The Director welcomes your views on all of the issues that are addressed in this consultation paper. Please send them to:

All responses should be marked PR99 - Information requirements consultation. 

If you wish to clarify any points in this paper, please contact Dilys Plant, Head of External Relations (0121 625 1450) in the first instance and she will ensure that your query is dealt with. 

Unless otherwise requested, responses will be placed in the Ofwat library and made available to the public. 

1. FOREWORD 

This paper describes the principles of the business planning process I propose for the 1999 price review. It explains how I intend to involve interested parties, particularly customers.  

The paper also sets out proposed information to support the review process. These requirements are in the form of detailed working-level proposals. I recognise that the resulting information requirements are greater than required for the last review. The information requirements could present a particular burden in the summer of 1998. 

I am seeking views on the scope, content, audit requirements and timetable of each of the information returns which I have specified in this paper. I would also welcome any specific proposals for further streamlining the information requirements.

My proposals give opportunities to all interested parties to contribute to the review before I make my decisions. These interested parties will need adequate information to form their views and contribute to the debate. I will need sufficient information to set price limits in accordance with my statutory duties and to publish an explanation of my conclusions and set out supporting information, such as the scale of the capital expenditure programmes allowed for in price limits. This will involve collecting, analysing and publishing information at various stages of the review.

Information submitted to me by companies in support of the price limits they consider necessary should be systematically related to what I need to decide and explain. Looking forward from the determinations, companies will need to publish plans which can be explained to the public and form a monitoring base for regulation in successive years.

The information required will be closely related to the regular information collected by Ofwat as set out in Information for regulation (May 1995). In most cases information about the future will be presented in the form of projections of existing information in the July Return. This information will be validated by the Reporters appointed under the companies' licences. I have suggested certain changes in the position of the Reporters and hope to set out my conclusions and proposed action shortly.

The emphasis on consultation and timely exchange of information as the review proceeds may be contrasted with the greater emphasis in 1989 and again in 1994 on detailed, confidential submissions from companies at a late stage of the process. This time the emphasis will be on a phased business planning process involving customers and other interested parties.

I C R BYATT

Director General of Water Services

2. SUMMARY

This paper sets out the proposed business planning process for the Periodic Review in 1999. The Director has outlined the methodological issues in a separate paper, The proposed framework and approach to the 1999 Periodic Review (June 1997).

2.1 Business planning process and customer consultation  

The Director has developed his proposals for the 1999 Periodic Review business planning process in the light of comments received in response to MD124 (see Appendix 1). The process has been designed to enable all interested parties in the review to contribute. 

Customers are at the forefront of the Director's thinking. He believes that they want to see efficiency gains made by companies translated into benefits for them, through an initial reduction in prices in real terms. He also believes that they do not then want to see bills rising to finance environmental and quality improvements. 

More than the other utilities, water and sewerage services have a strong regional dimension. The business planning process should accommodate differences in the regional situation. 

The main points are identified below.

• A phased process. A phased approach is proposed to allow timely debate of the issues and to enable all interested parties to make informed contributions. Time is needed to expose and inform issues relevant to the price limit determinations. There should be no surprises in the final stages of the review, for customers or companies.
• Listening to views. Taking proper account of the views and aspirations of interested parties is central to the success of the price review. The Director identified a number of key interested parties: customers, the Government, the Drinking Water Inspectorate (DWI), the Environment Agency and environmental interest groups, investors and lenders. The Director would particularly welcome views on his proposals from these interested parties.
• An open and transparent process. Openness and transparency in the process requires greater public access to information than previously. The Director hopes that information submitted by companies will be able to be placed in the public domain. The burden of proof will be on those wishing to impose confidentiality restrictions on information to justify their decision. The Director will ensure that sufficient information is published by Ofwat to make his judgements and determinations transparent.
• Handling the key issues. The issues material to price setting will be considered under six headings:

   - Strategic options. The balance to be struck between service delivery and price, reflecting both customers' priorities and environmental objectives.

  - Efficiency. Assessing the scale of past efficiency improvements that can be passed on to customers through an initial price cut and then the scope for future efficiency.

  - Quality functions. Making decisions on the quality outputs required from the companies, their cost and phasing.

  - Maintaining serviceability for customers. Assessing both companies' past performance in maintaining the operating capability of their assets to deliver serviceability to customers and then the implications for the future. The results of the audit of the assets and how this compares with the position in 1992-93 would be used to guide this assessment as well as the output performance measures.

  - Maintaining the supply/demand balance in a fair, economic and efficient way for current and future customers, taking account of environmental costs and the risks of climate change.

  - Financing functions. Achieving the right balance between customers, investors and lenders to enable prudent and well managed companies to be financed.

 The proposed information requirements to support price setting build on Information for regulation (May 1995).

 The Director invites views on his proposals. The key issues are identified below:

• Confidentiality of company information. The Director hopes to be able to place company returns and submissions in the Ofwat library soon after they have been received (normally within two months). The Director seeks views on this proposal. If companies consider that some returns, or elements of them, should be kept confidential then these should be identified with a justification for the restriction. 
• Publication of information by the Director. The Director anticipates that he will publish information at key stages in the review that summarise progress and set down his assessment of the strategic options and their implications for customer bills. These are currently anticipated to be:

  - his open letter to the Secretaries of State on the implications of potential environmental and drinking water improvements, including the impact on water resources (April 1998);

  - the publication in autumn 1998 of Prospects for prices: strategic options and issues;

  - draft determinations in late July 1999 and final determinations in late November 1999.

• Scope of information requirements. The Director has taken account of four criteria in developing, in as economical a way as possible, his proposed information requirements:

  - materiality - the level of data needed to set realistic price limits and specify the required outputs;

  - sensitivity - the data needed to involve interested parties in the key areas of consultation;

  - performance - the data needed to assess company performance, particularly in areas of concern;

  - competition - the data needed to ensure that effective comparative competition exists across all regulated activities given that the Director is acting as proxy for a competitive market.

The Director would like to be reassured that companies need the information he proposes to collect for running their own businesses, even though they operate in a privileged monopolistic position.

The Director seeks views on the scope, content, audit requirements and timetable of each of the information returns which he has specified in this consultation paper. He would also welcome any specific proposals for further reducing the information requirements, while continuing to satisfy the four criteria listed above.

• Time horizon for projections. An 18 year time horizon is proposed for most data submitted for the review. The Director seeks views on this general time horizon and those areas where respondents consider it would be appropriate to extend or reduce the requirements.
• Multi-utilities and companies in common ownership. The emergence of multi-utilities and the increased joint working of companies in common ownership present particular issues with respect to information and price setting. The Director will ensure that consistent and comparable data is collected so that their performance can be assessed relative to other companies.
• Small companies. It is proposed to limit the early information required from small companies to only those returns that inform comparative efficiency analysis. They will not be prevented from submitting fuller information if they choose to do so. The Director seeks views on both the general principle of limiting data from small companies and to which returns this option should apply.  

The full document is available free of charge from the Ofwat Library.

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