportionate
and properly targeted.
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1.3
Annual review timeline
Overview of the annual timeline
We have established a new annual review process, to allow us to meet the requirements and expectations
of the company monitoring framework. This process involves the active participation of our new customer
forum the YourVoice panel 14.
When mature, the publication of our new annual performance report will be both the start and the finish
of this process. This will allows lessons learnt from the last report to be assessed effectively, new risks to
be identified and managed and a continual improvement cycle to be established. However, as 2015/16 is
the first year in the AMP6 cycle and the planned review process is not yet fully established, the approach
adopted for 2015/16 will vary slightly from subsequent years.
Figure 1.4 below illustrates the timing of the key steps in the annual review process that will be adopted
following the development and publication of the 2015/16 Annual Performance Report in July 2016.
Figure 1.4: AMP6 risk assessment and assurance process timeline – from 2016/17 onwards
Key steps in the process
Publish annual performance report - This new report will include the key information specified by Ofwat
to demonstrate how we are performing against our PR14 regulatory contract obligations and to track
delivery of commitments. It will also contain additional information to provide an appropriate context and
greater transparency on the reported performance levels.
Alongside our annual performance report, our Board will provide explicit sign off on the assurance that it is
providing, a summary of the audit procedures that have been followed and a summary of the outcome of
the assurance that we have carried out.
Specific engagement on risks strengths and weaknesses - We will work closely with the YourVoice panel
and undertake specific engagement with other key stakeholders, following the publication of each year’s
annual performance report. This work will identify any areas where we can introduce appropriate changes
to further improve the reliability or presentation of our assurance and reporting process.
14
See appendix 2 section 2.3
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Publish targeted areas assessment - Any areas targeted through this review process will be reflected in the
annual statement of risk, strengths and weaknesses in our regulatory reporting, which will be published
each October.
Ofwat publishes assurance categories 30/11/15 - Following the publication of our statement on risks,
strengths and weaknesses, Ofwat will review its assurance categorisation of the company. This review will
be published on the Ofwat website by 30 November each year, although the first time that companies will
be able to move category will be 2016.
Publish Draft Assurance Plan for targeted areas - The output from our review of risks strengths and
weaknesses, will be used along with any feedback from Ofwat to develop a Draft Assurance Plan. This will
provide an overview of the assurance that we are proposing to adopt for our regulatory reporting and
more detail of the assurance being applied to the targeted areas identified within the statement of risks
strengths and weaknesses. The Draft Assurance Plan will be published each December.
Specific engagement on assurance plans – Following the publication of the Draft Assurance Plan, we will
continue to engage with the YourVoice panel and engage with customers and other stakeholders on the
key areas to be addressed within of the Final Assurance Plan, and the nature and coverage of the following
year’s annual performance report.
Publish Final Assurance Plan for targeted areas – The feedback together with the results of the ongoing
risk assessment and assurance activity will be used to complete the Final Assurance Plan, which will then
be used to ensure that our risk based annual assurance exercises are proportionate and appropriately
targeted.
Ongoing and year-end risk, assurance and regulatory reporting – The detailed processes for developing,
reporting and assuring the information and presentation of our regulatory reporting are set out in
appendix 2 of this document.
Variation to this process for the current financial year
Figure 1.5 below illustrates the revision to the process that is being adopted for the current financial year.
Figure 1.5: AMP6 risk assessment and assurance process timeline – 2015/16 only
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For the current financial year, we do not have a previous annual performance report to use as the basis for
the review process. Although we have also recently established the new YourVoice panel and have
discussed the requirements of the company monitoring framework with the panel, we have not been able
to undertake the depth of review which will be able to be undertake in subsequent years.
We have therefore predominantly undertaken our assessment of risks, strengths and weakness in our
reporting based upon: feedback from the PR14 Customers Challenge Group (the predecessor of the new
YourVoice panel) and other stakeholders in developing our PR14 business plan submission; feedback we
have obtained from customers and other stakeholders following the business plan submission and on the
risks identified in undertaking a trial run of the new annual reporting data as part of the 2014/15 reporting
cycle.
We have, however, agreed with the YourVoice panel a process for obtaining their feedback and guidance
on the nature of our reporting and on the assurance of the data within this reporting. This feedback will be
used to develop our Final Assurance Plan and the coverage and format of our 2015/16 Annual Performance
Report.
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Appendix 2: Our regulatory reporting assurance framework
This appendix to our statement of risk strengths and weaknesses 2015/16 sets out the assurance
activities that we have put in place to provide reliable, accurate and complete data, together with the
wider assurance activities that we have established to ensure that we can take account of our customers
and other stakeholders’ views and continue to deliver the services that they want and can afford.
2.1
AMP6 reporting requirements
For the AMP6 period, all UK water companies will report on their financial and operational performance in
a new annual performance report 15. This report will include information that is specific to our customers
and stakeholders together with information that is designed to be comparative across the sector.
The annual performance report will cover key information to demonstrate how we are complying with our
statutory and regulatory obligations and to track our performance and delivery of our PR14 business plan
commitments.
