WATER SERVICES
REGULATION AUTHORITY News Release (PN 37/07) issued by The
Government News Network on 18 October 2007
Ofwat today
published its first major consultation on how it will set price
limits for customers' water and sewerage bills for the five
years from 2010 to 2015. The consultation paper describes the
approach that the regulator will take to make sure that the prices
companies charge their customers are designed to deliver the best
results for those customers.
Ofwat Chief Executive Regina Finn said:
"The approach we set out here has its foundations in the
robust challenge that Ofwat has always brought to its scrutiny of
companies' business plans to make sure they deliver value for
money for customers. But in the light of the challenges of the
future we do propose to make some changes to the way we set price limits."
One new development is the requirement for all companies to
publish a 25-year strategic direction statement. This will show
how each company proposes to tackle long term issues such as
climate change, the development of competition and, where
relevant, increased housing development.
Regina Finn said:
"Innovation and creativity will be essential if the water
sector is to meet the challenges it faces at a price customers
regard as fair. Competition is generally the best driver of that
type of innovation and our decisions in setting price limits will
support our aim of promoting competition in consumers'
interests. In the meantime, the longer term focus should
concentrate companies' minds on how they can innovate to meet
the needs of their customers in the future."
The process will also be simplified by requiring companies to
submit only one core business plan, but that plan will have to
strike the right balance to deliver the best outcome for their
customers now and in the long term.
Other new proposals include a new form of incentive-based
regulation for capital expenditure that allows companies to choose
their own risk-reward trade off, and a requirement to use cost
benefit analysis across all parts of the business to make sure
that companies make the best choices for their consumers.
Regina Finn said:
"We aim to see a result that delivers best value for
consumers and the environment at a fair price. A key part of this
will be the cost of finance to the industry. When we look at this
we will consider the significant premiums to regulatory value
being paid for water companies in recent years, along with other evidence."
Following consultation on the methodology paper, which ends in
January 2008, Ofwat will publish its final guidance paper in March
2008 to enable water companies to deliver their draft business
plans in August 2008.
Notes to Editors:
1. The Water Services Regulation Authority (Ofwat) is the
economic regulator of water and sewerage companies in England and
Wales. It exercises its powers in a way that it judges will
protect the interests of consumers, promote value and safeguard
future water and sewerage services by allowing efficient companies
to carry out their functions properly, and finance them.
2. The consultation paper, 'Setting price limits for
2010-15: Framework and approach - a consultation paper', will
be available on the Ofwat website, http://www.ofwat.gov.uk and
from the Ofwat Library on 0121 625 1373.
3. Responses to the consultation paper should be sent by 24
January 2008 by email to rhiannon.mchugh@ofwat.gsi.gov.uk, or by
post to Rhiannon McHugh, PR09 Planning Team, Ofwat, Centre City
Tower, Birmingham B5 4UA.
4. Ofwat has also published three further price review letters to
accompany the consultation. These are: 'PR09/02: Menu
regulation proposals for PR09', 'PR09/03: Risk
allocation, investment incentives and the financing of regulated
business' and 'PR09/04: The opex incentive allowance and
the outperformance multiplier for 2005-10'. These are also
available on the Ofwat website.
Centre City Tower, 7 Hill Street, Birmingham, B5 4UA