United Utilities Water
Risk and Compliance Statement 2013/14
United Utilities Water
Risk and Compliance Statement 2012
Regulatory Return 2014 (RR14)
Appendix 1 Risk and Compliance Statement
United Utilities Water
Risk and Compliance Statement 2014
UUW BOARD’S RISK AND COMPLIANCE STATEMENT 2014
The Board of United Utilities Water PLC (the Company or UUW, where the context requires), is
required by Ofwat to provide an annual statement confirming its compliance with the relevant
statutory, licence and regulatory obligations1 for the provision of services to its customers for the
report year 2013/14. This document is complementary to other statutory Board statements.
In this document UUW summarises its review of the year 2013/14 and sets out its Compliance
Statement. This statement is supported by UUW’s Key Performance Indicator Report (KPI
Report), published on its website at: http://corporate.unitedutilities.com/kpi-2014.aspx
1.1. REVIEW OF 2013/14
During 2013/14 UUW has continued to see benefits arising from its continued focus on
customer service and operational efficiency, as demonstrated by:
Customer service
The improvements recorded in Ofwat’s customer service incentive mechanism (SIM),
where we have moved from last place on the combined score in 10/11 to 14th in 12/13
and in 13/14 we are 7th on the qualitative measure, above average performance in all
areas and have seen a further 25% reduction in volumes on the quantitative measures.
The second successive year we have achieved zero complaints warranting investigation
by the Consumer Council for Water in the report year.
Receiving the Home Builder Federation award for the most responsive and improved
utility service company.
Operational performance
Maintaining stable serviceability assessments in both water service areas and sewerage
infrastructure, and maintaining an improving serviceability assessment in sewerage noninfrastructure.
Out-performing the 2013/14 regulatory leakage target for the 8th successive year, with a
performance of 452 Ml/d compared to the target of 463 Ml/d.
Maintaining security of supplies during the report year for all customers, risks affecting
West Cumbria are highlighted in Annex 1.
On course to deliver the outputs set out in the final determination, including some
managed revisions to dates agreed in liaison with the Environment Agency, whilst
keeping cost neutral for customers (see Annex 3 for detail).
Investing £836m of regulatory capital expenditure for the year, consistent with UUW’s
planned investment profile for the 2010 to 2015 period; an increase of about 6%
compared with £787m invested in the prior year.
Continuing to make good progress with operational and efficiency initiatives. Information
about UUW’s financial performance is set out in its accounts for the report year 2013/14.
Environmental impact
Maintaining a ‘World Class’ rating in the Dow Jones Sustainability Index for six
consecutive years.
Receiving the highest ‘Platinum Big Tick’ ranking in Business in the Community’s
Corporate Responsibility Index for the last five years. UU is one of only seven FTSE 100
companies to hold both accolades.
Planning for the Future
Working with our customers and Customer Challenge Group to develop our Strategic
Direction Statement which set out our proposed longer term promises and our Business
Plan submission to Ofwat, which defined the customer outcomes, required expenditure
and resultant bill impacts for the period 2015 to 2020 (AMP6).
Actively engaging with the Open Water programme in advance of the competitive retail
market opening in 2017.
1
In referring to UUW’s relevant statutory, licence and regulatory obligations this statement solely refers to
those areas where the Water Services Regulation Authority (Ofwat) is the relevant enforcement authority. -
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Risk and Compliance Statement 2014
1.2.
THE STATEMENT
The Board considers that the Company has applied its processes and internal systems of
control in a manner that has enabled it to satisfy itself, to the extent that it is able to do so from
the facts and matters available to it, that:
The company has sufficient understanding of its relevant statutory, licence and regulatory
obligations for 2013/14. Departures are set out in Annex 1.
Customer expectations are being met through monitoring of the regulatory contract
performance targets, measures and outputs.
There are sufficient processes and internal systems of control to enable it to deliver its
services to customers and meet its relevant statutory, licence and regulatory obligations
for 2013/14.
Appropriate systems and processes are in place to allow it to identify, manage and review
its risks. Where any material or potential material risk is identified these have been
identified in Annex 2.
1.2.1.
OBLIGATIONS
The Board manages the effective and efficient delivery of its obligations and operation of
everyday activities within the business by 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 UUW and
UUG as a whole. The ICM sets out a framework within which underlying detailed
procedures and policies operate.
Policies. The Board has adopted an overriding set of business principles. These are
supported by a range of underlying policies that provide guidance to its employees as to
how they should conduct themselves when acting on behalf of UUW and UUG as a whole.