The report will be structured into four main areas. These areas and the intended coverage and purpose of
the reporting in these areas is set out in Figure 2.1 below:
Figure 2.1: Regulatory reporting risk assessment scoring criteria
Area
Coverage and purpose
2. Price control and
additional segmental
reporting
3. Performance summary
Further disaggregation (i.e. separation) of revenue and costs, to
allow stakeholders to review companies’ performance against
final determinations.
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.
Additional financial and non-financial information, including (but
not limited to), additional accounting policies, financeability
statement, current cost reporting, Totex analysis.
1. Regulatory financial
reporting
4. Additional regulatory
information
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
The more detailed coverage of the annual performance report is shown in Figure 2.2 below, with a link to
the tables available via the footnote below.
15
Ofwat regulatory reporting proforma tables, 11 February 2015
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Figure 2.2: Ofwat’s new regulatory report structure
AMP6 annual
performance report
Risk and compliance
statement
2.2
Section 1 Regulatory
financial reporting
Section 2 Price
review and other
segmental reporting
Section 3
Performance
summary
Common outcomes
(3a)
Section 4 Additional
regulatory
information
Households and
volumes (4b)
Statutory obligations
Income
Income and cap
contributions
Licence conditions
Financial position
Expenditure
Totex (4c)
Regulatory
obligations
Cash flow
Fixed asset analysis
Regulatory capital
value (4d)
Debt
Revenues and
charges
Additional transparency and publications
Approach
In addition to publishing the minimum information requirements set out by Ofwat and described in section
2.1 above, we are committed to providing regular and transparent reporting on our performance against
each measure of success, and to updating customers and other stakeholders on delivery against our
Totex 16 baselines, performance commitments and customer promises.
We will use a broad range of communications channels to communicate with our customers, with the
information in our annual performance report, made available in an engaging manner, via our web site.
We will provide a summary of overall company performance covering all aspects of the new annual
performance report. Although the focus will be on the current year’s performance, the report will also set
out information about the accumulation of any potential penalties and rewards resulting from the
company’s outcome delivery incentives package (i.e. performance based rewards or penalties), or relative
performance against the final determination Totex expectations and baselines.
A detailed supporting commentary will also be provided for customers, including the most relevant
background information and will reflect the detailed review of our performance that some of our
stakeholders may seek to undertake.
16
Totex is a combination of our capital and operating expenditure
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The style, coverage and format of these performance reports will be agreed with the YourVoice panel, who
will also review and challenge the data and supporting commentary that we include in the reports to help
to ensure that the information is a fair reflection of our performance.
The relevant sections of the performance data will also be incorporated within our United Utilities Group
PLC Annual Report and Financial Statements (published in June), and our online Corporate Responsibility
Report updates (appearing quarterly).
In addition to these specific and formalised reporting cycles, we will continue to provide a comprehensive
range of other customer and stakeholder communications. Listed below are four communication activities
we will undertake in AMP6 to communicate performance to stakeholders.
a.
Online performance report
Our existing performance report is designed to provide a balanced high level overview of the company’s
performance against a suite of common AMP5 key performance indicators. In its place we will develop
new engaging and interactive online reporting format to allow customers to access the information
contained within the new annual performance report in a compelling and attractive format.
Supporting commentary will highlight where performance targets have either been met, exceeded or have
not been achieved and will explain some of the key decisions and trade-offs that we have made in the year.
The information will also set out our proposed plans and anticipated performance and expenditure levels
for the remainder of the 2015-20 period.
The financial impact of our performance and expenditure levels through the Totex and outcome delivery
incentive schemes will be highlighted in the commentary, along with any additional costs which have
arisen in the period. Our annual performance report would be published each July on our corporate
website.
b.
Supporting definition-of-terms
We will provide more detailed definition and explanation of our AMP6 measures of success at two main
levels.
We will develop a simple but engaging format to depict and explain each of the AMP6 measures of success
and outcomes. This information will be published on our customer-facing website and would act as a
route into our annual performance report and supporting information.
In addition, we will publish detailed technical documents to clarify the coverage and detail behind our
performance commitments, and any outcome delivery incentives, associated with these performance
commitments.
These documents will reflect information published in the PR14 final determination and provide greater
detail on the purpose, coverage and incentive regimes associated with each measure.
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c.
Additional regulatory publications and communications
To allow the YourVoice panel to review and challenge our performance and to review and scrutinise our
reporting effectively, we will provide it with detailed and regular updates on performance. We will provide
actual performance levels against targets at least quarterly, and will clearly indicate the current and
predicted future performance levels relative to expectations and ODI parameters.
We also provide Ofwat with a copy of the 2015/16 Annual Performance Report with specific additional
commentary to describe our performance against any non-green measures and would discuss any material
risks or issues with Ofwat ahead of publication of the report and provide any other information as
requested.
We will also work with our other regulators, such as the Environment Agency, Drinking Water Inspectorate,
Consumer Council for Water, Public Health England and the Health and Safety Executive, continuing with
our programme of regular liaison meetings and providing all relevant regulatory data, as and when
required.
d.
