|
MD172
TO ALL MANAGING DIRECTORS OF
WATER AND SEWERAGE COMPANIES
AND WATER ONLY COMPANIES 13 September 2001
PUBLISHING FUTURE REGULATORY CAPITAL VALUES
The most important figures in any price controlled regulatory framework are the price limits themselves. There are a number of critical parameters and assumptions that underlie these price limits. One is the regulatory capital value (RCV) for each company.
In an incentive-based framework, it is for the management of the companies and not the regulator to decide how best to achieve the required outputs within the constraints of the price limits. I am committed to transparent decision taking and providing regulatory information to our stakeholders in a way that is appropriate to the audience.
In recent months, the investment community has frequently raised with me the disclosure of future RCVs. Currently only historical RCVs are disclosed each year in my annual report 'Financial performance and expenditure of the water companies in England and Wales'. Future RCVs are not published by Ofwat but were given to companies as part of the supplementary information with the final determinations. Companies are free to publish these figures and two water and sewerage companies have recently chosen to do so.
The investment community has indicated that they would like the future RCVs to be published. They believe that this would increase not only the transparency of regulatory decisions but also their consistency and predictability. I agree that this is an important matter, and therefore indicated, as set out in 'The Ofwat Forward Programme 2001-02', that I would consult on this proposal.
The most significant issues raised in the consultation paper are: - should we publish future RCVs?
- if so, what degree of detail is necessary?
- what supporting commentary and explanation is needed?
There are precedents for disclosing future RCVs. Ofgem did so in the final proposals paper for the electricity distribution businesses (and also in the price reviews for Transco and the NGC). The Regulatory Accounts Inter-Regulatory Working Group also considered this issue in their final proposals paper published in April 2001 though this was more concerned with reporting retrospective, rather than future, RCVs. The RCV proposals in the attached paper however are consistent with those of the Working Group. I propose that Ofwat publish the future RCVs. I anticipate that there would be no burden on companies to produce data for additional disclosure.
Subject to consideration of the responses to this consultation, we plan to publish the RCVs, in an appropriate and agreed format, before mid December 2001.
If you have any questions on this letter, please contact:
Mr Keith Mason
Director of Regulatory Finance
Office of Water Services
Centre City Tower
7 Hill Street
Birmingham B5 4UA
Email: keith.mason@ofwat.gsi.gov.uk
Please send your written responses to the issues raised in this paper by 19 November 2001.
PHILIP FLETCHER
| 
Letters to Managing Directors
