Supplementary memorandum submitted by
United Utilities Water plc
At the 3 November evidence session, the committee
asked United Utilities to recalculate its draft determination
price limit using the efficiency assumptions as forecast by the
company.
We have taken the efficiency assumptions for
operating and capital expenditure as communicated to Ofwat in
the April 2004 final business plan submission, inserted them into
Ofwat's draft determination financial model scenario and revised
the price limit K factor to produce a financial projection profile
consistent with that outlined in the draft determination.
The overall effect on price limits would be
to increase the average K factor to 4.1% per annum as compared
to the 3.5% as determined by Ofwat. This reinforces the points
we made in our evidence to the committee that most of the gap
between our proposed K factor of 7.8% and Ofwat's draft determination
of 3.5% is due to reduced outputs rather than differences in efficiency
assumptions.
12 November 2004
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