Everybody 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 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.
To oversee and take decisions affecting the execution of its obligations, the UUW PLC Board:
Receives and reviews performance reports from the relevant employees of the Company.
Receives and reviews presentations from the UU Corporate Audit Team, the financial and
technical Auditors.
Receives and reviews presentations from the wholesale, domestic retail, business retail,
engineering and capital delivery, and finance directorates.
Has access to executive and senior managers in the Company to verify information.
Should a significant regulatory risk or issue materialise during the report year then UUW will
update Ofwat accordingly to demonstrate that the company is aware of and is responding
appropriately to manage that risk or issue. No such issues arose in 2013/14.
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Risk and Compliance Statement 2014
1.2.2.
PROCESSES AND SYSTEMS
The directors have a reasonable expectation that the processes and systems of control the
company uses are adequate for it to meet its obligations. This opinion, taking into account the
relatively stable and regulated nature of the business, is based, amongst other matters, upon a
review of the company’s performance for 2013/14, the results of the annual management control
self-assessment, the work of Corporate Audit and a review of the company’s risk and issues
register.
In respect of this Statement assurance is provided by:
Using UUW’s established processes and methodologies for reporting performance.
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 regulatory
performance data is collected at month 6, month 9 and year end.
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 Team and findings are reported to the Regulatory Reporting Supervisory
Board (RRSB.) The RRSB comprises the Managing Director (Wholesale), Domestic Retail
Director, Business Retail Director and Director of Economic Regulation. Following the
review of the RRSB, findings are reported to the Executive and UUW Board.
Business Unit Directors are required to complete an annual management control
self-assessment. This 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 UUW’s Corporate Audit team and Technical Auditor of
the company’s processes. Their findings are reported to the Board to aid the Board’s
decision to approve the annual Risk and Compliance Statement.
Where material issues are identified and/or the Board considers it is unable to support the
expectations of the Statement then exceptions are set out in Annex 1.
1.2.3.
RISK MANAGEMENT
UUW maintains systems of risk management and internal control that assess, throughout the
year, the nature and magnitude of internal and external risks to the achievement of business
goals. Managers are required to employ both preventative and responsive mitigation measures
in a prioritised manner to reduce exposures and ensure on-going resilience should a risk
materialise.
The executive management team regularly reviews significant risks so that the Board can
determine the nature and extent of those risks it is willing to take in achieving its strategic
objectives. The Audit Committee regularly review the effectiveness of UUW’s risk management
and internal control systems.
The approach to corporate risk management and principal risks and uncertainties are set out in
Annex 2, sections A2.1 and A2.2 respectively.
In respect of regulatory reporting UUW has maintained its tailored risk management and
assurance approach in relation to the report year 2013/14. This continues to be developed from
that introduced in 2011/12 consistent with the risk based approach to compliance. Further
details are set out in Annex 2, section A2.3.
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Risk and Compliance Statement 2014
1.3.
1.3.1
KEY REPORTING REQUIREMENTS
CORPORATE GOVERNANCE
United Utilities is fully compliant with the UK Corporate Governance Code which is consistent
with Ofwat’s principles on Board leadership, transparency and governance as set out in the
United Utilities’ Code on Board leadership, transparency and governance published on 28 March
2014. The code can be found via the attached LINK.
1.3.2 REMUNERATION AND STANDARDS OF PERFORMANCE
The UUG remuneration committee reviews the pay of directors and the pay scales applicable to
senior management. The UUG annual report contains a Directors’ Remuneration Report which
reports in accordance with the Listing Rules, the Accounts Regulations and the UK Corporate
Governance Code. In addition the UUW 31 March 2014 accounts take into account Ofwat’s
“Best practice guidance on directors’ pay and standards of performance”. Neither the executive
nor the non-executive directors receive any additional remuneration from the Company for their
services to the UUW Board.
1.3.3 TABLES OF ACCOUNTABILITY
Clear accountability for the ownership of regulatory appointment conditions is referenced in the
Company’s Internal Control Manual. This document is known as the “Table of Accountabilities”
and sets out the executive manager responsible to the Board for each licence condition as well
as identifying the senior managers responsible for the strategy and implementation of the
licence requirements.
1.3.4 CONDITION F6A
The directors have issued a certificate under Condition F6A of the Licence stating that the
Company will have available to it sufficient financial and management resources and facilities to
enable it to carry out, for at least 12 months, its regulated activities. This certificate also
confirms that all contracts entered into with any associated company included all necessary
provision and requirements concerning the standard of service to be supplied by the company to
ensure that it is able to meet all its obligations as a water and sewerage undertaker.
