We use data models to calculate water companies’ price controls – and certain information we need to set those controls.
Below we’ve set out the models we have used to set the final determinations for all companies in England and Wales 2020 to 2025 . These include:
- past delivery models
- cost assessment models
- financial models
- risk and return models
- outcomes models
- bioresources models
- PR19 reconciliation models
We have updated our PR19 models map to help show how all the models work together.
Past delivery models
The purpose of the past delivery modelling suite is to perform the reconciliations of the 2014 price review incentive mechanisms operating for companies during 2015-20.
We will apply the reconciliation adjustments to companies’ 2020-25 price controls. We use the revenue and Regulatory Capital Value (RCV) adjustments produced by the reconciliation models as inputs for the PR19 financial model in the revenue adjustments feeder model and the RCV adjustments feeder model.
For each company we publish:
- a model for each reconciliation
- a revenue adjustments feeder model
- a RCV adjustments feeder model
We also publish a service incentive mechanism (SIM) model for the industry.
Cost assessment models
The aim of cost assessment modelling suite is to assess business plan costs and to set efficient totex allowances.
We have published the following models.
1) We have a suite of four models for wholesale water, wholesale wastewater and residential retail.
- FM_RR1, FM_WW1 and FM_WWW1 are the master datasets including costs and costs drivers data provided by companies.
- FM_RR2, FM_WW2 and FM_WWW2 calculate the catch-up efficiency challenge.
- FM_RR3, FM_WW3 and FM_WWW3 calculate the forecast of costs drivers that are used in our econometric models to explain our modelled based costs.
- FM_RR4, FM_WW4 and FM_WWW4 calculate efficient base costs and efficient totex per price control by adding the different building blocks of our totex assessment.
2) We also present three Stata do files used to estimate the coefficients of our econometric models in the following areas.
- Wholesale water
- Wholesale wastewater
- Residential retail
3) We also present the following workbooks which include costs drivers that are obtained from external sources:
- Density indices: these models use local authority data on ONS population and density by local authority areas to construct company specific population density indicators.
- Households’ forecasts: This model calculates the number of projected ONS households per each company as well as the annual growth rates for the AMP7 period.
3) Totex reported by companies: This workbook estimates estimate the proportions we use to allocate wholesale modelled base costs allowances into each price control. The proportions are based on companies’ business plans that were submitted in April 2019.
4) Base adjustment model: this model makes further adjustments to company wholesale base cost allowances.
5) Unmodelled base costs feeder models: This is a suite of models that sets out our assessment and allowance for abstraction charges; business rates; third party cost; pension deficit recovery costs; traffic management act costs; other costs including third party services, other cash items, industrial emissions directorate costs and non-s185 diversion costs.
7) Enhancement feeder models: the enhancement feeder models include our assessment of enhancement costs.
8) Company specific efficiency challenge feeder model: this model is used to determine the company specific efficiency challenge that is used in the enhancement shallow dives and deep dives assessment.
9) Reallocations feeder model: this file provides information on how costs have been reallocated from one enhancement cost category to another enhancement cost category or to base costs. We show the reallocations starting with the data that each company submitted before its draft determination and not the data it submitted with its representations to the draft determination.
10) Enhancement opex implicit allowance feeder model: this model estimates the enhancement opex that needs to be removed from our efficient modelled base costs. The reason is that we assess enhancement costs at totex level.
11) Cost adjustment claims feeder models: these models include our assessment of companies’ cost adjustment claims. There is one model for each company.
12) Aggregator files: These are intermediary files and do not present assessment. These workbooks aggregate information from three of our building blocks of cost assessment: enhancement, unmodelled base costs and costs adjustment claims.
13) Company view of totex: in this model we calculate the totex for cost sharing using September 2018 and August 2019 companies’ submissions.
14) Cost sharing rates: this suite of models calculate the cost sharing rates. There is one model per each regulated company.
15) Business retail feeder model: this model calculates the efficient cost allowance for business retail.
16) Opex lease adjustments: this model calculates the adjustment to allowed operating expenditure (opex) to reflect operating leases which are reclassified as capital expenditure under new accounting regulations.
