Independent Review of Financial Model

In setting price limits every 5 years, we have regard to our duties laid down in section 2 of the Water Industry Act 1991 as amended by subsequent Acts.

In summary our main statutory duties are to:

To enable us to meet our duties and set price limits Ofwat uses a bespoke financial model. For PR14 Ofwat developed its financial model in partnership with PwC. The PR14 financial model had three purposes:

The model went through significant development during the price review process, with six versions of the financial model being published.

We are currently developing a new financial model to use at PR19. We released a draft of this model in July 2017, alongside our consultation "Delivering Water 2020: Consulting on our methodology for the 2019 price review". The draft consultation financial model and rulebook is available here:

https://064f1d25f5a6fb0868ac-0df48efcb31bcf2ed0366d316cab9ab8.ssl.cf3.rackcdn.com/wp-content/uploads/2017/07/Draft-PR19-financial-model.xlsm

We received a number of comments on the model and are currently preparing a revised version of the model for publication on 13 December 2017.

Objectives and scope of the work

The objective of the work is ensure the W2020 Senior Responsible Officer and other stakeholders will have independent assurance that the revised PR19 financial model is fit for purpose. This will help create trust and confidence in the PR19 financial model, and allow stakeholders such as water companies to have greater assurance in the results generates.

The scope of the work is to provide advice on:

It should be noted that the contractor will not be expected to implement any of the changes or recommendation that are identified.

Ofwat expects to publish the finished external review report on our website. By tendering for the work the Contractor accepts that the final report will be publishable.

Additional information: For further information, please contact: procurement@ofwat.gsi.gov.uk