1.3.5 CONDITION K
As required by paragraph 3.1 of Condition K of the Instrument of Appointment granted by the
Secretary of State for the Environment of the company as a water and sewerage undertaker
under the Water Industry Act 1991 (‘the Licence’), the directors state that they are satisfied that
as at 31 March 2014, if a special administration order had been made under section 23 of the
Water Industry Act 1991 in respect of UUW, the company would have had available to it
sufficient rights and assets (not including financial resources) to have enabled the special
administrator to manage the affairs, business and properties of the company so that the purpose
of the order could have been achieved.
1.3.6 REGULATORY ACCOUNTING GUIDELINE 5 – TRANSFER PRICING
Directors and senior managers of UUW declare, to the best of their knowledge, that all
appropriate transactions with associate companies have been identified and that the appointee
complies with the objectives and principles of RAG5.04.
1.3.7 MAINTAINING INVESTMENT GRADE CREDIT RATING – F6A.6
UUW has a long-term credit rating of A3 from Moody’s Investors Service with a stable outlook.
This credit rating target has been in place since 2007.
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Risk and Compliance Statement 2014
1.3.8 EMPOWERING CUSTOMERS
The UUW Board has reviewed Ofwat’s Information Note IN13/04: ‘Empowering water and
sewerage customers through information’ and considers the information it provides to its
customers is consistent with its licence obligations and Ofwat’s information principles.
The information UUW provides to its customers under Licence Conditions G, H and I is reviewed
annually, and it engages with its customers and customer representatives as appropriate when
developing and/or enhancing its information.
1.3.9 CONDITION M – PROVISION OF INFORMATION
UUW has retained the governance framework in place for regulatory reporting purposes in prior
years, which allows it to continue to monitor performance against its AMP5 regulatory targets to
determine whether the company is meeting customer expectations
1.3.10 OUTPUT DELIVERY
The Board confirms that with the exception of the additional work undertaken as a result of the
transfer of private sewers and the revised timing of two quality schemes, the programme of
outputs delivered to date and expected to be delivered during the 2010 to 2015 period, is not
materially different to the water and sewerage service outputs set out in UUW’s 2009 final
determination programme.
Annex 3 provides more detail of the material changes to the programme and the nature and
frequency of discussions with the Drinking Water Inspectorate and Environment Agency.
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Risk and Compliance Statement 2014
ANNEX ONE – OBLIGATIONS - DEPARTURES FROM THE STATEMENT
The transition to a risk based approach to the regulatory framework commenced in 2011/12 when
Ofwat acknowledged that its implementation would take place over the remainder of the AMP5
period. The report year 2013/14 is the second full year of that transition period.
Therefore the departures from the Statement set out below reflect that 2013/14 is a continuation
of the process of moving to the new proportionate and targeted approach to regulatory
compliance. During the report year 2013/14 UUW has continued to adapt its systems and
processes of control consistent with the approach introduced in 2011/12.
The Board considers that the Company has applied its processes and internal systems of control
in a manner that has enabled it, to the extent that it is able to do so from the facts and matters
available to it, to identify material departures from the obligations as set out below:
Obligation
Reference
Section 94
Water Industry
Act 1991
Environmental
Permitting
(England and
Wales)
Regulations 2010
Environmental
Permitting
(England and
Wales)
Regulations 2010
Description
This obligation sets
out a duty to provide
effectual drainage
Action Plan
During 2012/13 UUW reported an increase in the number of internal
sewer flooding incidents, which was primarily a function of the very
wet summer and autumn experienced during 2012.
This year overall sewer network performance levels have improved,
with the number of internal sewer flooding incidents returning to
targeted levels.
UUW reports sludge disposal compliance with statutory obligations
and the Safe Sludge Matrix (SSM) code of practice.
Satisfactory sludge
disposal
UUW is delivering on its action plan for process improvements which
is targeting to achieve 100% satisfactory disposal of sludge
2014/15.
In line with this action plan, the volume of unsatisfactory sludge
disposed in 2013/14 further reduced compared to levels 2011/12
and 2012/13.
Discharge permit
compliance
Five WwTW have been classified as failing their discharge permits in
2013/14.
Compliance levels are still above the target required to meet the
regulatory serviceability target, with 98.6% of works (measured by
population equivalent) complying with their discharge permits.