17) Separate price controls: this suite of models present our allowances for the following separate price controls: Havant Thicket for Portsmouth Water and Thames Tideway for Thames Water.
18) Opex/Capex split: This model is used to calculate the split of operating expenditure (opex) and capital expenditure (capex) to apply to our allowances. The model calculates company proportions of base and enhancement opex and capex using August 2019 representation data . The proportions are applied to our base and enhancement allowances and then specific items are added back. This gives the total £ million allocated to opex and capex and revised proportions are calculated to feed into the cost sharing model.
19) Grants and contributions: this suite of models calculates the grants and contributions for input to the financial model
20) A flow diagram to explain our cost assessment feeder models system
1. Wholesale water, wholesale wastewater and residential retail models
Wholesale water models
|Feeder model 1: Wholesale water – Master data|
|Feeder model 2: Wholesale water – Water Catch up adjustment|
|Feeder model 3: Wholesale water: Forecast of water cost drivers|
|Feeder model 4: Wholesale water – Water resources and water N+ cost allowances|
Wholesale wastewater models
Residential retail models
|Feeder model 1: Retail – Master data|
|Feeder model 2: Retail – Catch up adjustment|
|Feeder model 3: Retail – Forecast of retail cost drivers|
|Feeder model 4: Retail cost allowances|
2. Stata do files
|Stata do files: Retail|
|Stata do files: Wholesale water|
|Stata do files: Wholesale wastewater|
3. Cost Driver workbooks
|Household forecast ONS data|
|Weighted average density index – forecast|
|Weighted average density index – historical|
4. Totex reported by companies
|Totex reported by companies|
5. Base adjustment model
|Base adjustment model|
6. Unmodelled base costs feeder models
|Unmodelled costs feeder model: Abstraction|
|Unmodelled costs feeder model: Business Rates|
|Unmodelled costs feeder model: Other Costs|
|Unmodelled costs feeder model: Pension deficit repair costs|
|Unmodelled costs feeder model: Traffic management act|
7. Enhancement feeder models
8. Company specific efficiency challenge feeder model
|Company efficiency factor model|
9. Reallocations feeder model
|Feeder model: Enhancement Reallocations|
10. Enhancement opex implicit allowance feeder model
|Enhancement opex implicit allowance model|
11. Cost adjustment claims feeder models
12. Aggregator files
|Feeder model: Enhancement aggregator|
|Feeder model: Cost Adjustment Claims aggregator|
|Feeder model: Unmodelled costs aggregator|
13. Company view of totex
|Company view of totex|
14. Cost sharing rates
Cost sharing models
|Affinity Water||Cost sharing model Affinity Water|
|Anglian Water||Cost sharing model Anglian Water|
|Bristol Water||Cost sharing model Bristol Water|
|Hafren Dyfrdwy||Cost sharing model Hafren Dyfrdwy|
|Northumbrian Water||Cost sharing model Northumbrian Water|
|Portsmouth Water||Cost sharing model Portsmouth Water|
|SES Water||Cost sharing model SES Water|
|Severn Trent Water||Cost sharing model Severn Trent Water|
|South East Water||Cost sharing model South East Water|
|Southern Water||Cost sharing model Southern Water|
|South Staffs Water||Cost sharing model South Staffs Water|
|South West Water||Cost sharing model South West Water|
|Thames Water||Cost sharing model Thames Water|
|Dŵr Cymru||Cost sharing model Dŵr Cymru|
|United Utilities||Cost sharing model United Utilities|
|Wessex Water||Cost sharing model Wessex Water|
|Yorkshire Water||Cost sharing model Yorkshire Water|
15. Business retail feeder model
|Feeder Model: Business Retail|
16. Opex lease adjustments
|Opex lease adjustments model|
17. Separate controls
|Cost adjustment claim feeder model Havant Thicket (PRT) separate control|
|Cost adjustment claim feeder model Thames Tideway separate control|
18. Opex/Capex split
|Opex/Capex split model|
19. Grants and contributions
20. Cost assessment feeder models flow diagram
|Cost assessment feeder model flow diagram|
The purpose of the financial modelling suite is to set price control limits for the 2019 price review and to test company financeability. It is also used to test return on Regulated Equity in different scenarios.
