Slow track and significant scrutiny draft determinations models

We use data models to calculate water companies’ price controls – and certain information we need to set those controls.

We published early draft determinations in April 2019 for Severn Trent Water, South West Water and United Utilities Water, which included the models we used for those companies.

Below we’ve set out the models we have used to set the slow track and significant scrutiny draft determinations for 2020 to 2025 for all remaining companies. These include:

• past delivery models
• cost assessment models
• financial models
• risk and return 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.

Company	Outcome delivery incentives	Land disposals	Wholesale Revenue Forecasting Incentive Mechanism	Total Expenditure reconciliation	Water trading	Residential retail revenue	Regulatory capital value adjustment model	Revenue adjustments model	Service incentive mechanism
Affinity Water	Outcome Delivery Incentives model – Affinity Water	Land Disposals model – Affinity Water	Wholesale Revenue Forecasting Incentive Mechanism model – Affinity Water	Total Expenditure reconciliation model – Affinity Water		Residential Retail Revenue model – Affinity Water	Regulatory capital value adjustment model – Affinity Water	Revenue adjustments model – Affinity Water
Anglian Water	Outcome Delivery Incentives model – Anglian Water	Land Disposals model – Anglian Water	Wholesale Revenue Forecasting Incentive Mechanism model – Anglian Water	Total Expenditure reconciliation model – Anglian Water		Residential Retail Revenue model – Anglian Water	Regulatory capital value adjustment model – Anglian Water	Revenue adjustments model – Anglian Water
Bristol Water	Outcome Delivery Incentives model – Bristol Water	Land Disposals model – Bristol Water	Wholesale Revenue Forecasting Incentive Mechanism model – Bristol Water	Total Expenditure reconciliation model – Bristol Water		Residential Retail Revenue model – Bristol Water	Regulatory capital value adjustment model – Bristol Water	Revenue adjustments model – Bristol Water
Hafren Dyfrdwy	Outcome Delivery Incentives model – Hafren Dyfrdwy	Land Disposals model – Hafren Dyfrdwy	Wholesale Revenue Forecasting Incentive Mechanism model – Hafren Dyfrdwy	Total Expenditure reconciliation model – Hafren Dyfrdwy		Residential Retail Revenue model – Hafren Dyfrdwy	Regulatory capital value adjustment model – Hafren Dyfrdwy	Revenue adjustments model – Hafren Dyfrdwy
Northumbrian Water	Outcome Delivery Incentives model – Northumbrian Water	Land Disposals model – Northumbrian Water	Wholesale Revenue Forecasting Incentive Mechanism model – Northumbrian Water	Total Expenditure reconciliation model – Northumbrian Water	Water Trading model – Northumbrian Water	Residential Retail Revenue model – Northumbrian Water	Regulatory capital value adjustment model – Northumbrian Water	Revenue adjustments model – Northumbrian Water
Portsmouth Water	Outcome Delivery Incentives model – Portsmouth Water	Land Disposals model – Portsmouth Water	Wholesale Revenue Forecasting Incentive Mechanism model – Portsmouth Water	Total Expenditure reconciliation model – Portsmouth Water	Water Trading model – Portsmouth Water	Residential Retail Revenue model – Portsmouth Water	Regulatory capital value adjustment model – Portsmouth Water	Revenue adjustments model – Portsmouth Water