In most cases, and for most of the time, there is adequate water
available for abstraction. However, we are working with the
Environment Agency to protect environmentally sensitive species
and habitats – particularly in West Cumbria.
Water Industry
Act 1991
Security of Supply
Index
Water Supply
Requirements
This is an area of great environmental importance; the natural lakes
and rivers contain rare species and sensitive habitats, protected by
law, including England’s only viable population of the internationally
protected freshwater mussel.
The actions that are needed to help protect this species have
already and will continue to result in a significant reduction in water
available for supply in West Cumbria.
UUW’s Water Resources Management Plan sets out the options
available to address the challenge of maintaining supplies in West
Cumbria. A copy of the Plan can be found on the company website
via the following link
The quality of water supplied to our customers has been in line with
our regulatory expectations, with both water serviceability levels
remaining stable.
Water Industry
Act 1991
Water Supply
Requirements
Coliform Compliance
The performance of one of the sub measures within the water noninfrastructure serviceability measure, coliform compliance at WTW,
deteriorated in calendar year 2013 and reached the serviceability
“upper control limit”.
A range of actions and activities have subsequently been delivered
which have produced significant benefits, with performance in the
current calendar year now being in line with expectations.
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Risk and Compliance Statement 2014
ANNEX TWO – MATERIAL RISKS AND ACTION PLANS
A2.1 APPROACH TO CORPORATE RISK MANAGEMENT
Risk is managed through the
individual responsibility of each
business area, supported by our
Corporate Risk Framework, which
aims for continuous improvement.
With an overarching mandate and
commitment by the board, the
framework consists of four key
areas:
Governance;
Approach;
Process; and
Guidance.
The application of the framework involves the regular assessment of the internal and external
risk environment by the business. We focus on the factors that could limit or prevent the
achievement of our company objectives and involves the prioritised implementation of controls
to mitigate exposure and build resilience and sustainability.
The most significant risks and the group’s risk profile summary are reported to the executive
and the board twice a year. This supports the determination of the nature and extent of those
risks we are willing to take in pursuing our objectives in line with good corporate governance
practice. In addition the Audit Committee regularly reviews the framework’s effectiveness, and
the group’s compliance with it, reporting its findings to the board.
A2.2 UUW PRINCIPAL RISKS AND UNCERTAINTIES
Key features for 2013/14 relate to the on-going dominance of regulatory risks and the
uncertainty which these continue to pose.
There is also an on-going piece of material litigation worthy of note but, based on the facts
currently known to us and the provisions in our statement of financial position, our directors
remain of the opinion that the likelihood of this having a material adverse impact on UUW’s
group’s financial position is remote.
In March 2010, Manchester Ship Canal Company (MSCC) issued proceedings against
United Utilities Water PLC (UUW) alleging that UUW was trespassing as a result of it
discharging into the canal. MSCC is seeking damages and other relief. UUW won a
‘summary judgment’ application regarding a significant element of the claim but an
appeal of that judgment was considered by the Supreme Court at the beginning of May.
We await the court’s decision.
Also notable was the extent of mitigating activity across the business in response to the
changing regulatory environment and our commitment to be a leading water and wastewater
company and service provider. This included significant progress in customer satisfaction,
operational service performance and environmental assessments carried out by the
Environment Agency.
In addition there was a step forward following activities tied to our on-going commitment to a
continuous and secure supply of water with a successful inspection of the largest aqueduct in
Europe, detecting no urgent structural maintenance required. On-going business change and
transformation programmes also featured heavily during the year in both the wholesale and
business retail businesses preparing for the opening of the English market in 2017.
Following the price determination, we expect our risk profile to return to one based on
operational performance, compliance and delivery risk. The on-going development of the nonhousehold market, including the extent of competitor activity and customer switching rates will
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Risk and Compliance Statement 2014
continue to be a focus as will the uncertainty surrounding the form of upstream competition for
water and sewerage services.
The five principle risks summarised below, have been determined by considering our entire risk
profile relative to the five principal risk categories contained within our corporate risk framework
(Strategic, Financial, Operational, Compliance and Hazard), drawing out key circumstances
where there is a potential for material effect. In each case the summary below illustrates a list
of current issues and uncertainties along with the relevant control/mitigation.
STRATEGIC
1. THE REGULATORY ENVIRONMENT
CONTROL / MITIGATION
Current issues or areas of uncertainty include:
i) The PR14 price determination will reflect a lower
assumed weighted average cost of capital (WACC) and
may reflect lower cost allowances than incorporated in
our proposed business plan. Regulatory penalties
relating to the current regulatory period are also possible
ii) Market reform (see 2 below)
iii) Compliance with regulations (see 4 below).
