Ofwat unveils new price limits consultation

Ofwat has today published a consultation document on how it intends to set limits on the prices water and sewerage companies can charge customers in the future.

According to Ofwat’s ‘Future price limits – a consultation on the framework’ paper, the new limits will ensure customers “get a fair deal” and that companies can “continue to raise finance to improve services”.

The consultation encourages companies to focus less on “investment-heavy” engineering solutions and instead seek better value, more environmentally sustainable alternatives, such as water trading.

In addition to setting out a framework for setting price limits, the consultation outlines how a regulatory approach will enable the sector to develop efficiently by giving companies increased responsibility and accountability.

Other key changes by Ofwat include involving customers in outcomes, setting wholesale and retail price limits, changing the way it assesses costs, a focus on incentives and simplifying the process.

In 2009, Ofwat set limits on the prices water and sewerage companies could charge customers for the five years period 2010 – 2015. New price limits are expected to be set in 2014.

Population growth, climate change, rising consumer expectations, affordability concerns and pressure to invest to deliver improvements to service and the environment are all thought to pose significant challenges for the sector. Water scarcity is also having a major impact on how companies in the water sector operate.

As a result, Ofwat says its framework recognises these issues and focusses on addressing them by taking a long-term view. It also advocates water trading, which it argues will enable companies to provide customers with affordable services and reduce the impact on the environment.

Commenting on the changes, Ofwat chief executive Regina Finn, said: “There are now significant new challenges ahead, including climate change, population growth and rising consumer expectations. In many areas water resources are becoming more stretched. We need to become smarter in how we value, manage and use our water. Our proposals look to build on the solid platform we already have, and tackle these challenges head-on.

“Customers play a critical part in our proposals. They need to know that bills are fair and legitimate. This framework will enable the sector to deliver sustainable solutions for their customers. That means the sector can keep bills down, continue to attract further investment, and deliver safe, reliable supplies for decades to come.”

Following the consultation, Ofwat is set to publish a decision statement in spring 2012, setting out the principles it will use to set price limits. This will be followed in autumn 2012 by a more detailed consultation on the methodology used for the next price review process.

A copy of the consultation can be downloaded here.

Carys Matthews

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