Additional customer communication channels
We will continue to use both new and existing communications channels to share and seek feedback on
our performance with our customers and stakeholders. We recognise that one size does not fit all when it
comes to communication, so there will be a range of tailored communications activities targeted at our
North West audiences, to ensure that we are as transparent as possible about our progress against our
promises.
Alongside our dedicated web pages highlighting annual performance reporting, our communications
strategy will engage both customers and stakeholders. In preparation for AMP6, we put in place a new
stakeholder engagement team, whose role is to work across a specific patch, to coordinate engagement
about our activities in that area. In addition, we have a customer communications team who support by
creating materials which help promote understanding of the projects that are underway, and offer
opportunities to give regular feedback as we deliver our plans.
We will continue to run campaigns such as ‘Great Value’, which uses an experiential approach to focus on
one-to-one engagement with customers about ‘what do you get for your money?’ We will use this as an
opportunity to help customers understand their water bill, and importantly, be reassured about how we
spend money on their behalf by sharing our performance reporting.
Being able to help our customers link paying their water bill to our annual performance is a vital part of our
communications over coming years. We’ll also use the activity of our external affairs team to engage with
our local MPs, local authorities, key media and influential bloggers to give added cut-through for our
communication on outcome delivery performance.
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2.3
Independent challenge and review
Approach
To ensure that our reporting is independently challenged we have established a new independent
stakeholder forum called: the YourVoice panel. This forum builds upon the work of the Customer
Challenge Group (CCG) established to support the development of our PR14 business plan submissions.
The forum now has increased representation for the “voice of the customer” and will both monitor and
challenge us on the delivery of our business plan, review and assure our reporting and scrutinise our
customer engagement on the development of future business plans.
Role of the YourVoice panel
As described in section 1 of appendix 1 to our statement of risks, strengths and weaknesses, we will
provide the panel with regular updates on our performance against each of our performance
commitments. We would also review and discuss potential actions the company has taken or is planning
to take to deliver the current or target performance levels, together with the impacts that these actions
could have upon potential financial penalties and rewards.
This forum provides the ideal opportunity to have detailed and transparent reviews of the risks, issues and
opportunities facing the company with customer representatives and to have open and honest two way
conversations with them to help to ensure that our plans reflect our customers’ views and that we
continue to deliver the services that we promised.
We will work with the YourVoice panel to ensure that we provide information for customers and
stakeholders that is reliable, timely, appropriate to the audience, and that we are seen to be transparent
with customers and stakeholders about the data assurance that we have put in place. This work will also
ensure that the information that we publish is transparent, easy to understand and navigate, and is
relevant to and provides an appropriate context for the audience which it is aimed at.
We will also work with the YourVoice panel to help to tailor the type and extent of engagement to each
particular type of stakeholder and ensure that we are timely in carrying out this engagement. We will also
seek to target our review of specific or more specialist issues with relevant stakeholder groups, to ensure
that we can get effective and representative feedback and ensure that any decisions that we make as a
result of this feedback are made on the basis of what is in all our customers’ best interests.
The terms of reference of YourVoice are:
•
Quarterly meetings, providing quarterly minutes to the United Utilities Water Board
•
Chair to attend our Board meeting annually
•
Review progress against AMP6 performance commitments, including contractual rewards and
penalties, and to challenge the company to continue to deliver to plan
•
Advise and challenge us on how to deal with the financial impact of over- or under-performance
against outcome commitments
•
Review of our annual assessment of risks, strengths and weaknesses in its reporting against
each measure of success
•
Advise on the timing and sharing of cost of new obligations with customers
•
Provide a forum for supporting on-going engagement activities, helping to develop and monitor
customer research and providing constructive feedback of business-as-usual activities
•
Contributing to the design and presentation of new performance reports (content and format),
to be used to inform customers of progress against outcome commitments, during AMP6
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•
Provide a forum for engagement concerning plans for business transformation, such as the
preparation for market reform of non-household retail supply and service.
These terms of reference are likely to evolve through the AMP6 period, to directly reflect the changing
requirements of the panel, as we move towards the next price review process.
Nature and make-up of the YourVoice panel
The membership of this group and how this compares with the previous Customer Challenge Group is set
out below:
As previous CCG: Citizens Advice Bureau; Confederation of British Industry; Chamber of Commerce;
Consumer Council for Water; Health Protection England; Natural England; The Rivers Trust, The
Environment Agency
New membership: National Farmers Union, Federation of Small Businesses
The panel intend to invite a representative of the Local Government Association to meetings as
appropriate, review representation from the charities sector and to continue to review membership on a
six monthly basis to make sure the balance is right.
Board engagement
A key part of the role of the YourVoice panel is to provide additional independent review and assurance of
our data. Minutes of the panel’s quarterly meetings will be shared with our Board, with the YourVoice
Chair attending a Board meeting at least annually. At this meeting, the Chair will discuss the panel’s
independent report and outline the findings of its review and challenge processes, which will aid the
Board’s decision to approve the new annual performance report.
