PR19 - Cost Benchmarking Models

The objective of this work is to develop a suite of econometric cost models for our 2019 price controls. The models will provide a strong basis for setting an efficient cost allowance for water companies across the different price controls.

The work will take into consideration lessons learnt from our PR14 econometric modelling approach and the CMA final determination following the reference made by Bristol Water.

In developing the models we expect close collaboration between the Contractor and Ofwat's cost assessment team as well as with our academic advisors of the University of Leeds.

The Contractor will be required to deliver high quality analysis and recommendations to inform our decisions on cost assessment models for PR19. The Contractor will be required to deliver a report to support the Contractor's recommendations. We expect to publish key findings from this work alongside the final methodology in December 2017.

Scope of work

The project consists of three work packages which the Contractor should cost separately (see section 13):

Work package 1

Work package 2

Work package 3

• Develop cost assessment models as above, as well as for the residential retail control.

Our intention for PR19 is to have a suite of econometric cost models that benchmark costs at the aggregate (wholesale) level, as well as a set of more granular models. For example, models that benchmark and assess water treatment costs, treated water distribution costs, water resources costs etc.