The suite consists of:
- the main financial model
- a balance sheet feeder model
- a pension feeder model.
The purpose of both the balance sheet and pension feeder models are to extract data from the business plan tables and manipulate it to produce the appropriate inputs to be used the financial model. We publish a financial model, a balance sheet feeder model and a pension feeder model for each company.
We also publish an inflation model for the industry.
At draft determination we also published a cost sharing and a grants and contributions model. These can now be found in the cost assessment model suite.
Risk and return models
The purpose of the Pay As You Go (PAYG) models is to provide companies with the calculation of our technical adjustment to PAYG rates.
We apply the adjustment to align PAYG rates with the split of operating and capital expenditure in allowed totex to maintain the company’s approach to setting PAYG rates.
We also show any further adjustments we make to PAYG rates. For example, for financeability.
For each company we publish a model that sets out a reconciliation between the PAYG rates applied in our draft determinations for each wholesale control and the PAYG rates applied in our final determination. Where we intervene in Regulatory Capital Value (RCV) run off rates, we also set out a reconciliation of RCV run off rates between draft and final determinations.
The Cost of Capital model sets out how we have calculated our allowed return on capital, based on point estimates of parameters. It provides the inputs used by the PR19 Financial Model to generate the allowed revenue for financing costs in the wholesale controls.
Outcome Delivery Incentive (ODI) Rates customer facing and ODI Rates Non-customer facing
The purpose of the common ODI rate models are to calculate underperformance and outperformance rates.
- For customer facing performance commitments, the model sets out our triangulation of ODI rates, using industry values, equivalent ODI rates for 2015-20, and information from company’s customer research.
- For non-customer facing performance commitments, the model sets out our calculation of, and interventions based on, the reasonable range. The models also provide our calculation of Tier 1 ODI rates for unplanned outage and leakage.
|ODI rates customer facing performance committments model|
|ODI rates non-customer facing performance committments model|
Enhanced ODI Thresholds and Rates
The purpose of the enhanced ODI model is to calculate underperformance and outperformance enhanced ODI rates and enhanced thresholds.
The model covers the full set of performance commitments for which companies proposed enhanced ODIs – leakage, pollution, internal sewer flooding, per capita consumption and water supply interruptions.
- our calculation of the benchmarking externality input used to set enhanced ODI rates
- the calculation of the frontier shift used to determine enhanced thresholds.
|Enhanced ODI Thresholds and Rates|
We use the following spreadsheet models to calculate the bioresources revenue to remunerate fixed costs for companies.
The aim of those models is to illustrate the methodology we have used to classify companies’ revenues as either fixed or variable. The methodology ensures that where sludge production varies the incremental change in revenues that arises is aligned to incremental costs.
Getting the alignment between incremental revenues and incremental costs right is key to ensuring that the company is correctly remunerated, if there is a difference between the sludge companies actually produce and what they had forecast.
|Anglian Water||Bioresources revenue to remunerate fixed costs – Anglian Water|
|Dŵr Cymru||Bioresources revenue to remunerate fixed costs – Dŵr Cymru|
|Northumbrian Water||Bioresources revenue to remunerate fixed costs – Northumbrian Water|
|Severn Trent Water||Bioresources revenue to remunerate fixed costs – Severn Trent Water|
|Southern Water||Bioresources revenue to remunerate fixed costs – Southern Water|
|South West Water||Bioresources revenue to remunerate fixed costs – South West Water|
|Thames Water||Bioresources revenue to remunerate fixed costs – Thames Water|
|United Utilities||Bioresources revenue to remunerate fixed costs – United Utilities|
|Wessex Water||Bioresources revenue to remunerate fixed costs – Wessex Water|
|Yorkshire Water||Bioresources revenue to remunerate fixed costs – Yorkshire Water|