2.4
Measurement and data capture
Figure 2.3: Hierarchy of data for
performance management and reporting
Approach
The outcomes and associated measures of
success that form the basis for the AMP6
determination were derived from our
statutory and regulatory obligations and
reflected the preferences of our customers.
As a result of this approach, the majority of
the data required to report on the delivery
of our commitments is a subset of routine
and often longstanding operational and
management data that is directly used to support and direct key business activities.
We have also recently established a centralised reporting function, with accountability for both assuring
the quality of the data and for providing a single source of management information which can be used
throughout the business.
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Accountability for performance delivery
The accountability for operational and regulatory reporting sits with the relevant business units
responsible for the day-to-day management of the associated processes. Scorecards are used by business
areas to monitor performance against the regulatory measures supplemented by, and informed by,
relevant operational measures. The scorecards are hierarchical and are rolled down within the relevant
business area so that specific targets can be set, measured and if necessary appropriate management
action can be taken if any issues are identified.
A significant proportion of the information required for reporting is already captured within and reported
from corporate systems. The process by which we will capture and report data is defined in a suite of
methodology statements. These documents set out the systems used to capture and report data, role
accountabilities, processes used to analyse and calculate the resultant performance levels and the key
process controls, and checks that assure the resulting data.
These methodologies, together with the data collected and our assessment of performance targets and
compliance with key process controls forms the basis of the routine and reactive review. Any risks or
issues identified are escalated within the business for action.
Effective utilisation of information technology
To ensure the quality, reliability and robustness of our operational and management information and to
support the move to a new and more proactive data led operating model, we are currently undertaking a
major business change programme. As part of this programme we have significantly enhanced many of our
core data systems and have recently established a new, integrated control centre (ICC). The ICC is a central
team with accountability for all key Wholesale operational performance data, bringing together and
analysing the information input to and contained within the related corporate or other data systems. They
are also accountable for validating the data and providing the management information required to
populate all levels of business scorecards and support the decision making process.
This process ensures that data is collected and obtained at a single source, that there is clear accountability
for the population, analysis and provision of data and information and that the same data can be used
consistently, both internally within the business and for external publications and reporting.
Detailed data capture and measurement processes
We have created a series of detailed definition documents to summarise the process by which we capture
the data and calculate the resultant performance levels for each of our performance commitments. These
documents set out the purpose and nature of the measures of success and the details of the measurement
processes and methodologies for generating the reported performance values and of any outcome delivery
incentive schemes associated with these measures.
The detailed process for capturing all our regulatory data, key supporting information for that data, or data
that is critical to ensure that we comply with our regulatory or statutory obligations, is set out within a
series of methodology documents. These documents are regularly updated by accountable business
owners and reviewed for completeness and compliance by the Economic Regulation team as part of its
‘second line of defence’ oversight role.
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The majority of these documents have now been fully updated to ensure that we have a full suite of
methodologies for all the AMP6 regulatory data and that these methodologies reflect clearly defined
processes to ensure that we comply with the specified outcome definitions, together with any regulatory,
statutory or legal obligations which are covered by the measure of success.
These methodologies, together with the data collected and compliance against relevant targets, forms the
basis of the routine and reactive review and assurance process with any risks or issues being identified and
escalated as appropriate within the business 17.
2.5
Risk based assurance
Risk assessment
We have adopted a structured risk assessment process to underpin the governance and assurance
processes supporting our regulatory reporting. The risk assessment approach builds on the approach we
took during AMP5, with this process having been cross referenced against the approach recently produced
by Ofgem, the gas and electricity regulator, and updated to reflect the new requirements of the company
monitoring framework.
The key component of this approach is the assessment of regulatory data against a set of criteria to
establish the impact and probability of potential misreporting of information.
Figure 2.4: Regulatory reporting risk assessment process
The reviews cover both historic and forecast data, methodologies, performance and compliance
statements and audit trails to confirm that the information reported is reliable accurate and complete and
meets regulatory reporting requirements.
17
Appendix 2 section 2.5 & 2.6
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The risk assessment process separately reviews the impact and probability of any potential risks associated
with misreporting of each data item. The risk assessment is undertaken within an excel model and
generates an overall combined risk rating (low, medium, high or critical).
The impact score assesses the scale of the potential consequence of inaccurate, incomplete, misreported
or late data across four categories; stakeholders, competition, finance (either in period or at the next price
setting) and performance targets or outcomes (again in period or at PR19).
The probability score is assessed via two steps; initially the inherent risk involved in the processes for data
collection, manipulation and reporting the data is assessed and then the mitigating effect of any
established control activities, systems and processes is then assessed to determine the overall likelihood
rating.
The overall combined risk rating is then derived from the combination of the impact and the likelihood
score.
Risk based governance and assurance
The overall combined risk rating is used to help to determine the level of governance and assurance that is
applied to the reported information. Figure 2.5, overleaf, sets out the differentiated assurance applied on
the basis of the risk assessment.
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Figure 2.5: Illustration of risk based governance and assurance requirements
Governance as high plus Board sign off.
