RD 14/02                                                                                                                         

TO ALL REGULATORY DIRECTORS
OF WATER AND SEWERAGE COMPANIES
AND WATER ONLY COMPANIES                                                                     8 May 2002

Dear Regulatory Director

MAINTAINING WATER AND SEWERAGE SYSTEMS IN ENGLAND AND WALES: OUR PROPOSED APPROACH FOR THE 2004 PERIODIC REVIEW

The England and Wales water companies' networks and treatment plants deliver essential public services: high quality drinking water at the tap and the safe disposal of waste water. The companies are currently investing around £1.2 billion a year maintaining these systems. Judgements about future maintenance needs are important to safeguard health and protect the environment whilst also achieving value for money.

At each periodic review we set price limits to reflect the efficient maintenance needs of each company. We are considering now how to approach this, in the coming review which will culminate in our determination in November 2004.

The attached paper sets out our current thinking on maintaining these water and sewerage systems, notes the progress that has already been made, and seeks comment before the formal process of consultation on price setting in 2004 begins.

Our approach is not fixed yet, and we welcome your comments on it, particularly if you feel it can be improved. We will set out our proposed approach in the light of your comments in our methodology paper in October 2002. This will put the issues of capital maintenance into a wider context and will give you a further opportunity to consider the issues and comment accordingly.

In the meantime, please could you comment on this paper, and in particular on the issues we have set out in the questions on page 5, by Monday 8 July 2002, to:

W H Emery
Director of Costs & Performance Division
and Chief Engineer
Office of Water Services
Centre City Tower
7 Hill Street
Birmingham B5 4UA

Copies of responses will be placed in the Ofwat library unless marked 'Confidential'.

If you wish to discuss any issues relating to these proposals, please contact Stephen Bottom on 0121 625 1452.

Yours sincerely

W H EMERY
Director of Costs & Performance Division
and Chief Engineer

Enc