SES Water	Outcome Delivery Incentives model – SES Water	Land Disposals model – SES Water	Wholesale Revenue Forecasting Incentive Mechanism model – SES Water	Total Expenditure reconciliation model – SES Water		Residential Retail Revenue model – SES Water	Regulatory capital value adjustment model – SES Water	Revenue adjustments model – SES Water
South East Water	Outcome Delivery Incentives model – South East Water	Land Disposals model – South East Water	Wholesale Revenue Forecasting Incentive Mechanism model – South East Water	Total Expenditure reconciliation model – South East Water		Residential Retail Revenue model – South East Water	Regulatory capital value adjustment model – South East Water	Revenue adjustments model – South East Water
Southern Water	Outcome Delivery Incentives model – Southern Water	Land Disposals model – Southern Water	Wholesale Revenue Forecasting Incentive Mechanism model – Southern Water	Total Expenditure reconciliation model – Southern Water		Residential Retail Revenue model – Southern Water	Regulatory capital value adjustment model – Southern Water	Revenue adjustments model – Southern Water
South Staffs Water	Outcome Delivery Incentives model – South Staffs Water	Land Disposals model – South Staffs Water	Wholesale Revenue Forecasting Incentive Mechanism model – South Staffs Water	Total Expenditure reconciliation model – South Staffs Water		Residential Retail Revenue model – South Staffs Water	Regulatory capital value adjustment model – South Staffs Water	Revenue adjustments model – South Staffs Water
Thames Water	Outcome Delivery Incentives model – Thames Water	Land Disposals model – Thames Water	Wholesale Revenue Forecasting Incentive Mechanism model – Thames Water	Total Expenditure reconciliation model – Thames Water   Total Expenditure reconciliation model – Thames Tideway Tunnel	Water Trading model – Thames Water	Residential Retail Revenue model – Thames Water	Regulatory capital value adjustment model – Thames Water	Revenue adjustments model – Thames Water Revenue adjustments model – post profiling 1 – Thames Water Revenue adjustments model – post profiling 2 – Thames Water Revenue adjustments model – post profiling 3 – Thames Water Revenue adjustments model – profiled adjustments aggregation – Thames Water
Dŵr Cymru	Outcome Delivery Incentives model – Dŵr Cymru	Land Disposals model – Dŵr Cymru	Wholesale Revenue Forecasting Incentive Mechanism model – Dŵr Cymru	Total Expenditure reconciliation model – Dŵr Cymru		Residential Retail Revenue model – Dŵr Cymru	Regulatory capital value adjustment model – Dŵr Cymru	Revenue adjustments model – Dŵr Cymru
Wessex Water	Outcome Delivery Incentives model – Wessex Water	Land Disposals model – Wessex Water	Wholesale Revenue Forecasting Incentive Mechanism model – Wessex Water	Total Expenditure reconciliation model – Wessex Water		Residential Retail Revenue model – Wessex Water	Regulatory capital value adjustment model – Wessex Water	Revenue adjustments model – Wessex Water
Yorkshire Water	Outcome Delivery Incentives model – Yorkshire Water	Land Disposals model – Yorkshire Water	Wholesale Revenue Forecasting Incentive Mechanism model – Yorkshire Water	Total Expenditure reconciliation model – Yorkshire Water		Residential Retail Revenue model – Yorkshire Water	Regulatory capital value adjustment model – Yorkshire Water	Revenue adjustments model – Yorkshire Water
Industry									SIM model

