Part of the 2019 price review will be the calculation of adjustments to take account of past performance and incentive mechanisms. This is particularly important given the potential materiality of the adjustments and that the way that adjustments are calculated can be complex and open to different possible interpretations.
The objective of our reconciliation rulebook is to explain how we will take into account performance over 2015-20, along with those factors not reconciled from the 2009 price review (PR09), at PR19. We consider that this is important as it will help promote predictable and transparent regulation, and confidence across the sector.
The PR14 reconciliation rulebook describes the way that we will reconcile companies’ 2015-20 performance against the PR14 final determinations at PR19, through the following mechanisms.
- Outcome delivery incentives (ODIs), which provide companies with rewards for achieving stretching performance targets and compensate customers if performance is below performance targets.
- Wholesale total expenditure (totex) sharing, where company over- and underperformance is shared with customers.
- Wholesale revenue forecasting incentive mechanism (WRFIM), which provides financial incentives for companies to provide accurate forecasts, and ensures under- and over-recovery is reconciled.
- PR09 reconciliation (blind year adjustments).
- Household retail, where the total revenue allowance is adjusted for actual customer numbers.
For each mechanism, the rulebook sets out the treatment of inflation and whether companies and customers should be compensated for the time value of money and taxation.
In addition to the PR14 reconciliation documents please note we have updated our view of the 2010-15 reconciliation.