Critical
Details of high and
any critical risks,
together with
mitigation actions
and assurance
plans set out in the
annual assurance
report
Assurance as high plus:
External in-depth audit of data and process
Governance as medium plus level 1 sign off.
Assurance: as medium plus:
High
Internal in-depth audit of data and process
Quarterly or monthly review of data reconciliation,
control measures or data samples, by a team
independent of the information providers
Governance: as low, plus level 2 sign off
Impact score 4
medium risks will
also be reviewed
in the assurance
plans
Assurance: as low plus
Medium
Rolling/ reactive programme of data and process
audits by UU Corporate Audit.
Annual audit of regulatory data by external technical
or financial auditors.
Governance: -The data owner and senior
manager (level 3) sign off data.
Low
Assurance: - Independent expert/peer review
of supporting information and audit trails.
Rolling/reactive programme of data and
process audits by a team independent of the
information providers
This approach ensures that as the level of risk increases the governance and assurance applied to the
reporting of this data also increases. The approach makes sure that key risks are escalated up to Board
level and the reporting of this data is subject to detailed independent assurance.
Key risks identified through this process are highlighted in the annual statement of risks, strengths and
weaknesses and in the Draft and Final Assurance plans, see appendix 1 section 1.3.
Other relevant factors can also be considered in addition to the results of the risk assessment when
finalising the assurance plans, however any apparent misalignment between risk scores and planned or
actual assurance activities will be explained in the assurance plan.
Risk management process
In addition to supporting the governance and assurance processes applied to the regulatory data, the
results of this risk assessment are also used to determine how the identified risks are managed.
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Figure 2.6: Impact and probability assessment matrix
The risk assessment process assigns a risk rating
of low, medium, high or critical to the information
to be reported.
Critical and high risks, together with any medium
risks with an impact score of 4 would be
highlighted with the business owner, who would
be accountable for both ensuring that a new risk
is added to the corporate risk management
system and managing any resulting action plan.
Where the reporting risk relates to an existing
risk, the business owner would ensure that a new
control action is added to this risk.
Medium risks and mitigating action will be added
to the “regulatory action tracker” which provides
a formalised reporting and escalation regime that
is tracked by the department providing second
line of defence assurance for the data item.
Low risks and mitigating actions will be managed
between the department providing the second line of defence for that data item and the relevant level 3
business manager. With progress tracked informally on an ongoing basis and through the quarterly
reporting cycle. Activities or initiatives associated with critical and high risk items would be highlighted
within the Draft and Final Assurance Plans.
2.6
Governance and accountability
Approach
We are committed to the very highest standards of corporate governance – those systems and processes
through which our organisation is managed, controlled and held accountable. During the financial year
ending 31 March 2015, we complied fully with the principles and the spirit of the UK Corporate
Governance Code, which sets out universal standards of good practice in relation to Board leadership and
effectiveness, remuneration, accountability and relations with shareholders.
Effective governance is not just the responsibility of our Board and Executive team. We aspire to apply the
highest standards of governance to the way we conduct business around the board table and we strive to
ensure that these standards are applied by the Executive team and cascaded throughout the group. In
support of this, we have in place internationally accredited management systems governing quality,
environment and health and safety to ensure consistently high standards.
Our certifications are scrutinised on a regular basis by external auditors to ensure we meet the
requirements of the standards. These audits include documentation reviews, office based interviews and
site visits involving employees from all parts of the business. We also run a rigorous programme of internal
audits that covers the full breadth of the Group’s activities. The finding of our risk based audit programme
is communicated regularly to our Board, and our performance in the delivery of actions arising from our
audit findings is monitored and reviewed closely by the senior management team.
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Our Business Principles bring to life the five areas we believe are key to being a responsible business. It
affirms our commitment to integrity in our dealings with customers, suppliers, employees, regulators and
investors. Over the past year we have been monitoring the considerable change in the areas of
governance and narrative reporting and continue to build on our approach to reporting.
We continue to apply a structured and thorough approach to the governance and assurance of our reports.
We have already sought to adopt the principles of transparent reporting. Our United Utilities Annual
Report and Financial Statements for the year ended 31 March 2015 was prepared in accordance with the
principles set out in the International Framework published by the International Integrated Reporting
Council in December 2013 and the 2014 UK Corporate Governance Code introduced section C.2.2 covering
the requirement for companies to publish long term viability statements. We adopted this requirement
early, in our 2014/15 Annual Report and Financial Statements.
In recognition of this our 2014/15 Annual Report and Financial Statements was awarded the Building Public
Trust award for Reporting Excellence.
Further details of the governance arrangements are set out in United Utilities Group PLC Annual Report and
Financial Statements for the year ended 31 March 2015.
