Severn Trent agrees to work with watchdog on price control measures
MIDLANDS utility Severn Trent Water has agreed to work with industry watchdog Ofwat to help implement important changes to its licence.
The regulator is setting out a list of measures it intends to implement to improve the efficiency of the water industry. These are included in what is called a Section 13 notice.
Ofwat has put forward measures, amended from previous proposals, which will allow it to set price controls at the 2014 price review.
The steps also commit water companies to work with the watchdog to develop more targeted price controls. Ofwat said it recognised that its approach to regulation would have to evolve to meet future challenges.
It is proposing licence modifications that will allow it to set two wholesale controls (one for water and one for sewerage), specify that wholesale controls are calculated using a formula based around the Retail Prices Index and capital investment requirements and that wholesale controls will apply for five years.
It will also specify the number and duration of retail controls (up to a maximum of five years); and refine the definition of customer-facing activities.
It said it was no longer proposing to have the flexibility to have different forms of control for some activities outside of the wholesale price control.
“Building on the positive engagement with companies, we are proposing a modification that requires them to use all reasonable endeavours to work constructively and co-operatively with us on developing appropriately targeted price controls in respect of specific wholesale activities in the future,” it said.
It said it had recognised the current process for making changes to all companies’ licences had proved burdensome both for the businesses themselves and the regulator.
“We recognise that the process needs to improve and we have welcomed the offers that companies have made to explore more efficient methods for making changes to companies’ licences,” it said.
It said it hoped the new framework would provide the regulator and the water companies with a better process for developing appropriate price controls.
“They are still consistent with operating in a predictable and transparent framework,” it added.
In a short statement today, Severn Trent said: “The board of Severn Trent Water has agreed to accept the Section 13 Notice issued by Ofwat setting out proposed changes to its licence. Severn Trent Water looks forward to continuing to work with Ofwat on the evolutionary reform of the water industry.”
