MD179

TO ALL MANAGING DIRECTORS OF
WATER AND SEWERAGE COMPANIES
AND WATER ONLY COMPANIES                                                                   

Dear Managing Director

LOGGING UP AND DOWN – DEALING WITH SHORTFALLS IN OUTPUTS AND NEW REQUIREMENTS BETWEEN PERIODIC REVIEWS

Between periodic reviews there may be changes to the outputs that a company is required to deliver. Where a change, either in terms of additional obligations or the removal of obligations, is material this can trigger an interim determination of price limits. If the change is not sufficient to trigger an interim determination (or if a company or we choose not to seek one), we provide a mechanism for the company to 'log up' any reasonable net additional costs to be taken into account at the next periodic review. Similarly reductions in outputs required are 'logged down'.

We indicated in the 'Ofwat forward programme 2002-03 to 2004-05' (March 2002) that we would consult on the logging up/down process, its objectives and interactions with the interim and final determination processes.

The attached consultation paperreviews our current approach and consults on the need for changes. The paper describes the interaction of periodic reviews, interim determinations and logging up/down. It sets out in detail the interim determination and logging up/down process as currently operated and explores the issues on which we are consulting in more detail. The paper contains a series of numbered questions on which we would like your views.

The responses to this paper will help to inform our view on the logging up/down process we will adopt for the AMP4 period (2005-10). Following this consultation we will set out our proposed approach in our consultation paper on the methodology and framework 'Ofwat's approach to the period review 2004' to be published in October 2002.

We want to hear from all those with an interest in the issues raised in the paper. Your views are invited by 23 August 2002 and should be sent to:

Keith Mason
Director of Regulatory Finance
Office of Water Services
Centre City Tower
7 Hill Street
Birmingham
B5 4UA

Or by fax on: 0121 625 3609

Or e-mail: keith.mason@ofwat.gsi.gov.uk

If you have any queries about the consultation please contact Tracey Anderson, Head of Regulatory Accounts and Business Affairs Team on 0121 625 1311 or by e-mail at tracey.anderson@ofwat.gsi.gov.uk.

PHILIP FLETCHER