Board level accountability and control
Our Board manages the effective and efficient delivery of its obligations and operation of everyday
activities within the business through the interaction of:
•
Authorisations, approvals and procedures. These are set out in the United Utilities Group PLC
(UUG) internal control manual (ICM) to provide guidance to employees as to the system of
internal controls which they must follow when acting on behalf of United Utilities Water (UUW)
and United Utilities Group (UUG) as a whole. The ICM sets out a framework within which
underlying detailed procedures and policies operate
•
Policies. The UUW Board has adopted an overriding set of Business Principles. These are
supported by a range of underlying policies that provide guidance to our employees as to how
they should conduct themselves when acting on behalf of UUW and UUG as a whole. Everyone
working for or on behalf of UUW must comply with the policies (to the extent they are
applicable to their roles). Failure to do so may result in disciplinary action being taken. This
could lead to dismissal and possible civil or criminal prosecution in serious cases
•
Governance and control. The UUW Board delegates responsibility for specific matters to a
number of committees and working groups. This provides a framework that employees are
expected to be aware of and comply with where relevant to their role to ensure business
decisions are taken in accordance with best business governance practices
•
Regulatory reporting. The Board has previously signed off the AMP5 suite of annual regulatory
reports, based upon an approved suite of assurance processes. As set out in section 2.5 of this
appendix, the basis of these processes will be retained, but updated to reflect the new
requirements of the AMP6 reporting regimes to allow the Board to sign off the new AMP6
annual performance report
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Operational governance and review process
As described in section 2.4 of this appendix, the accountability for operational performance and delivery of
the customer outcomes sits with the relevant business units. The AMP6 measures of success are included
on the relevant business scorecard, with performance against the regulatory measures and relevant
supporting and operational measures being reviewed on a monthly basis.
As described in section 2.5 of this appendix, we have developed and adopted a risk based approach to the
assurance and governance of our regulatory data. This risk assessment process ensures that all reported
data is signed off by the most appropriate level of senior or executive management and allows executive
management to focus on material risks, issues and high priority regulatory data.
As part of the governance framework for our regulatory data, we have agreed accountability for every
piece of regulatory information. All regulatory data will be signed off by the relevant data owner and
senior manager. The risk assessment described in section 2.4 of this appendix determines the level of
management sign off based upon a risk based review of the importance of the data and the materiality of
any potential risks or issues. This ensures that all issues are escalated to an appropriate level. The
different sign off levels are outlined below, the minimum sign off for regulatory data being level 4 and level
3 sign off.
•
•
•
•
Level 1 Executive Director – the Managing Director of the relevant business
Level 2 Business Unit Director – the owner of the relevant performance scorecard and the
Director accountable for delivery of the measure
Level 3 senior manager – the manager responsible for the day to day performance of the
measure with accountability for achieving the targets and monitoring and confirming
performance and compliance levels
Level 4 data owner – the subject matter expert who is accountable for working with the ICC to
manage the capture, review and provision of the data.
The regulatory data is provided by the business and collated by the Economic Regulation or Finance team
which independently reviews, monitors, assesses and challenges all the reported data against internal and
external targets and expectations. The majority of regulatory information is captured at nine months and
year-end. Depending on the nature of the information and the outcome of the risk assessment
information, some information is collated quarterly. The teams are also accountable for checking and
verifying that the relevant data capture methodology has been complied with and that any risks and issues
identified during this process are escalated appropriately within the business potentially up to Board level.
Risks and issues identified through this process are added to a regulatory action tracker, assigned to a
relevant business manager and tracked by the Economic Regulation or Finance team to ensure that they
are appropriately resolved.
Regulatory reports are presented to the Board on a regular basis and highlight performance risks and
issues identified through both the internal and external assurance of data, with this process assisting the
Board’s decision to approve the annual performance report.
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2.7
Targeted audit and assurance
The approach we are taking to audit and assure our data and reporting in AMP6 will continue to be based
upon the ‘three lines of defence’ approach that we have successfully used for our AMP5 (2010-15)
regulatory reporting.
Three lines of defence assurance process
The process for capturing and assuring our regulatory data is underpinned by the ‘three lines of defence’
approach to the analysis, review and assurance of the reporting of regulatory information. This approach
was implemented during the AMP5 period and is now used for regulatory and other key reporting
processes.
•
•
•
In the first line of defence management has accountability for developing and maintaining
sound processes, systems and controls in the normal course of their operations
In the second line of defence the Economic Regulation or Finance team has accountability for
providing the framework and governance for regulatory reporting
The third line of defence provides independent audit and assurance activity through our
Corporate Audit team and a team of external auditors.
The three lines of defence accountabilities and process are demonstrated in Figure 2.7 below:
Figure 2.7: The three lines of defence
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Application of the three lines of defence to our regulatory reporting
The key elements of the three lines of defence approach as applied to the assurance of our AMP6
regulatory reporting are summarised below;
Using our established processes and methodologies for reporting and assuring data.
This requires data providers, their managers and business unit directors to produce and approve
performance and compliance statements which set out the evidence to support the reported performance
and control checks that have been applied. The majority of the regulatory performance data is collected
and reviewed at month nine and year-end. The majority of operational performance data is also collected
and reviewed at month six. A small proportion of the information only warrants collection and assurance
annually, due to the stable nature or the use of the data.
Comparing the reported outturn performance with our company business plan targets, regulatory
targets and historic performance.
