All companies can ask us to reset their price limits between five-yearly price reviews. They can ask for this if specific changes lead to a significant reduction in their revenue or increase in their costs. This is known as an interim determination.
When we receive an application from a company we look at this against the list of criteria set out in its licence.
- Materiality – we test the application against a set level. If the changes in costs, receipts or revenues are at least equal to 10% of the company’s turnover we say the application is material. A company can add together a number of specific changes.
- Triviality – if the value of a change relating to one issue is less than two per cent of the company’s turnover then we would not include this in the materiality test.
If the company has an application that passes the test of materiality, we will examine the application and may adjust its price limits.
The specific changes that can lead to an interim determination are called relevant changes of circumstance and notified items. Relevant changes of circumstances are described in companies’ Licence Condition B. Notified items are set by us at a price review.
Interim determination applications must be submitted at least 6 months in advance of the charging year. Interim determinations normally cover the remaining time until the next price review and the new price limits set apply from the start of the next charging year in April.
Interim determinations triggered by Ofwat
We can use interim determinations to trigger a change in prices. For example, we may trigger a determination if we believe customers could benefit from lower price limits. We have to fulfil the same criteria as companies.