Water industry: reviews of water and sewerage price limits
Price limits are the amount by which average bills can change each year and are set following reviews carried out on a five-yearly cycle. The process of setting price limits is devised and conducted by the Office of Water Services (Ofwat) which is the economic regulator for the water companies in England and Wales.
- 2009 review
- Social and environmental guidance to Ofwat
- Statement of Obligations
- Consumer research
- 2004 review
- Background
2009 review
The 2009 periodic review (PR09) was launched by Ofwat in 2007 and will end in November 2009 when Ofwat will set price limits for 2010-2015.
Defra’s contribution to the Price Review includes a Statement of Obligations to water and sewerage undertakers and Social and Environmental Guidance to Ofwat (see below).
More information on PR09 can be found at Price review 2009 (Ofwat website).
Draft statutory social and environmental guidance to Ofwat
The draft Statutory Social and Environmental Guidance to Ofwat was issued for consultation on 7 February 2008. The draft Guidance sets out key areas of social and environmental policy that the Government expects Ofwat to contribute to. It is one of the means by which the new water strategy for England – Future Water’s priorities can begin to be delivered. The intention of the Guidance is therefore to inform PR09 but also look beyond 2015.
The public consultation on the draft Guidance ended on 30 April 2008. A summary of responses received together with a Government response has now been prepared. The draft Guidance has been updated as a result of the consultation, and has now been laid before Parliament, as required under the Water Industry Act 1991 as amended by the Water Act 2003.
- Government response to consultation including draft statutory Social and Environmental Guidance to Ofwat (PDF 300 KB) - June 2008
The draft Guidance concerns Ofwat’s activities regulating water and sewerage undertakers wholly or mainly in England and licensed suppliers in those areas. Welsh Ministers will be issuing statutory Guidance in respect of Ofwat’s activities in appointment areas wholly or mainly in Wales.
Statement of Obligations
The Statement of Obligations was sent to all water and sewerage undertakers, the Regulators and CCWater on 21st December. It brings together and describes statutory obligations which apply in particular to the water industry. It is organised into chapters on climate change, supply-demand balance and water resources, drinking water quality, the water environment and other miscellaneous provisions. As a checklist or compendium of some of the key environmental and drinking water statutory obligations on the water industry, it is not intended to be a substitute for the law, and should be read in conjunction with the relevant legal instruments.
Consumer research on Priorities for PR09 for the Water Industry Stakeholder Steering Group
On 13 June 2008 eight stakeholders (CCWater, Environment Agency, Water UK, Defra, Natural England, Welsh Assembly Government, DWI and Ofwat) representing customers, regulators, water and sewerage companies and government published the report, 'Deliberative Research concerning Consumers' Priorities for PR09'. The report explores consumers' views of water and sewerage services for the 2009 price review covering the period 2010-15.
2004 review
The 2004 periodic review started officially on 15 October 2002 and ended in December 2004 when OFWAT set price limits for the period 2005-2009.
- Final Guidance (October 2004)
- Principal Guidance (March 2004)
- Joint Statement (August 2003)
- Initial guidance from the Secretary of State to the Director-General of Water Services (January 2003)
- Research into Customers' Views (November 2002)
Background
At a periodic review Ofwat sets price limits for each water and sewerage undertaker for each of the following five years.
Ofwat reviews undertakers’ business plans and assesses their future revenue needs. Price limits are then set which reflect assumptions about what they need to spend to meet their capital expenditure programmes and to finance their operations.
In setting price limits, Ofwat also makes assumptions about the cost of borrowing, capital charges, companies' operating costs and about future operating and capital efficiency savings.
Although Ofwat, as an independent economic regulator, is solely responsible for setting price limits, the Government determines policies that may affect the factors that determine price limits.
Government therefore informs companies and Ofwat of a wide range of relevant policies and legal requirements that will apply in the review period. The publication of the Statement of Obligations, and the draft statutory Social and Environmental Guidance to Ofwat are part of that process. In addition, a new water strategy for England, Future Water, was also published on 7 February 2008. This provides a timely high level steer of the Government’s evolving priorities for water management.
Further information
See also
- Price review 2009 (Ofwat website)
Page last modified:
3 July 2008
Page published: 21 January 2003