This exercise allows variances to be identified and explored. Where required, explanatory statements are
sought from business managers. These statements are analysed and assessed by the Economic Regulation or Finance teams and findings are reported to the Business Unit Directors. Following the review, findings
are reported and escalated to the Executive and Board as appropriate.
Business Unit Directors are required to complete an annual management control self-assessment.
This assessment provides confirmation that reporting processes and systems of control are robust, and any
actions identified during the report year have been addressed, or have actions scheduled.
Reviews are undertaken by our Corporate Audit team and technical auditor of the company’s processes.
Their findings are reported to the Board. Should a significant regulatory risk or issue materialise during the
report year then we will update Ofwat and the appropriate stakeholders accordingly to demonstrate that the company is aware of and is responding appropriately to manage that risk or issue. Whenever possible, any risks or issues identified are addressed immediately. Where this is not practical, they will be built into
an improvement plan for the following year’s regulatory reporting cycle.
Review and challenge by the YourVoice independent panel forms an additional part of the third line of
defence.
Their findings are reported alongside the findings of our Corporate Audit team and external technical and
financial auditors to aid the Board’s decision to approve the annual suite of performance reports.
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Appendix 3: Regulatory reporting of risks, strengths and weaknesses
This appendix to our statement of risk strengths and weaknesses summarises the key target areas that
have been identified through our review and assurance processes, for our 2015/16 reporting cycle, and
then summarises the actions that we are taking to manage these risks.
3.1
Context
We have been using risk based governance and assurance processes to support our regulatory reporting
for the full AMP5 period. We do however recognise that the new regulatory period and new reporting
requirements bring new challenges.
To allow us to manage these potential risks effectively, we undertook a trial run of the new AMP6
regulatory reporting process alongside the 2014/15 AMP5 regulatory reporting. With this trial run being
designed to ensure that data, systems, processes and accountabilities for managing and monitoring the
required information were robust prior to the start of the AMP6 period. This exercise allowed us to initiate
a number of exercises to further strengthen our data sources or to ensure that appropriate and timely
assurance arrangements can be put into place.
The results of the 2014/15 regulatory reporting process, including the trial run of the 2015/16 data, has
been reviewed through the risk assessment process set out in section 2.5 of this document. Although this
is the first time this version of the risk assessment has been completed, the vast majority of the required
information inputs and assessment criteria are well established and the conclusions have mainly acted to
confirm existing plans and processes.
3.2
Target areas
Summary and conclusions from the risk assessment process
The majority of the data that we will include within our 2015/16 regulatory reports has been reported for a
number of years and as such the level of risk associated with this data remains relatively stable. Much of
the new data that we will report is also based upon, or derived from, information that was routinely
captured and assured as supporting data for the information previously published during AMP5 (2010-15).
The risk assessment process applied to our regulatory data has confirmed that our established systems of
governance and control were effective in identifying and managing reporting risk levels. The risks
identified through this process have therefore, generally been as a result of external changes in reporting
requirements or internal changes in process, controls or information systems.
1.
Outcome delivery incentives (new requirement)
In preparation for AMP6 (2015-20) the new outcome delivery incentive performance data was
incorporated into 2014/15 business score cards and regulatory reporting at month six, month nine and at
year-end. This entailed a review of the end to end ODI reporting process (including definition documents,
methodologies, data and performance and commitment statements) to allow us to understand our
preparedness for reporting the information in AMP6.
This process has allowed us to be well placed for our 2015/16 reporting. However, the reporting of our
ODIs will remain a high profile issue and we will set out details of the assurance we are applying to our
ODIs in our Draft and Final Assurance Plans.
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2.
Price control and segmental reporting (new requirement)
The 2015/16 Annual Performance Report will require greater details of our financial reporting with income
and expenditure needing to be reported against each price control and against different accounting units
within the wholesale price controls. We have recently taken steps to allow us to more effectively capture
and report our costs in this way. There are however, some areas where the rules for reporting these costs
are still to be fully defined and it would appear that different companies are allocating costs to different
accounting units in different ways.
One of the objectives of the annual performance report is to allow customers and stakeholders to look at
our performance and compare it meaningfully with that of other companies; more work will be required
across the industry to achieve this.
3.
Prediction of future performance levels (new requirement)
The annual performance report will require companies to report actual performance and expenditure for
the report year under review and in some areas to also predict future performance levels for the
remainder of the AMP6 period. This predicted information will clearly be subject to greater uncertainty
than the actual data.
4.
Profile of water quality performance (changed expectation)
During the year we have experienced two major incidents one at the Sweetloves Water Treatment Works
in Bolton, Greater Manchester and one at the Franklaw Water Treatment Works, in Lancashire. These
incidents resulted in a loss of water supply (Bolton) and in customers needing to boil their water (both
Bolton and Franklaw).
As a consequence of these issues we recognise that there is likely to be greater scrutiny on issues relating
to our ability to provide great water; customers and stakeholders are likely to be more sensitive to our
performance around water supply and quality.
5.
Business retail market reform (new requirement)
Accountability for reporting of billing contacts, written complaints and associated guaranteed service
standards (GSS) transferred from Domestic Retail to Wholesale and/or Business Retail during 2014/15.
