Review of the Non-Household Price Control

While it will only be possible to precisely and effectively scope out the need for further work and support once we have considered responses to the November consultation (which are due 11 December), we have identified a need for some support in the form of high quality analytical work. We need to be able to respond to issues we have identified as well as challenges and alternative approaches suggested by stakeholders.

The objective of this work is for the successful contractor to provide advice, output and assurance on non-household price control issues that we identify. As the full extent of the issues are not yet known, consultants are asked to bid on basis of capability to deliver on one or more issues we identify in this dynamic environment. A key component of any successful bid will be the identification a suitable range of Contractors’ Staff (and their daily rates) that can be called on to provide the necessary support.

Issues that we currently consider will require the successful contractor to provide support to include:

Cost to serve

A number of stakeholders have already challenged the cost to serve the non-household retail market as identified in our December 2014 price controls. It has been suggested that our proposed cost to serve is too low and that comparisons with retail operators in other sectors, notably energy, would demonstrate this.

Simplification of water and waste water default tariff caps

Companies must be able to demonstrate that their default tariffs comply with the relevant price controls. However, there are a relatively large number of individual default tariff caps (circa 250), to some extent reflecting variations in underlying tariff structures. Companies have also taken different approaches to allocating costs and margins to their default tariff caps. Taken together this creates complexity and a lack of comparability (which might hinder the development of competition). We are therefore considering whether we should simplify the structure of the default tariff caps.

The work would need to be carried before the end of March 2016 to support the publication of a method statement in April 2016 and the publication of draft and final determinations later in 2016.

While the scope of this work is defined above, it is worth noting that this work is one element of a larger work programme we are undertaking, and we may need to seek further support on related issues as 2016 progresses.

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