Risk and Compliance Statement

Transcription

1 Risk and Compliance Statement June 2015

2 Risk and Compliance Statement 2014/15 June 2015 Purpose of this Statement The purpose of this statement is: To confirm that we have complied with all our relevant statutory, licence and regulatory obligations; To confirm that we are taking appropriate steps to manage or mitigate the risks we face; and To explain any significant matters relevant to our performance in 2014/15. The statement starts with a review of our business over 2014/15 and then sets out how we manage risk and uncertainty, explains our approach to regulatory compliance and assurance and sets out our statement of compliance. It should be read alongside our Annual Performance Report for 2014/15. Business Review Affinity Water supplies water to around 3.6 million people in the South East of England, an area which the Secretary of State has determined to be of serious water stress. In June 2014, we published our Water Resources Management Plan. This sets out our Plan to manage our water resources over the next 25 years in the most effective and efficient manner, whilst taking responsibility for the impact we have on our local environment. Our Plan includes our proposals to reduce our daily water abstraction over the next 5 years by 42 million litres per day (MLD) and a further 27MLD over AMP7. This represents nearly 6% of our resource base and is necessary to reduce the environmental impact our current abstraction has on certain chalk streams and river catchments. There are very limited cost effective alternative sources of water for our supply area. We therefore plan to replace these lost water resources by reducing leakage, working with customers to reduce consumption through metering and promoting water efficiency as well as bringing in new supplies from neighbouring companies. Ofwat confirmed in April 2014 that Affinity Water s Business Plan for had achieved its highest recognition of Enhanced status. As a result Affinity Water received an early draft determination of its price limits in June 2015, which was confirmed as a final determination with only minor adjustments in November The early draft determination allowed us greater certainty to commence the AMP6 programme of work and we accepted the final determination in February 2015.

3 Our financial performance in terms of operating efficiency improved again this year as operating costs fell by 3m in 2014/15 compared to 2013/14. We are passing the benefits of efficiencies to customers, where in 2014/15 the average annual household water bill fell by 4 in real terms, and is forecast to fall by a further 2 in real terms in 2015/16. In 2014/15, we have invested over 114m to improve services for customers, and a summary of our progress in meeting required capital expenditure outputs is appended. Managing Risk & Uncertainty We have an established framework for identifying, evaluating and managing the key risks we face, which we have been refreshing during the year. Strategic and operational risks are reviewed and discussed by senior management. A key aim is to foster a culture in which team members within the business manage risk as part of their management of day to day operations. The Audit Committee reviews senior management s work on risk management and reports to the Board on significant risks. During 2014/15, we are developing our risk management processes and further integrating them into the operation and governance of our business. For 2014/15, we report in our Annual Report and Financial Statements on our risks under the key themes of operational, regulatory and financial risks. The risks include: Operational risks o Injuries and accidents to our people and the public o Failure to supply wholesome water o Unavailability of resources (people and materials) o Information security or privacy failure. Regulatory risks o Adverse changes to the regulatory framework o Adverse change in the social and/or political climate o Failure to comply with laws, our instrument of appointment and other recognised standards o Failure to delivery our business plan obligations o Being required to undertake unremunerated activity o Failure to prepare for market reform. Financial risks o Liquidity risk o Macro economic risk (interest rate and inflation risk) o Breach of and changes to our borrowing covenants o Cost of the defined benefit pension plan o Revenue and debtor risk.

4 Regulatory Compliance and Assurance Our approach to achieving and assuring compliance with our licence and regulatory obligations is based on a sound system of internal controls and governance. Our Board and Audit Committee members carry out a range of activities to inform themselves about our compliance. Our Director of Regulation is responsible for monitoring regulatory compliance and is supported in discharging this responsibility by employees in the Regulation, Legal and Internal Audit teams. We continue to employ an external Reporter to scrutinise, challenge and give independent advice on the procedures we use to collect and report the information underpinning this compliance statement. As a result of the Reporter s and our Internal Audit Team s scrutiny, we have identified the following areas for improvement. None of these are material risks to regulatory compliance or reporting of performance this year, but are areas we wish to address to mitigate compliance and performance risks in the longer term: We confirm that we have made the improvements in the areas that we said were necessary in last year s Risk and Compliance Report: o reporting of supply interruptions arising from planned work; o distinguishing between wanted and unwanted telephone calls; o correct classification of customer complaints included in written contact. Last year, we also identified the need to improve the consistency of reporting of some water balance components in preparation for AMP6 reporting of leakage performance for Outcome Delivery Incentives (ODIs). Our water balance closure error this year was higher than expected, so during the coming year we will complete our review of our unmeasured consumption monitor and work to reduce uncertainties in operational leakage calculations. This is to ensure that we can report leakage with sufficient precision against our new ODI targets that become operational for the 2015/16 reporting year. Regulatory outputs The Board has reviewed the performance of the company against the regulatory outputs set at the Final Determination for PR09 for each of the three regions of our business. We include in the Appendix to this statement a table on the delivery of these outputs. As highlighted last year, we have not completed the mains cleansing activities associated with manganese by 31 March 2015, as work was suspended early in 2014/15 following elevated discolouration risks. We re-commenced mains cleaning in June 2014 and are in the process of reaching agreement on revised Undertakings with the DWI for completion of the work in early AMP6.

