Following an analysis of the water companies' PR14 quality assurance processes for data submissions for their business plans, Ofwat has described them as “not fit for purpose” and wants them to assess the effectiveness of their processes “as a matter of urgency.”

The Ofwat process used to examine the data has thrown up a number of deficiencies. The regulator is warning that the provision of poor quality data for the business plans could have adverse implications, including how Ofwat categorises their plan and the impact on Ofwat’s delivery plan for the 2014 price review.

In August each company had to provide data to Ofwat by completing a series of tables – the regulator has since been using the data from seven of the tables to develop and test models of companies’ costs. The regulator then intends to use the cost models to inform its assessment of all companies’ costs at the 2014 price review.

As part of the process Ofwat has separately carried out a quality assurance process on companies’ data to try and make sure it is using reasonably robust data to support the modelling of costs.

In total, the rgulator made 191 individual queries to companies, about the quality of the data – about two/thirds of the querie resulted in the companies making chanfes to the data . In all there were about 14,000 changes to individual data items, about 10% of the data that all companies submitted.

The most common issues found with companies’ data were:

• incorrect units or price bases;
• data cells incomplete and missing commentaries;
• inconsistencies betweenvcompanies’ August submission data and the data they previously reported in their June returns or their regulatory accounts;
• unexplained changes in the base level or trends in data; and
• companies not updating their data to take account of Ofwat’s final definition of retail services or other changes between the draft and final August data reporting requirements.

Ofwat had also made it an explicit requirement for companies to provide commentary on one aspect of their data submissions, however, more than half of the companies failed to provide the commentary. The regulator's PR14 methodology published in July 2013 confirmed that each company is responsible for the assurance of the data and evidence it provides as part of the price review.

Based on the quality assurance analysis, Ofwat is now saying that the quality of companies’ August submission data suggests that the quality assurance processes that companies have in place at present are not "fit for purpose." The regulator has drawn attention to the fact that the business plans that companies will provide in December 2013 require companies to provide 63 tables of supporting information - substantially more than the eight tables provided in the August data submission.

Ofwat is warning the companies that they should be aware that if they make significant errors and mistakes in their business plan data, it will affect how the plan Is categorised. As a minimum the regulator says it is unlikely that such plans would be categorisea as ‘enhanced’ and it may ultimately require them to substantially rework their plan.

Ofwat is also concerned that the current issues with companies’ data quality in their business plans could also have a substantial effect on its 2014 price review delivery plan, which includes a risk-based review from December 2013 until the end of March 2014.

Ofwat says if it cannot rely on companies’ data in their business plans then it could delay all subsequent activities, including the announcement of companies’ business plan categories and the timing of both draft and final decisions of their price controls.

The regulator now wants the companies to assess the effectiveness of their quality assurance processes “as a matter of urgency” and where necessary put in place “substantially improved” quality assurance processes to ensure that their business plans are properly supported by robust data.