Draft Water Bill - Environment, Food and Rural Affairs Committee Contents


3  Market reform

9.  In Water for Life Defra proposed increasing competition in the water market with the intention of improving efficiency and ultimately lowering bills for customers. At present, the water sector in England and Wales consists of 21 vertically integrated, regional monopoly, water only or water and sewerage companies. With limited exceptions for very large users of water, customers are unable to switch their water supplier. The lack of competition, it is argued, hinders innovation and efficiency, and can be time-consuming and expensive for businesses with several premises across the country who have to process multiple bills from different water suppliers.

10.  Clause 3 of the Draft Bill enables a Minister, by order made by statutory instrument, to remove the existing 50 megalitre threshold at which non-household users are able to switch their water supplier.[16] This change would increase the size of the potential market and make it more attractive to new entrants.[17] There are a number of other provisions designed to reduce the barriers to new entrants to the market, such as a reduced regulatory burden through the introduction of charging rules and market codes, and the removal of the requirement for new entrants to establish a separate ring-fenced limited company before entering the market.[18]

11.  Provisions in Clause 1 and Schedule 1 introduce competition to the "upstream" end of the supply chain. This would enable new entrants to provide raw or treated water into an incumbent's network without being obliged (as is currently the case) to provide retail services to customers. Schedule 1would also remove some of the restrictions on access to water companies' treatment and storage systems and allow new entrants to provide their own network and retail infrastructure. Clause 4 and Schedule 3 provide for a similar licensing regime to the sewerage system.

12.  There was broad agreement from our witnesses about the Draft Bill's overall approach to reforming the retail market, although concerns were raised about particular aspects of the proposals. In contrast, witnesses identified a host of difficulties with proposals for the upstream reforms, questioning both the policy intention behind them and the practicalities of their implementation.

Retail reforms

13.  In 2008 the then Government commissioned Professor Martin Cave to report on competition in the water sector. His report, published in April 2009, recommended significant changes to encourage competition and allow non-household customers greater choice over their supplier.[19] In Scotland there has been a competitive retail water market for non-household customers since 2008.[20] Scottish Procurement, the body responsible for public sector procurement in Scotland, told us that the Scottish public sector (which makes up approximately 20% of the Scottish competitive market for water),[21] is on track to save up to £25 million over the first three years of tendering for its water supply.[22] Alongside these financial benefits, Scottish Procurement also highlighted the non-monetary advantages of competition, including improved service levels and sustainability benefits.[23]

14.  It is clear that there is widespread support from customers for the introduction of retail competition. Network Rail told us that since the introduction of competition in Scotland they have seen a "significant improvement" in the service they receive and they looked forward to being able to choose their supplier in England as well.[24] The Federation of Small Businesses said that it has been campaigning for greater competition "for some time",[25] and Greene King and Asda were also supportive.[26] Water companies were also in favour of the Government's policy intention, with Water UK stating that it "fully supports giving choice to business customers... companies are committed to being an active partner in making this a reality".[27] Nonetheless, concerns were raised about particular aspects of the proposed reforms, and we explore these below.

ABOLITION OF THE COSTS PRINCIPLE

15.  Under the current regime, new entrants to the market wishing to purchase water for retail must apply separately to each incumbent water company from whom they wish to purchase a wholesale supply and negotiate a price using the "costs principle". The costs principle follows a "retail minus" approach in which the discount provided to retailers is determined by calculating what portion of the incumbent company's costs could reasonably be avoided, reduced, or recovered in some other way (known as "ARROW" costs). Any additional costs that the incumbent will incur in providing access to the retailer are set against the ARROW costs to determine the final price of the wholesale supply.

16.  Introduced to ensure that household customers do not end up subsidising businesses, the costs principle has been criticised for providing little incentive to incumbent water companies to become more efficient.[28] The complexities involved in negotiating separately with multiple wholesalers acts as a further barrier to new entrants. Schedule 2 would replace the costs principle with a wholesale access pricing regime, with charging rules to be developed by Ofwat. Whilst generally in agreement with the decision to abolish the costs principle, the evidence we received drew attention to the potential for the new approach to bring its own problems. The Consumer Council for Water recognised that the existence of the costs principle had constrained competition, but noted that this was at least in part because of its role in protecting household customers. The Consumer Council for Water believed that "it should be possible to identify a different way of setting access prices in a way that does not [act to] the detriment of domestic customers",[29] and that "it must be the regulator's job to make sure that happens."[30] The Council considered that the Bill should make clear that the abolition of the costs principle must not lead to the household sector subsidising costs in the contestable non-household market, and suggested that the Draft Bill be amended to reflect this.[31] Ofwat told us that their existing primary duty to protect the interests of customers meant that they would "not be in the business of replacing the costs principle with something that is bad for customers... we already have that safeguard."[32] The regulator was cautious about including further protection on the face of the Bill, noting that the cost principle's existing status in primary legislation had made it very difficult to change it when it was found to be inefficient, and that consequently "we need to be very careful what we write on the face of the Bill."[33] Defra shared Ofwat's view, telling us that they "did not feel that it needs to be on the face of the Bill", but that "it would certainly be in statutory guidance".[34]