5 At our Kings Walden site we are seeking agreement for a revision to our Undertaking with the DWI pending our demonstration of the benefits of the ion exchange plant we have installed. Compliance Statement 2014/15 We recognise the importance of demonstrating to our customers, stakeholders and regulators that we are meeting the statutory and regulatory obligations that apply to our activities. We have set out in this statement and our Annual Performance Report our compliance with and performance against certain key performance indicators, legal requirements and regulatory outputs. We have also identified the risks that we are facing and the steps we are taking to manage and mitigate those risks. In preparing this statement we have considered, in particular, our compliance with those legal and regulatory obligations for which Ofwat is the enforcement authority. In respect of these obligations, subject to the matters set out in this statement, we confirm that: We have a full understanding of, and are meeting, our statutory and regulatory obligations We have taken steps to understand and meet our customers expectations We are satisfied that we have sufficient processes and internal systems of control to meet our obligations; We have appropriate systems and processes in place to allow us to identify, manage and review our risks Where we have identified material or potentially material risks, we have set out in this statement the steps we are taking to manage and or mitigate those risks. Alongside this statement, we are publishing our Annual Performance Report and Annual Report and Financial Statements and our Regulatory Financial Statements for the year ended 31 March 2015, in which we: Confirm that we have sufficient financial and management resources available to us and systems of planning and internal control for at least the next 12 months to meet our obligations as a water undertaker; Confirm that transactions with associated companies are at arms length (except where agreed by Ofwat) with no cross subsidy occurring; Confirm that contracts entered into with associated companies include requirements concerning the standard of service to be provided, to ensure we can meet our obligations as a water undertaker

6 Confirm that if a special administration order were to be made, we would have available sufficient rights and assets (other than financial reserves) to enable a special administrator to manage the affairs, business and property of our regulated activities; and Explain links between the standards of performance we achieve and directors and senior executives pay. Dr.Philip Nolan Chairman Simon Cocks Chief Executive Officer

7 APPENDIX Output Region Comment Exceptional Items Blackford and Roydon manganese removal, cleanse 1080km mains Dovercourt new reservoir and replacement pumping station East Complete Trunk main TP03 (5.2km) Southeast Complete Trunk main TP04 (2.5km) Southeast Complete Mains TP28 (0.9km) Drinking Water Quality Southeast Revised undertaking date 31st March % of 935km designed and 78% enabling works completed. 39km trunk mains and 11km distribution mains completed Output removed with agreement of Ofwat through the change protocol mechanism Kings Walden improvements Ion exchange plant commissioned. Revised Undertaking being discussed with DWI pending demonstration of the effectiveness of the plant Chorleywood improvements Complete and Undertaking discharged Blackford manganese Mains cleaning delayed, (see exceptional items) Roydon manganese New treatment works installed, mains cleaning delayed (see exceptional items) Chertsey metaldehyde Egham metaldehyde Iver metaldehyde All the planned AMP5 activities for metaldehyde Walton metaldehyde are complete and results reported to the DWI. North Mymms metaldehyde We have agreed new Undertakings for AMP6 Anglian import metaldehyde with the DWI. Essex and Suffolk import metaldehyde Ardleigh metaldehyde East Combined operations security Project to be completed by end June 15. East and South East complete Designated site additional req. Physical protection complete; IT dependant element to be completed by end July 2015 Denge Water Treatment Works Southeast Complete Environmental Obligations Biodiversity Complete Fish Screens Complete Upper Colne investigation Complete Misbourne investigation Complete Upper Ver investigation Complete Mid Ver investigation Complete Mid Colne and Lakes investigation Complete Mid Rib investigation Complete Catchment management officers Complete Denge AMP5 National Environment Programme Study Phase 1 Southeast Complete Little Stour National Environment Programme Study Phase 1 Southeast Complete Resilience Resilience to flooding (29 sites) 21 sites completed including all our large River

8 Thames treatment plants. 7 smaller ground water sites will be complete in September 2015 and 1 site taken out of scope as it is included in our sustainability reduction programme. Resilience to flooding (7 sites) Southeast Complete