Ofwat is consulting until 4 May on the econometric cost modelling it will deploy in the 2019 price review.
Its consultation, published just before Easter, discusses 382 models. This is a combination of Ofwat-proposed models and those proposed by the 13 water companies that responded to an earlier call to submit their models for inclusion. 151 concern water, 161 wastewater, 66 retail and four enhancement.
The consultation follows extensive stakeholder work in 2016 and 2017 and this latest paper provides an opportunity for feedback before a final selection is made for PR19. The models will play a crucial role in the review, including in setting efficient cost allowances and in the assessment of company business plans.
Ofwat indicated it has high expectations. It said: “In PR19, we expect company business plans to show a step change in efficiency, relative to past periods.” It referenced a recent report from KPMG which found potential for significant efficiency gains from the introduction of the totex and outcomes framework, and an earlier PWC report which cited significant scope to improve cost performance in bad debt and retail costs.