17.  We believe that protecting householders from subsidising competition in the non-household sector is a fundamental principle that should be enshrined in primary legislation. We recommend that the Draft Bill be amended to reflect this. We are not convinced by the argument that such a course of action would be likely to present similar problems of inflexibility as have emerged in relation to the existing costs principle, as the Bill's wording need not set out in detail the regulatory mechanism by which this aim should be achieved and could thus afford flexibility to the regulator.

ESTABLISHING A LEVEL PLAYING FIELD

18.  If new entrants are to be encouraged to enter the market, it is essential that they have confidence that they will not receive unfavourable terms or treatment from the incumbent water companies upon which they will, at least in the first instance, rely for the wholesale supply of water. New entrants will be competing directly against the incumbent's retail business, and as the incumbent companies will continue to control the wholesale supply of water, there is naturally a danger that they will discriminate against new entrants to protect their own interests. One way to achieve a level playing field between new entrants and incumbent companies would be to require the legal separation of incumbents' retail arms. This was recommended by Professor Martin Cave in his Independent Review of Competition and Innovation in Water Markets, but Defra subsequently made clear in the Water White Paper that they had decided against requiring legal separation in response to concern that structural change to the industry could unsettle investor confidence.[35] Instead, they would rely on Ofwat to police non-discrimination via regulatory means.[36] The Draft Bill has not departed from this approach.

19.  Business Stream, a potential new entrant to the retail market, expressed concern that the Draft Bill was not sufficiently robust in its approach to ensuring a level playing field. In particular, they highlighted the absence of any significant mention of non-discrimination and a lack of clarity over what the separation requirements would be in the absence of legal separation.[37] The company told us that:

The principle should be that, as a new entrant, I should be able to access exactly the same terms, pricing and service levels as their incumbent company. In terms of communication, the way people interact within that integrated water company needs to be considered. They cannot be able to access back doors and other channels that I, as a new entrant, do not have.[38]

Business Stream argued that, if the separation requirements were not clear from the start, "we will end up with multiple claims in the competition courts or to the regulator that are lengthy, costly and burdensome, and customers will not get benefits".[39] Ofwat told us that in regulating the market they would require "demonstrable Chinese walls between the retail and wholesale arms within an incumbent".[40]

20.  We considered the issue of separation in our report on the Water White Paper and concluded that Defra should consider including a requirement for functional separation in the Draft Bill.[41] The evidence we have received in the course of pre-legislative scrutiny has reinforced our view that, in the absence of legal separation, every effort must be made to reassure new entrants that they will compete on a level playing field. We do not doubt Ofwat's assurances that they will seek to achieve this through regulation, but we believe that it is a principle of sufficient importance that it should be included on the face of the Bill itself. We recommend that the Draft Bill be amended to include a requirement for the functional separation of incumbent companies' wholesale and retail arms. We further recommend that the principle of non-discrimination be included on the face of the Bill.

EXITING THE RETAIL MARKET

21.  A natural consequence of competition is that whilst some companies will thrive, others will be less successful. Those incumbent companies with less efficient retail arms may decide that they would be better served by exiting the retail market and focusing on their wholesale operations. At present, however, they are obliged under the terms of their licences to continue to offer a retail service.

22.  In our report on the Water White Paper, in response to concerns raised by both the English and Scottish regulators and water companies themselves, we recommended that the Government should include a clause in the Draft Bill allowing incumbents to exit the retail market, should they wish to do so.[42] In coming to this conclusion, we were particularly struck by Ofwat's view that allowing such a mechanism would be an important factor in achieving a "well-functioning" and "dynamic" market. In the event, the Government rejected our recommendation and the Draft Bill is silent on establishing an exit route.

