Ofwat launches price setting consultation

Water regulator Ofwat has launched a consultation on proposals to change the price setting framework for water firms, a move it claims will give it more "flexibility" to incentivise companies.

Under the proposed changes, Ofwat is looking to remove the current licence framework which stipulates each time it sets prices that a single price limit for a five-year period must be included.

It argues that the framework does not provide the “flexibility to set price limits in a way that will help the water and sewerage sectors meet the challenges they will face”.

As a result, Ofwat is proposing to change the companies’ licences so that it can decide on the price limits at each review. This would allow the regulator more scope to make decisions over the “number, form, nature and length of controls” as well as offering it greater freedom to alter pricing regimes in the future.

According to Ofwat, the changes will also allow companies greater access to appeal to the Competition Commission over any disagreements they have over price control decisions made by the regulator.

If the proposals go ahead, Ofwat said price changes will not take effect before April 2015.

This latest consultation follows Ofwat’s ‘Future Price Limits’ consultation, in which it proposed setting wholesale and retail limits.

In the consultation, Ofwat states: “We now need to address a different set of challenges, such as climate change, population growth, rising customer expectations and increasingly stringent environmental standards. These challenges, which are set out in our future price limits consultation, have become starker since privatisation and make the future more uncertain.”

The full proposals can be viewed here and consultation is set to close on February 29 2012.

Carys Matthews

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