MD 211: Setting water and sewerage price limits: is five years right?

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Ofwat home > Publications > Letters to Managing Directors

MD 211

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

30 January 2006

SETTING WATER AND SEWERAGE PRICE LIMITS: IS FIVE YEARS RIGHT?

The way we set price limits must support long-term planning in the water industry. In 2003 we said that following the price review in 2004 we would consult on the length of the period for price limits at the 2009 price review. This paper fulfils that undertaking.

The consultation issues are set out in section 3 of the paper. We are seeking views on the questions listed below.

For how long do you consider the price limits should be set for the companies at PR09 and why?
Do you favour establishing at PR09 mechanisms which will increase certainty beyond the end of AMP5? If so, how should these be achieved, for what period and why?
Whether or not we change the period of price limits, can we do more to encourage companies to plan for the longer term? Can this be done without increasing risk for customers?
How can we achieve an appropriate balance of risk between consumers and investors in the measures to deal with uncertainties arising between periodic reviews?

The consultation is primarily about the length of the next review period but we welcome comments on related issues. To support the debate we are planning to run two workshops, at a working level, in March to promote discussion of the issues surrounding the length of the review period. The decision will be made by the Water Services Regulation Authority, which takes office on 1 April 2006.

We will shortly be issuing related consultation papers on our new duty to contribute to the achievement of sustainable development and, jointly with Ofgem, on financing issues for the regulated utilities sector.

We are giving this letter a wide circulation. Any enquiries on it should be referred initially to Victoria Botcherby on 0121 625 3620. Please contact Victoria if you, or a colleague, wish to receive an invitation to one of the workshops.

The closing date for responses is 4 May 2006. Please arrange for responses to be sent by e-mail to Victoria.botcherby@ofwat.gsi.gov.uk or posted to Victoria Botcherby, Parliamentary and Public Affairs, Office of Water Services, Centre City Tower, 7 Hill Street, Birmingham, B5 4UA.

PHILIP FLETCHER

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