23.  It became apparent in the course of this inquiry that there is little support for the Government's position. Again, both regulators pressed for the inclusion of an exit route.[43] Perhaps more strikingly, incumbent companies and new entrants were united in calling for the Bill to include an exit clause.[44] We put it to the Minister that the Department appeared to be alone in its view and he told us that allowing a company to exit could be a "seismic shift" in the structure of the industry and risked unsettling investors.[45]

24.  Given the weight of evidence from regulators, incumbent water companies and new entrants we are not persuaded by the Minister's arguments. In particular, we cannot accept that allowing voluntary exits would unsettle investors given that a water company would have no reason to act against its own interests by choosing to exit the retail market if this would have an adverse impact on investor confidence. We recommend that the Bill include provisions to enable incumbent companies to voluntarily exit the retail market.

TIMESCALE FOR RETAIL REFORM

25.  The introduction of a competitive retail market is long overdue. The Major Energy Users Council told us that "customers... have waited many years for full-scale retail water competition",[46] and that there was a "real appetite" amongst its members to be able to choose supplier, with poor levels of customer service giving rise to an "urgent demand for retail competition".[47] Whilst the provisions in the Draft Bill are a start, the vast majority of the work needed to implement reform will fall to regulators and water companies. The likely timescale for the reforms will consequently depend not only on the speed with which legislation is introduced, but also on the commitment with which companies and regulators approach the task of establishing the detailed design of the market. Defra has established a High Level Group, consisting of representatives from the UK, Scottish and Welsh Governments, Ofwat, the Water Industry Commission for Scotland, customers and the water and sewerage industry, which is intended to drive the process of reform. The High Level Group will report directly to Ministers.[48]

26.  We received mixed evidence on the progress of the High Level Group. At the date when we took oral evidence from the Minister it had met twice; he told us that he was satisfied with its progress and that it was "working well".[49] Water UK and Anglian Water told us that the group had got off to a "good start".[50] Ofwat were more equivocal about its impact, telling us that they "do not think we are going to deliver market reform through meetings; we are going to achieve it through activity, action and deliverables... the real activity has to happen in the engine rooms... We could do with a little bit more effort at that level."[51] The Water Industry Commission for Scotland were critical, saying that they were "disappointed with progress to date" and that "the lack of a clear, fully developed and agreed vision...is delaying progress".[52]

27.  In our report on the Water White Paper, we recommended that Defra should aim to open the retail market three years after Royal Assent of a Water Act. Although obviously dependent on the timing of legislation, this would appear to be broadly in line with the likely target date of April 2017 that the Government set out in the Draft Bill,[53] a target that the Minister said remained "doable".[54]

28.  We are pleased that the Minister remains committed to opening the retail market in 2017. Business customers have been pressing for greater competition for some years and are understandably keen that the reforms retain momentum. We were therefore concerned by the suggestion that the progress of the High Level Group set up to drive the reforms may be hindered by the lack of a clear vision. We recommend that the Government set out what steps it is taking to provide the necessary direction and oversight of the High Level Group in its response to this report.

29.  We recommended earlier in this report that the Government publish statutory guidance to the regulator in draft alongside the Water Bill. We note that by doing so it would provide a greater level of certainty for market regulators and participants which would greatly assist them in the operational development of the competitive retail market.

Upstream Reforms

30.  Alongside opening up the retail market to increased competition, Defra has also set out plans to encourage upstream competition (i.e. the input of raw or treated water into a water company's network, or the removal of waste water or sewage for treatment). At present, the Water Supply Licensing regime requires licence holders that provide upstream services to also provide retail services. That requirement may discourage new entrants who could provide competitive upstream services but do not wish to deliver retail services. Clause 1 and Schedule 1 of Draft Bill will "unbundle" the existing licensing structure so that new entrants can sell raw or treated water into an incumbent's network, or remove and treat waste water from a network, without having to also provide retail services. New entrants will also be able to access water companies' treatment and storage systems (rather than just their mains and pipes) and to hold a new network licence which will allow them to own and operate their own infrastructure which they can connect to an incumbent's network. A similar scheme of licence authorisations will be introduced for sewerage.[55]

31.  Unlike the introduction of retail competition, which was largely uncontroversial in principle, we received a great deal of evidence expressing concern about the proposed introduction of upstream competition. These concerns stemmed in part from the "enabling" nature of the Draft Bill, which we have commented on earlier in this report. The lack of detail contained in the Draft Bill was felt to be of particular concern in relation to upstream reforms due to the limited experience of introducing such reforms in other jurisdictions, in contrast to retail reforms where the Scottish experience provides a clear starting point.[56] The resulting concerns can be split into two broad categories: the potential for a loss of investor confidence due a lack of clarity about the detail of the reforms and in particular the potential for the "cherry picking" of customers; and a loss of resilience in the sector leading to a less effective response to short-term interruptions to supply and longer-term pressures such as drought. We set out the evidence relating to these issues below.

