Competition and Markets Authority consults on base cost data, leak allowance and Elsham decisions
The Competition and Markets Authority (CMA) has set out its updated views on three further topics through working papers published last week for short consultations. The views largely favour Ofwat’s positions, rather than those of the disputing companies (Bristol Water, Anglian Water, Yorkshire Water and Northumbrian Water).
• Inclusion of 2019/20 data in base cost models – the CMA has requested responses by today (18 January) to its judgement not to include 2019/20 cost data in its base cost models. It said on balance, the disadvantages of using the most up to date information outweighed the advantages, with particular weight given “to the risk of biasing our predicted allowances for companies’ base costs. Biased predicted allowances risk consumers overpaying or underpaying for water services”.
• Anglian Water’s Elsham DPC scheme – The scheme will provide for additional water transfer, storage and treatment capacity in Anglian’s supply area. The CMA is consulting until 22 January on its decision not to intervene on the two aspects in question regarding the plan to deliver the project using Direct Procurement for Customers (DPC) arrangements: Anglian’s concern about funding arrangements should it end up delivering the scheme itself; and Anglian’s request that the CMA revise the scope of the Elsham DPC process so it applies only to the treatment works, with a totex allowance awarded in the redetermination for the transfer and storage elements. The CMA said on the first point: “Ofwat’s emerging DPC IDOK appears likely to address this funding gap issue in an adequate manner, and we consider that Anglian’s concern in this regard has been resolved.” On the scope point, it said the case for descoping was being reviewed as part of Ofwat’s ongoing DPC process, and therefore that it would not intervene.
• Enhancement allowances for leakage – the CMA has proposed a tailored approach for each company (drawing on both top-down and bottom-up assessments) as follows: “We propose to reduce the levels of the enhancement allowances from the indicative levels in our PFs for Anglian [to £64.1m] and Yorkshire [to £28.2m], while slightly increasing the allowance for Bristol [to £4.69m]. These allowances represent reductions in the allowances for Anglian and Bristol compared to the levels in Ofwat’s FD.” Northumbrian had not requested an allowance. Views are welcomed until 22 January.
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