As things stand Ofwat sets annual price limits for the UK’s 22 water companies once every five years to allow for forward planning and then measures the companies’ performance against those targets.

Under this system the next round of price setting would take place in 2009.

According to the water watchdog the existing system has worked reasonably well and allows an efficient company to run its business to meet demands while keeping increases in bills to a minimum for customers.

This view was supported by the independent report into the conduct of the 2004 Ofwat Periodic Review.

However, at the time of the last review Ofwat announced it would consult on the frequency of future price reviews to find out whether, for example, if a three or seven year price setting system might make more sense for the companies and their customers.

It will also look at whether there is a case for setting different periods for different companies where there might be a greater certainty of need for investment

In setting the length of the price review period, Ofwat says it wants to achieve a stable price structure for consumers, businesses and investors while encouraging water and sewerage companies to set their plans for the long-term.

The independent report in 2004 agreed consultation was welcome but warned that extending the cycle could increase uncertainty.

A copy of the report can be found on the Ofwat website, as can the new consultation paper Setting water and sewerage price limits: Is five years right?.

By Sam Bond

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