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) Enhancement feeder models: the enhancement feeder models include our assessment of enhancement costs.

2) Cost adjustment claims feeder models: these models include our assessment of companies’ cost adjustment claims. There is one model for each slow track/significant scrutiny company that submitted cost adjustment claims in its April 2019 business plan.

3) Separate controls: These models include our assessment of the costs we allow in separate wholesale controls for two companies, Thames Water and Portsmouth Water.

4) 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 costs, Pension deficit recovery costs, Traffic management act costs, Other costs including third party services, Other cash items and industrial emissions directorate costs

5) Aggregator files: These are intermediary files and do not present assessment

6) 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.

7) Enhancement opex implicit allowance feeder model: this model estimates the enhancement opex that is already included efficient modelled base allowance.

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 dive.

9) Opex lease adjustments model: this model calculates the adjustment to allowed operating expenditure to reflect operating leases which are reclassified as capital expenditure under new accounting regulations.

10) 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.

11) Business retail feeder model: this models calculates the efficient cost allowance for business retail

12) We also present the following workbooks which include costs drivers that are obtained from external sources:

• Density indices forecast, historical and forecast: 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.

13) 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

1. Enhancement feeder models

Water

Wholesale Water Enhancement feeder model: Drinkingwater protection

Wholesale Water Enhancement feeder model: Ecological improvements

Wholesale Water Enhancement feeder model: Eels regulations

Wholesale Water Enhancement feeder model: Freeform

Wholesale Water Enhancement feeder model: Improvement to river flows

Wholesale Water Enhancement feeder model: Invasive species

Wholesale Water Enhancement feeder model: Investigations

Wholesale Water Enhancement feeder model: Lead standards

Wholesale Water Enhancement feeder model: Metering

Wholesale Water Enhancement feeder model: Raw water deterioration

Wholesale Water Enhancement feeder model: Resilience

Wholesale Water Enhancement feeder model: Supply demand balance

Wholesale Water Enhancement feeder model: Security

Wholesale Water Enhancement feeder model: Strategic regional

Wholesale Water Enhancement feeder model: Taste, odour, colour

Wholesale Water Enhancement feeder model: Water framework directive

Wastewater

Wholesale Wastewater Enhancement feeder model: Chemicals investigations

Wholesale Wastewater Enhancement feeder model: Chemicals removal

Wholesale Wastewater Enhancement feeder model: Conservation drivers

Wholesale Wastewater Enhancement feeder model: Discharge relocation

Wholesale Wastewater Enhancement feeder model: Eels regulations

Wholesale Wastewater Enhancement feeder model: Event duration monitoring

Wholesale Wastewater Enhancement feeder model: First time sewerage

Wholesale Wastewater Enhancement feeder model: Flow monitoring

Wholesale Wastewater Enhancement feeder model: Flow to full schemes

Wholesale Wastewater Enhancement feeder model: Freeform

Wholesale Wastewater Enhancement feeder model: Groundwater schemes

Wholesale Wastewater Enhancement feeder model: Investigations

Wholesale Wastewater Enhancement feeder model: Monitoring flows at combined sewer over flow events

Wholesale Wastewater Enhancement feeder model: N-removal

Wholesale Wastewater Enhancement feeder model: Odour

Wholesale Wastewater Enhancement feeder model: P-removal technology investigations

Wholesale Wastewater Enhancement feeder model: P-removal

Wholesale Wastewater Enhancement feeder model: Resilience

Wholesale Wastewater Enhancement feeder model: Sanitary parameters

Wholesale Wastewater Enhancement feeder model: Security

Wholesale Wastewater Enhancement feeder model: Sludge

Wholesale Wastewater Enhancement feeder model: Spill frequency

Wholesale Wastewater Enhancement feeder model: Storm tank capacity

Wholesale Wastewater Enhancement feeder model: Ultraviolet disinfection

2. Cost adjustment claims feeder models

Company	Cost adjustment claims feeder models
Affinity Water	Cost adjustment claim feeder model AFW
Anglian Water	Cost adjustment claim feeder model ANH
Bristol Water	Cost adjustment claim feeder model BRL
Hafren Dyfrdwy	Cost adjustment claim feeder model HDD
Northumbrian Water	Cost adjustment claim feeder model NES
Portsmouth Water	Cost adjustment claim feeder model PRT
SES Water	Cost adjustment claim feeder model SES
South East Water	Cost adjustment claim feeder model SEW
Southern Water	Cost adjustment claim feeder model SRN
South Staffs Water	Cost adjustment claim feeder model SSC
Thames Water	Cost adjustment claim feeder model TMS
Dŵr Cymru	Cost adjustment claim feeder model WSH
Wessex Water	Cost adjustment claim feeder model WSX
Yorkshire Water	Cost adjustment claim feeder model YKY

3. Separate controls

Cost adjustment claim feeder model Havant Thicket (PRT) separate control

Cost adjustment claim feeder model Thames Tideway separate control

4. 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

5. Aggregator files

Feeder model: Enhancement aggregator

Feeder model: Cost Adjustment Claims aggregator

Feeder model: Unmodelled costs aggregator

6. Reallocations feeder model

Feeder model: Enhancement Reallocations

7. Enhancement opex implicit allowance feeder model

Enhancement opex implicit allowance

8. Company specific efficiency challenge feeder model

Company efficiency factor

9. Opex lease adjustments

Opex lease adjustments

10. 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

Feeder model 1: Wholesale wastewater – Master data

Feeder model 2: Wholesale wastewater – Wastewater Catch up adjustment

Feeder model 3: Wholesale wastewater: Forecast of wastewater cost drivers

Feeder model 4: Wholesale wastewater – Bioresources and wastewater N+ cost allowances

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

11. Business retail feeder model

Feeder Model: Business Retail

12. Cost Driver workbooks

Household forecast ONS data

Weighted average density index – forecast

Weighted average density index – historical

13. Stata do files

Stata do files: Retail

Stata do files: Wholesale water

Stata do files: Wholesale wastewater

Financial models

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 grants and contributions model that calculates the grants and contributions for input to the financial model
• the cost sharing model to calculate an ex ante allowance on costs and profile costs across the financial modelling period

We publish a financial model, a grants and contributions model and a cost sharing model for each company.

