How to…value sludge assets

Ofwat yesterday set out its view for consultation on how companies should value their sludge assets to inform the allocation of legacy wastewater Regulatory Capital Value (RCV) between price controls at PR19.

Under Water 2020 plans, companies must split their wastewater RCV to enable separate bioresources and “network plus” price controls to underpin the development of a new sludge market.

Ofwat's key points were:

  • Valuations should be based on the future economic value of bioresources assets, as at 31 March 2020.

  • Companies should undertake cross checks to provide assurance that the RCV allocation based on economic value is appropriate and protects customer interests. These should include testing if the allocation has an impact on customer bills or on the company’s ability to set charges in line with both charging rules and competition law.

  • If the cross checks reveal an issue arising from the proposed allocation of RCV, the company should propose an alternative allocation of the RCV, explaining why this allocation is appropriate to protect customers including by promoting a level playing field for markets.

  • Collecting bioresources asset economic valuation information at site level will allow companies to make best use of the most relevant information available to them, at a lower cost than requiring costing of existing assets and collecting data on their condition as at previous valuation exercises.

Ofwat reiterated that companies must submit their allocations by 29 September 2017, with feedback scheduled for January 2018.