Our business plan has been prepared based on
extensive research and consultation from a wide range
of stakeholders including customers, environmental and
quality regulators and others in order to ensure that it is
both affordable and sustainable, meets statutory and
legal obligations, strikes an appropriate balance
between the needs of customers and the environment,
whilst still being financeable by investors.
We engage in relevant government and regulatory
consultations and initiatives which may affect the future
strategic decisions made about policy and regulation in
the sectors where we operate. In addition, we proactively
consider all the opportunities and threats associated
with any potential change, exploiting opportunities and
mitigating risks where appropriate.
2. COMPETITION IN THE MARKET
CONTROL / MITIGATION
Current issues or areas of uncertainty include:
i) Market reform including competition in the nonhousehold retail sector
ii) Competitor positioning in the market
iii) Upstream reform
iv) Compliance with regulations (see 4 below)
We look to retain existing and acquire new customers by
striving to meet their needs more effectively. We monitor
competitor activity and target a reduction in operating
costs. We continue to engage with government and
regulators on the shape of future competition and are
actively engaged in the Open Water programme.
FINANCIAL
3. THE ECONOMY
CONTROL / MITIGATION
Current issues or areas of uncertainty include:
i) Stability of the world economy
ii) Speed of economic recovery
iii) Stability of financial institutions
iv) Socio-economic deprivation in the north west
v) Welfare Reform and the impact on domestic bad debt
Refinancing is long term with staggered maturity dates
to minimise the effect of short term downturns.
Counterparty credit, exposure and settlement limits exist
to reduce any potential future impacts. These are based
on a number of factors, including the credit rating and
the size of the asset base of the individual counterparty.
The group also employs hedging strategies to stabilise
market fluctuation for inflation, interest rates and
commodities (notably energy prices). Sensitivity analysis
is carried out as part of the business planning process,
influencing the various financial limits employed.
Continuous monitoring of the markets takes place
including equity movements.
Within our operations, contract and category
management covers supplier price and price volatility of
goods and services and the effect of the economy on
our customers is monitored. We adopt best practice
collection techniques including the segmentation of
customers based on their credit risk profile
.
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Risk and Compliance Statement 2014
COMPLIANCE
4. FAILURE TO COMPLY WITH APPLICABLE LAW
OR REGULATIONS
Current issues or areas of uncertainty include:
i) On-going legal, economic, environmental and
regulatory requirements associated with operating in a
highly regulated business
ii) Market reform (see 2 above)
iii) Material litigation (see page 8)
CONTROL / MITIGATION
UUW has robust processes in place to identify risks to
its compliance with legal and regulatory obligations and
seeks to take appropriate action to ensure compliance.
This includes continually monitoring legislative and
regulatory developments, the training of employees in
new developments and the participation in consultations
to influence their outcome, either directly or through
industry trade associations for wider issues. Funding for
any additional compliance costs in the regulated
business is sought as part of the price determination
process. UUW also robustly defends litigation where
appropriate and seeks to minimise its exposure by
establishing provision and seeking recovery wherever
possible.
OPERATIONAL AND HAZARD
5 OPERATIONAL AND HAZARDOUS EVENTS
CONTROL / MITIGATION
Current issues or areas of uncertainty include:
i) Future abstraction licencing
ii) Supply demand balance in West Cumbria
iii). Weather conditions
iv). Population growth
v). Investment requirements in wastewater infrastructure
vi). Excavation, tunnelling and construction work
Controls and mitigation relate to our core business
processes, focusing on preventing negative impacts in
order to support high levels of customer service and
operation in a reasonable manner. Forecasting and
monitoring is a fundamental element of our operational
activity, with robust quality assurance procedures, risk
assessments and rigorous sampling /testing regimes in
place. On-going network maintenance and capital
programmes aim to enhance standards and integration
across the water and wastewater networks for both
service and resilience. We also undertake major
education programmes in both water usage and
appropriate disposal into the sewer network in an
attempt to minimise operational issues. In support of
this, physical and technological security measures to
protect the operational capability from malicious or
accidental activity and governance and inspection
regimes exist for key infrastructure assets (including
aqueducts, dams, reservoirs and treatment works). We
have also developed a strong safety and health and
environmental culture throughout the organisation
supported by health and safety management (HSMS)
and environmental management systems (EMS) which
are certified to OHSAS18001 and ISO14001
respectively.
