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In reviewing our response to this consultation it is appropriate by sdfsb346f

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In reviewing our response to this consultation it is appropriate

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									Audrey Mason
Senior Information Manager
Ofwat
Centre City Tower
7 Hill Street
Birmingham
B5 4UA

                                                             8 February 2008

Dear Audrey

Overview of the business plan information requirements for PR09

Thank you for giving us the opportunity to respond to the above consultation.
We have also been involved in Water UK’s response to the consultation and
we endorse its response. Given this, we have not responded to every area of
the consultation, but instead have focused on several key policy areas.
Please see below for our response on these.

General points

      Document alignment

We agree that companies’ business plans should be aligned with the policies
in their Strategic Direction Statements (SDS). For us, the three Cs – carbon,
customers and costs are intrinsic themes that run throughout our SDS and will
underpin the long term policies that form our business plan.

      Information requirements

We are disappointed at the lack of progress to remove unnecessary data
requirements from the price review process. We feel that PR09 will be more
complex and require more information from companies than previous price
reviews.

      Cost benefit analysis (CBA)

Whilst internal work and preparations have already started on this, given that
this is a major new area for PR09, we would welcome further clarity and
guidance on this at an early stage and preferably before the final guidance is
issued. In particular, rather than generic guidance stating that CBA should be
applied as appropriate to the size of the investment, we would like more
specific guidance on the extent to which it should be applied. For example, is
it Ofwat’s expectation that CBA should be applied to all maintenance
schemes, or some schemes, with a materiality threshold introduced? We feel
that without a full understanding of the detail behind the implementation of
CBA, we find it difficult to conclude fully on the merits and drawbacks of using
it, and also whether we are fully supportive of it.

      Systems

We would also request early sight of any major software systems – especially
the projects database, the new Aquarius financial model and any new
Reservoir capture systems, which we feel should be robust and fit for
purpose. We are already having problems testing and installing the Reservoir
ICS for the CMER and Cost Base and also experienced similar problems with
the Aquarius model at PR04. We wish to avoid encountering these problems
at a time when we have several major regulatory inputs running concurrently.

Where the projects database is concerned, we question the justification
behind its existence. The database is a huge burden on companies
(especially the WoCs) and is something we do not think should have a place
in a regulatory regime that should focus on output and service levels. The
regulatory regime should allow companies to undertake different schemes as
new challenges arise and innovative solutions emerge. The need for all
schemes to be included in the database seems unnecessary and overly
burdensome on companies.

      Special Factor Claims and efficiency benchmarking

It is unclear from the guidance how special factor claims and efficiency
benchmarking will feed into the PR09 process. We are aware that Ofwat is
planning to issue revised guidance on these elements in the spring. However,
again, we would welcome early sight of this, especially if the processes
behind efficiency ranking and submitting special factor claims (for example,
the introduction of a materiality threshold or criteria list) change markedly.

Specific points

      B5.1

This table requests that savings from companies’ water efficiency strategies
are shown separately as an output measure. We would welcome clarification
as to whether these savings will be related to our water efficiency targets or
whether they will have to be built into our demand forecasts. Either way, we
would question whether this is the best output measure given that the debate
on water efficiency targets is ongoing.

      B5.2

Lines 9, 19, 26 and 33 include sustainability reductions for schemes not to be
funded through the price review, but through a yet to be determined process
with the Environment Agency. Given this, is it necessary to include this in the
business plan if funding is obtained through a different route?

I hope that this response will be of benefit to your preparations for PR09.
However, if you require any further information, please let me know.

Yours sincerely




Eva Greenfield
Regulation Manager

								
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