Governance - United Utilities - Year in Review 2024

At £13.7 billion, the business plan submitted to Ofwat in October 2023 has been designed to address the group’s expected regulatory commitments in 2025–30 and provide great water for a stronger, greener and healthier North West.

Dear
shareholder

The AMP8 business plan was submitted to Ofwat on 2 October 2023. At £13.7 billion, it is hugely challenging – and to put it into context, it will mean managing an average spend of circa £228 million per month efficiently. Management have been driving change in readiness for AMP8 throughout the year, including reinvigorating the group’s ‘Home Safe and Well’ health and safety strategy and culture and working to improve health and safety performance throughout the business, which is subject to regular review by the board. A considerable amount of the AMP8 capital expenditure will be spent with local suppliers and will directly benefit the North West economy – making our region stronger.

The governance process of the AMP8 business plan has been robust. In the first instance, proposals were reviewed and challenged by the future plan strategy board, the executive team and the compliance committee. The compliance committee thereafter made a recommendation to the board to approve the board assurance statement relating to the plan. The board has undertaken regular deep-dives throughout the year on a number of topics (see page 99 of our integrated annual report), many of which directly informed the business plan and further information can be found in our S172(1) Statement on page 47 of our integrated annual report.

Communities

Time in board meetings has been spent considering the communities across our region – particularly where our operations have had an impact on normal business operations with a knock-on effect to the communities we serve. The incident at Fleetwood Wastewater Treatment Works over the summer resulted in precautionary advice being issued by the Environment Agency in relation to the bathing waters along the Fylde Coast, and while the company did its utmost to make the repairs to the ruptured pipe as quickly as possible, some disruption was unavoidable.

The company has worked with the local community around Lake Windermere regarding the storm overflows that discharge into the lake to take action along with other organisations through the Love Windermere partnership (lovewindermere.co.uk). An information centre has been opened in the town to ensure members of the local community can easily come and talk to us to understand our plans to reduce spills from storm overflows.

Haweswater Aqueduct
Resilience Programme (HARP)

The board has been kept fully informed of progress with the procurement of the competitively appointed provider (the CAP) to design, build, finance and maintain the replacement of six single line tunnel sections of the Haweswater Aqueduct. The aqueduct is a critical asset for the supply of water to customers in Cumbria, Lancashire and Greater Manchester. The project is the first of its kind to be procured under Ofwat’s ‘direct procurement for customers’ (DPC) methodology, whereby United Utilities Water, as the licensed water and wastewater company (the appointee) will appoint a CAP following a competitive procurement process to deliver the project. Under the DPC arrangements, the CAP will finance the project and recover its costs via a monthly charge to UUW, over the life of the project. This charge will be recovered from customers as part of UUW’s wholesale water charges.

To reflect the differences in the approach Ofwat has set out a series of ‘control points’ where specific information is submitted to Ofwat for its approval to move to the next stage of the process. At each control point, Ofwat expects the board to provide an assurance statement that the submission meets Ofwat’s requirements. A governance framework has been established for the programme, with escalation of commercial and regulatory issues where appropriate through the HARP commercial steering group, the executive team, to the UUW board and also to Ofwat – if its approval is required. The board has engaged a number of third parties to provide assurance on the different elements of the control point submissions and Deloitte has been appointed to act as the cross-programme assurance aggregator to provide a cohesive overview of assurance.

The board has also engaged a panel of third party experts to provide oversight and challenge to the procurement team to ensure that the process of selection of the preferred bidder is being managed in accordance with the procurement process as set out in the contract. The panel, established in February 2023, has met approximately every three months, with the experts bringing together their collective expertise of procuring a number of large infrastructure projects across different industries, sharing best practice and insight from their collective experience. The panel prepare a report to the board following each of their meetings summarising the recommendations given to the procurement team and highlighting any areas to be considered or points of action.

Looking to AMP8, DPC is a model which Ofwat is expected to roll out throughout the sector for large capital infrastructure projects, and has used the learning from HARP to inform and improve its guidance for DPC projects.

The board has met with a number of representatives from our regulators during the year, both formally and informally, enabling both parties to share views and discuss matters of joint interest and focus on the particular challenges posed in the North West.

The governance process of the AMP8 business plan has been robust.

Sir David Higgins,
Chair

Cyber and
artificial intelligence (AI)

The board has regular oversight of cyber security matters – cyber risk is a top-ten risk for United Utilities. As a provider of essential services for UK Critical National Infrastructure, the group is governed by the Network and Information Systems Regulations (NIS Regulations), which focus on cyber security compliance. Monitoring/enforcement of these regulations is within the remit of the DWI. The chief security officer, who reports functionally to the company secretary, presents to the board twice a year, providing the board with insight into the mitigation activities employed by the group in response to the evolving threat of cyber and physical security attacks. The protection of our customers, our people and our assets is of the utmost importance. During the year, the board was apprised of the group’s AI policy, which sets out guidance for colleagues on the utilisation of AI services, both online and on premise and provides a structure and framework within which AI services should be used.

Board
colleagues

As reported last year, Michael Lewis joined the board and the ESG committee on 1 May 2023, and as part of our board succession plans, we were pleased to welcome Clare Hayward as an independent non-executive director joining the board on 16 April 2024. It was announced on 16 April 2024 that Paulette Rowe would not be seeking reappointment at this year’s AGM following her move overseas to take up an executive role. Paulette will be much missed and we wish her well in her new role.

Compliance
committee

During the year, the compliance committee, which was established as a committee of the board in February 2023, met on three occasions. Alison Goligher, senior independent non-executive director, chairs the committee. Our regulators are some of the group’s key stakeholders, and addressing their requirements is an essential business activity. The committee was formed in order to provide independent oversight and review of the group’s regulatory reporting and assurance requirements and processes, which included providing helpful challenge and endorsement of the approach to the assurance of the business plan prior to consideration of the same by the board. Alongside Alison, Doug Webb, Louise Beardmore and James Bullock were appointed as members of the committee. The committee’s inaugural report can be found on page 137 of our integrated annual report.

Reporting against
the code

In our corporate governance report, we set out how the board has fully applied the principles and fully complied and reported on the provisions of the 2018 UK Corporate Governance Code (the code).

Annual general
meeting

I look forward to welcoming shareholders to the company’s main offices in Warrington at the annual general meeting in July, the details of which are included in the notice of meeting.

Sir David Higgins
Chair

Quick links:

Schedule of matters reserved for the board unitedutilities.com/corporate-governance

A copy of the Financial Reporting Council’s 2018 UK Corporate Governance Code can be found at frc.org.uk

Quick facts:

Sir David Higgins met the independence criteria as set out in provision 10 of the 2018 UK Corporate Governance Code (the code) when he was appointed.

All directors are subject to annual election at the annual general meeting (AGM) held in July. The board concluded, following the completion of the evaluation of the effectiveness of the board, that each director continues to contribute effectively.

The company secretary attends all board and committee meetings and advises the Chair on governance matters. The company secretariat team provides administrative support.

The directors’ biographies include specific reasons why each director’s contribution is, and continues to be, important to the company’s long-term sustainable success.

The code requires that at least half of the board, excluding the Chair, should be non-executive directors whom the board considers to be independent. As at 31 March 2024, there were six independent non‑executive directors on the board.

The board recommends that shareholders vote in favour of those directors standing for a further term at the forthcoming AGM, as they will be doing in respect of their individual shareholdings.