Recognising that events can materialise we operate
long-standing responsive controls. These include well
tested and appropriately resourced incident response,
business continuity, disaster recovery and escalation
procedures which continue to be refined. We also
maintain insurance cover in relation to losses and
liabilities likely to be associated with significant risks,
although potential liabilities arising from catastrophic
events could exceed the maximum level of cover that
can be obtained cost effectively. The licence of the
regulated business also contains a ‘shipwreck’ clause
that, if applicable, may offer a degree of recourse to
Ofwat /customers (by way of an interim determination) in
the event of a catastrophic incident.
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A2.3 MANAGING RISKS FOR THE PURPOSES OF REGULATORY REPORTING 2014
In preparing for the submission of this statement and publication of the KPI report for the report
year 2013/14, UUW has continued its process of continuous improvement to enhance its
systems and processes for regulatory reporting. This has been achieved by using a
combination of a risk based approach and application of three lines of defence for the analysis,
review and assurance of the reporting of regulatory information and data. This approach was
developed for the Risk and Compliance Statement in 2012 which helped clarify roles and
responsibilities in relation to risk management, control activities and assurance provision.
A2.3.1 RISK BASED APPROACH
UUW has adopted a risk based approach to the data sign off process to allow executive
management to focus on material risks, issues and high priority regulatory data. The key
component of this approach has been the assessment of regulatory data against a set of
criteria.
The assessment process ensures assurance accountabilities are exercised by the most
appropriate level of senior or executive management. The key criteria, set out below, have
defined tolerances to ensure consistency of their application, and measure:
CRITERIA
ASSESSMENT MEASURE
Reported performance
Does the reported performance align with the final determination?
Is there a significant variance in performance from historic trends?
Compliance
Have any material risks or issues been identified through the process and control
checks undertaken by management?
Audit actions
Have there been any audit findings and/or actions identified during the report
year?
Horizon scanning
Has management identified any risks and issues by review of internal and
external intelligence relevant to the reported performance?
Business change
Has the business introduced any significant process changes, or have there been
any personnel changes in the report year?
A2.3.2 THREE LINES OF DEFENCE APPROACH
The adoption of three lines of defence provides a risk based assessment of information and
data.
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 economic regulation has accountability for providing the
framework and governance for regulatory reporting.
The third line of defence provides independent audit and assurance activity.
The second and third line activities play an important assurance role. Reviewing, monitoring and
assessment are the main focus for the second line of defence with external validation through
testing and audit for the third line. The third line is provided by UUW’s Corporate Audit team,
the technical auditor and/or the independent auditor. This ensures independence of assurance;
and each of these parties provides the UUW Board with a report of the reviews they have
undertaken when assessing the information and data used to prepare this regulatory Statement.
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Risk and Compliance Statement 2014
ANNEX THREE – OUTPUT SCHEDULE
This section of UUW’s 2013/14 Risk and Compliance Statement sets out, by exception, where
there is a material difference to the delivery of the outputs from that required in the 2009 final
determination.
UUW regularly meets with both the Drinking Water Inspectorate and Environment Agency to
discuss its performance and compliance, and to review progress with its programmes of
outputs. Documentation from these meetings include detailed schedules setting out progress
with the programmes of work for the five year price review period 2010 to 2015 (AMP5).
UUW provides regular progress reports to the Environment Agency setting out its progress with
the delivery of the AMP5 National Environmental Programme (NEP). A key part of the process
has been the agreement of an exchange programme allowing outputs to be bought forward to
offset those that have been delayed. UUW also attends meetings with both the EA and Ofwat
to discuss progress with the NEP.
As set out in paragraph 1.3.10 above, with the exception of two environmental quality schemes
the programme of outputs delivered to date is not materially different to UUW’s 2009 final
determination as measured using the Change Protocol materiality thresholds of 2% of service
turnover.
The two outputs not being delivered to their original programme are the Freshwater Fish
Directive schemes at Oldham WwTW and Davyhulme WwTW, where revised solutions jointly
addressing the requirements of the 2009 determination, together with additional requirements
for the 2015 to 2020 period have been agreed with the Environment Agency.
UUW has also undertaken work and incurred expenditure following the transfer of private
sewers in October 2011. In addition, UUW expects to reinvest around £200 million of capex
outperformance over the 2010-15 period for the benefit of our customers and the environment.
UUW included an analysis of its AMP5 programme in its Business Plan submitted to Ofwat in
December 2013. This included the following material items:
•
A shortfall adjustment under the freshwater fish directive
•
A log-up for the private sewers transfer in October 2011.
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