Letter to the Chairman of the Regulation
Group, Water UK, from the Corporate Finance Adviser, Ofwat
FINANCIAL MODEL
RULE BOOK
We stated in "Setting Price Limits"
in February 1998 that we would be publishing a detailed specification
of the rules and calculations used in the financial model. This
is still our intention. We believe that this is more transparent
than simply releasing our financial model to companies.
We intend to issue this rule book in the next
few days. Companies and others will be able to use it to calibrate
their own models. There should be plenty of time to do this before
companies are required to submit their Draft Business Plans in
April next year.
As also stated in "Setting Price Limits",
the Ofwat financial model has been subject to an independent audit
and the rule book will contain a copy of the auditor's opinion
statement to the Director General. This being so, I am not sure
that our running a "trial dataset" through the model
would serve any particular purpose. In any case, the Director's
priority is to evaluate individual companies' preferred strategies
and actual forecasts.
2 October 1998
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