We also publish an inflation model for the industry.

Company	Financial models	Grants and contributions models	Cost sharing models	Inflation model
Affinity Water	Financial model – Affinity Water	Grants and Contributions model – Affinity Water	Cost Sharing model – Affinity Water
Anglian Water	Financial model – Anglian Water	Grants and Contributions model – Anglian Water	Cost Sharing model – Anglian Water
Bristol Water	Financial model – Bristol Water	Grants and Contributions model – Bristol Water	Cost Sharing model – Bristol Water
Hafren Dyfrdwy	Financial model – Hafren Dyfrdwy	Grants and Contributions model – Hafren Dyfrdwy	Cost Sharing model – Hafren Dyfrdwy
Northumbrian Water	Financial model – Northumbrian Water	Grants and Contributions model – Northumbrian Water	Cost Sharing model – Northumbrian Water
Portsmouth Water	Financial model – Portsmouth Water Financial model – Portsmouth Water with Havant	Grants and Contributions model – Portsmouth Water	Cost Sharing model – Portsmouth Water
SES Water	Financial model – SES Water	Grants and Contributions model – SES Water	Cost Sharing model – SES Water
South East Water	Financial model – South East Water	Grants and Contributions model – South East Water	Cost Sharing model – South East Water
Southern Water	Financial model – Southern Water	Grants and Contributions model – Southern Water	Cost Sharing model – Southern Water
South Staffs Water	Financial model – South Staffs Water	Grants and Contributions model – South Staffs Water	Cost Sharing model – South Staffs Water
Thames Water	Financial model – Thames Water	Grants and Contributions model – Thames Water	Cost Sharing model – Thames Water
Dŵr Cymru	Financial model – Dŵr Cymru	Grants and Contributions model – Dŵr Cymru	Cost Sharing model – Dŵr Cymru
Wessex Water	Financial model – Wessex Water	Grants and Contributions model – Wessex Water	Cost Sharing model – Wessex Water
Yorkshire Water	Financial model – Yorkshire Water	Grants and Contributions model – Yorkshire Water	Cost Sharing model – Yorkshire Water
Industry				Inflation model

Risk and return models

Company	Pay as you go (PAYG) models
Affinity Water	Pay as you go (PAYG) model – Affinity Water
Anglian Water	Pay as you go (PAYG) model – Anglian Water
Bristol Water	Pay as you go (PAYG) model – Bristol Water
Hafren Dyfrdwy	Pay as you go (PAYG) model – Hafren Dyfrdwy
Northumbrian Water	Pay as you go (PAYG) model – Northumbrian Water
Portsmouth Water	Pay as you go (PAYG) model – Portsmouth Water
SES Water	Pay as you go (PAYG) model – SES Water
South East Water	Pay as you go (PAYG) model – South East Water
Southern Water	Pay as you go (PAYG) model – Southern Water
South Staffs Water	Pay as you go (PAYG) model – South Staffs Water
Thames Water	Pay as you go (PAYG) model – Thames Water
Dŵr Cymru	Pay as you go (PAYG) model – Dŵr Cymru
Wessex Water	Pay as you go (PAYG) model – Wessex Water
Yorkshire Water	Pay as you go (PAYG) model – Yorkshire Water

Bioresources models

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.

Company	Bioresources models
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
Southern Water	Bioresources revenue to remunerate fixed costs – Southern Water
Thames Water	Bioresources revenue to remunerate fixed costs – Thames Water
Wessex Water	Bioresources revenue to remunerate fixed costs – Wessex Water
Yorkshire Water	Bioresources revenue to remunerate fixed costs – Yorkshire Water

PR19 reconciliation models

We have published models (‘PR19 reconciliation models’) we will use when we next set price controls in 2024 for how we will take reconcile companies’ performance during 2020-25.