Annual Performance Report 2020-21 wessexwater.co.uk Contents Introduction .................................................................................................................................. 2 Risk and compliance statement .............................................................................................. 5 Regulatory accounts introduction ............................................................................................. 8 Accounting disclosures .............................................................................................................. 9 Transactions with associates and the non-appointed business ........................................... 17 Section 1: Regulatory financial reporting ................................................................................ 19 Section 2: Price review and other segmental reporting ......................................................... 28 Section 3: Performance summary ............................................................................................ 46 Section 4: Additional regulatory information – service level ................................................. 73 Section 5: Additional regulatory information – water resources ........................................... 92 Section 6: Additional regulatory information – water network plus ...................................... 94 Section 7: Additional regulatory information – waste water network plus ........................... 99 Section 8: Additional regulatory information – bio-resources ....................................... 104 Section 9: Additional regulatory information – innovation competition ....................... 109 Assurance reports ................................................................................................................... 110 Wessex Water Services Ltd 1 Introduction Introduction Wessex Water’s Board is accountable for the accuracy and completeness of the information we report and publish. This annual performance report provides information on progress in delivery of customer outcomes, service levels, cost information and financial performance for the year ended 31 March 2021. We have prepared the report in accordance with Ofwat’s requirements (principally from RAG3.12), including the required accounting and narrative disclosures. The table on pages 3 and 4 sets out the requirements and where they may be found in this and other published reports. Board statement on accuracy and completeness of information The Board confirms it is satisfied that the data and information which the company has provided to Ofwat in the reporting year and/or which the company has published in its role as a water and sewerage undertaker was accurate and complete. Francis Yeoh Colin Skellett Jim McKenna Kate Mingay Chairman Chief Senior Chair of Audit Executive Independent and Risk Director Committee 7 July 2021 Information assurance activities To allow itself to make this statement, the Board carries out a wide range of activities. We have a well- established assurance framework, which is led by our Board. Being honest and ethical in the way we conduct our business is one of our core values. The following groups and processes are in place as part of our approach to information assurance: Wessex Water Services Limited (WWSL) Board It is the responsibility of the Board to ensure the company meets its regulatory and legal obligations. Board ownership is key to providing a strong assurance process. The WWSL Board has overall responsibility for the accuracy and completeness of the data and information which we provide or publish in our role as a water company. Audit and Risk Committee The Audit and Risk Committee assists the Board in monitoring the company’s obligations in relation to financial reporting, internal control and audit, and compliance and risk management systems. Part of the Committee's role is to review the company's financial statements and Annual review, including the Annual performance report. The company carries out an exercise with stakeholders to target any issues that need to be addressed and publishes a statement outlining its risks, strengths, and weaknesses. These target areas are each assigned a plan to manage and mitigate the data and information risks associated with them. At each stage of the process, an independent non-executive director reviews and challenges the approach in a 1:1 session with company managers. Following this review, the Audit and Risk Committee assesses the appraisals and the plans, challenges on the assurance approaches and gives its approval for each. The Committee also assesses the governance processes that sit behind these statements, including the business risk assurance map and the regulatory assurance manual. The Committee gets further assurance from independent financial and technical auditors. The Board then approves the statements and assurance plans. Full details can be found in the relevant documents on the company’s website. This process, alongside the other assurance activities as required in RAG3.12, satisfies the Board that the company has appropriately identified and addressed risks to the provision of accurate and complete data and information in particular areas. Wessex Water Services Ltd 2 Introduction Ofwat requirements Requirement Location General In-period adjustment model Separate submission to Ofwat Ring-fencing certificate Page 11 and published on our website here Long-term viability statement Annual Report and Accounts Board Statement of Company Direction and Annual Report and Accounts Performance Risk and compliance statement Page 5 Accounting methodology statement Published on our website as part of the APR Bioresources market monitoring information Published on our website as part of the APR Greenhouse gas emissions Page 61 Accounting disclosures A statement on executive pay and performance Annual Report and Accounts A statement as to disclosure of information to Page 9 auditors A statement on dividend policy for the appointed Page 9 business An accounting policy note for price control units Page 9 A note on revenue recognition Page 10 A note on capitalisation policy Page 10 A note on bad debt policy Page 11 A statement on sufficiency of non-financial resources Page 11 A statement on sufficiency of financial resources and Page 11 facilities The tax strategy for the appointed business Page 13 A statement on differences between statutory and Page 14 RAG definitions A long-term viability statement Annual Report and Accounts Wessex Water Services Ltd 3 Introduction Requirement Location A statement explaining out/under performance of the With financial flows narrative return on regulatory equity (Financial Flows and disclosure RORE) A statement explaining the variance on infrastructure Page 16 network reinforcement charges; and A statement on innovation competition. Page 16 Transactions to be disclosed Page 17 Narrative disclosures on performance Outcomes Page 47 Totex Page 73 Retail Page 28 Wholesale revenues Page 28 Current tax analysis Page 19 Current tax reconciliation Page 19 Interest Page 20 Financial flows Page 20 Narrative on costs Pages 76, 94, 99 and 104 Supply-demand balance and metering Pages 76 and 94 Analysis of debt Page 20 Common performance measures Page 58 Board statement on accuracy and completeness of Page 2 data and information Return on regulatory equity Page 76 Financial derivatives Page 20 Social tariffs Page 30 Wessex Water Services Ltd 4 Risk and compliance statement Risk and compliance statement Introduction The Water Services Regulation Authority (Ofwat) requires the Board to provide an annual Risk and Compliance Statement (the Compliance Statement). The Compliance Statement confirms that the Company has complied with all its relevant statutory, operating licence and regulatory obligations; that it has processes and systems of internal control in place; that it is taking appropriate steps to manage its risks; and that it demonstrates clear leadership, transparency and good governance. The Company is required to report by exception any instances where a regulatory output has not been met and to detail decisions and actions that demonstrate our governance processes. Our Annual Review including our annual performance report details progress on performance commitments, outputs and financial information. This information is for our customers, investors and regulators. Our Annual Review is supported by fact but occasional reliance is placed on estimates. These estimates have been made in good faith, based on reasonable assumptions and are clearly stated as an estimate. Compliance statement The Board confirms that it has appropriate and effective assurance process in place and: • the Board has a full understanding of and is meeting, in all material respects, its statutory, licence and regulatory obligations • the Company has met, in all material respects, relevant regulator and customer expectations as demonstrated by those outputs and service standards set out in its business plan and funded through the Final Determination • the Board is satisfied that the Company has sufficient processes and internal systems of control to fully meet its obligations, or has disclosed any modification or failure to meet such obligations • the Company has appropriate systems and processes in place to allow the Board to identify, manage and review risks. Principal risks and the appropriate management of them are set out in the Strategic Report and in the relevant section of the annual