This transfer of responsibilities helps to set clear separation of accountabilities as we prepare for market
reform in 2017.
This preparation for market reform has also involved the implementation of a new non-household
customer management and billing system, Mecoms. With business process and systems changes such as
this comes inherent risk, and the business has worked hard to mitigate initial teething problems related to
the implementation of the new systems.
We continue to closely monitor the situation to ensure the changes we have made are robust and fit for
the future, allowing us to deliver on our promises to both household and non-household customers.
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3.3
Summary of assurance approach for targeted areas
Overall assurance approach
The risk assessment and assurance approach outlined in section 2.5 of this document has been applied to
determine the assurance activities planned to be undertaken to support our 2015/16 regulatory reporting.
Figure 3.1 below illustrates how the three line of defence assurance process has been applied to the new
AMP6 annual performance report, which will be published in July 2016.
Figure 3.1: The three lines of defence applied to the new annual performance report structure
New annual
performance report
Risk and complaince
statement
1st
3rd
Part 2 - Price review
and other segmental
reporting
Part 3 - Performance
summary
Part 4 - Additional
regulatory
information
Line owner and
management
Line owner and
management
Line owner and
management
Line owner and
management
Line owner and
management
Economic Regulation
Finance
Finance
Economic Regulation
Economic Regulation /
Finance
Corporate Audit
Financial auditors
FInancial auditors
External auditors
Corporate Audit
/Third party
Three lines of defence
2nd
Part 1 - Regulatory
financial reporting
As set out in appendix 2 to this report, all the data in this report will at least, be subject to independent
expert peer review of supporting information and audit trails and will require the reported data to be
reviewed and signed off by the line owner and senior manager (level 3).
As the level of potential risk (either in terms of impact or likelihood) increases the governance and
assurance applied to the reporting of the data also increases. The indicative assurance activities designed
to manage or mitigate the target areas and the risk reduction initiatives designed to reduce risk levels are
summarised below.
Specific assurance approach proposed for targeted areas
1)
New requirements – outcome delivery incentives
The activity to assure the reporting of our ODIs includes:
•
•
•
Data sign off by the data owner, level 3 (business manager), level 2 (director)
Economic Regulation review of data, methodology, performance and compliance statement and
audit trails at six month, nine month and year-end.
Third party audit of the data collection and reporting process by our technical auditor, HMS to
provide assurance that the data can be reported reliably, accurately and completely and in
accordance with reporting requirements.
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2)
New requirements – price review and other segmental reporting
The activity to assure segmental reporting of costs includes:
•
•
•
Data sign off by the data owner, level 3 (business manager), level 2 (director)
Finance and/or Economic Regulation review of data, methodology, performance and compliance statement and audit trails at nine month and year-end.
Third party audit of the data collection and reporting process by our financial auditor, KPMG to
provide assurance that the data can be reported reliably, accurately and completely and in
accordance with reporting requirements.
3)
New requirements – prediction of performance for the remainder of the AMP6 period
The activity to ensure that our performance predictions are robust includes:
•
•
•
Data sign off by the data owner, level 3 (business manager), level 2 (director)
Finance and/or Economic Regulation review of data, methodology, performance and
compliance statement and audit trails at nine month and year-end.
Third party audit of the process for developing the future performance expectations, to confirm
that the basis of the projections is appropriately and soundly based.
4)
Changed expectations – profile of water quality performance
The activity to assure all other outcome deliver incentive forecast performance includes:
•
•
•
Data sign off by the data owner, level 3 (business manager), level 2 (director)
Economic Regulation review of data, methodology, performance and compliance statement and
audit trails.
External audit of the data collection and reporting process to provide assurance that the data
can be reported reliably, accurately and completely and in accordance with reporting
requirements.
5)
New requirements – business retail market reform
The activity to assure the continuity of our business retail reporting includes
An action plan is underway to address the risks identified with the implementation of the new systems and
processes in 2014/15.
A detailed review of this action plan and the existing control measures including monthly reconciliation and
sample audits of complaint and GSS payment data, is taking place as part of the internal ongoing review
processes. The activity to assure the reported information includes:
•
•
•
Data sign off by the data owner, level 3 (business manager), level 2 (director) and level 1 (Executive Director)
Economic Regulation review of data, methodology, performance and compliance statement and
audit trails at six month, nine month and year-end
Third party assurance of the data and underlying activity audit to confirm data can be reported
reliably, accurately and completely and in accordance with reporting requirements
Specific and detailed assurance activities are also underway to prepare for the opening of the business
retail market in April 2017, with the results of the first round of this assurance process being summarised
in a Board letter of assurance in January 2016.
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About us
United Utilities is the North West’s water company. We keep the taps flowing and toilets flushing
for seven million customers every day. From Crewe to Carlisle, we work hard behind the scenes to
help your life flow smoothly.
United Utilities Water Ltd, Haweswater House, Lingley Mere Business Park, Lingley Green Avenue, Warrington WA5 3LP.
Registered in England and Wales. Registered Number 2366678.