Letter to the Regulatory Directors of
all water and sewerage companies and water only companies from
the Corporate Finance Adviser, Ofwat
FINANCIAL MODEL
RULE BOOK
In Setting price limits for water and sewerage
services, published in February 1998, the Director set out
his framework for setting price limits in 1999. In that document
he stated that the need of companies and others to understand
how the general methodology would be implemented in practice would
best be met by his publishing a detailed specification of the
rules and calculations embodied in the Ofwat financial model.
I enclose a copy of this specification (the "Rule Book").
I am also sending the Rule Book to certain other
interested parties, such as City analysts, and making it public
by placing it in the Ofwat library.
The Rule Book documents the model which we will
use to produce the ranges of K factors to be published in Prospects
for Prices and for the remainder of the Periodic Review, unless
there are significant changes arising from external factors such
as tax law.
The financial model has been the subject of
a comprehensive external review by Deloitte & Touche, and
the Rule Book contains a copy of their opinion statement to the
Director together with their terms of reference. The review confirmed
that the financial model and the Rule Book are consistent and
fairly interpret, in all material respects, the Director's proposals
set out in Setting price limits for water and sewerage services.
We propose to hold a seminar for companies on
the workings of the financial model. This will take place at our
offices in the afternoon of 22 October. You are invited to send
two representatives. Bill Emery will be hosting a seminar on the
Draft Business Plan in the morning. We will be writing to you
shortly with further details.
5 October 1998
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