INVESTOR CONFIDENCE

32.  Since privatisation, the water industry has attracted over £108 billion of investment.[57] Moody's Investors Service told us that the sector is "regarded very much as a gold standard. It has attracted [...] very significant investment at very low cost",[58] and that the industry's regulatory regime was held "in very high regard for its historic transparency, predictability and clear principles that have been consistently applied."[59] Water companies warned that the lack of clarity surrounding the Draft Bill's existing provisions on the introduction of upstream reform could see the industry's reputation as a safe haven threatened. Thames Water argued that

Any reform of upstream markets... inevitably raises financial and regulatory risk... a lack of clarity as to the future regulatory regime could undermine incentives to invest... We would therefore encourage clarity to be provided, either on the face of the Bill or through the production of clear and binding Government guidance. If not, there is a danger that increased uncertainty will increase the risks associated with investment, pushing up the cost of finance, ultimately leading to an adverse impact on customers' bills.[60]

33.  Despite taking evidence on this issue from water companies, Ofwat and Moody's, we have found it difficult to quantify how far these fears are likely to be realised. Our scrutiny was not helped by the ongoing dispute between Ofwat and water companies over Ofwat's proposed modifications to water companies' licence conditions, an issue which is separate to the Draft Bill but has been contemporaneous with our inquiry and has itself led to concerns about investor confidence.[61] We sought to establish with Moody's how far their stated concerns about a potentially "credit negative" outlook for the industry,[62] which they issued in October 2012 could be attributed to the Draft Bill itself and how far it might be due to the licence modification proposals, but they were not able to take us any further, telling us that "investors do not make that distinction. We do not particularly make that distinction. What they are doing is looking at the broad direction of travel".[63] Similarly, Moody's said that one could not "disaggregate" the particular elements of upstream competition that might pose a particular risk to investor confidence.[64] They did comment, however, that "Uncertainty is credit negative... if you have certainty, that is always a more positive thing".[65]

DE-AVERAGING OF PRICES

34.  Water and sewerage customers usually pay the same prices within a given company's area, even if the costs of serving those customers vary because the costs of building and maintaining the infrastructure are averaged out across the company's customer base. An individual customer's bill will depend on a variety of factors including the amount of water they use (if their supply is metered), or the rateable value of their home. Even if metered, the bill does not, however, reflect the true cost of supplying water to that individual customer. So, for example, the distance that a customer is from a treatment works, or the additional cost of the infrastructure required to provide a water supply to a remote household, is not routinely taken into account when calculating individual bills.[66]

35.  The potential for upstream reforms to lead to a move away from this position to a regional de-averaging of prices was raised as a concern by many of our witnesses, including water companies, the Consumer Council for Water, and the Water Industry Commission for Scotland. The potential for de-averaging would come about because of the incentive for new entrants to "cherry pick" those customers within an incumbent company's region that are the lowest cost to serve. WICS illustrated the possible impact of this with an example:

If a dairy in a rural community were to [identify an alternative source of water that would meet its needs or] reduce the strength or volume of its waste, this could lead to the partial stranding of an asset built to serve that customer. It may be the only significant business (in population equivalent terms) in the area and potentially significant costs would now have to be met by those customers that remain, including households if the asset that was constructed is to be paid for in full.[67]

36.  Ofwat told us that it was a "myth" to say that upstream reforms would lead to a de-averaging of prices between rural and urban household customers.[68] However, they appeared to accept the prospect of some element of de-averaging in the non-household sector, saying that there was "clearly an argument for giving non-household customers, particularly heavy users of water and sewerage services, cost-reflective price signals, so that they make efficient decisions—for example, on where to locate."[69] The Minister told us that he would "hold Ofwat to their duty to make sure that we are not penalising customers who live in rural areas because it is more expensive to provide water to them" and that "we think it continues to be a very clear duty on the regulator to make sure that prices are averaged in the right way."[70]

37.  In order to improve certainty for all parties, including investors, we recommend that Defra make clear on the face of the Bill the key principles that will underpin the introduction of upstream reforms. This should include a clear commitment that the reforms will not lead to any further de-averaging of prices.

38.  The prospect of de-averaging was considered to pose a particular risk to investor confidence. Ofwat currently determines the total revenue for each water company over a five-year period through the Price Review process. In price-setting, Ofwat takes into account the need to provide a return to investors and calculates the level of this return using the Regulatory Capital Value, or RCV, model to measure the capital invested in the business. United Utilities argued that de-averaging of prices could threaten the RCV model and therefore deter investment:

The draft Bill... proposes establishing a system whereby future remuneration of the RCV will become less plausible over time, with the number of customers contributing to it becoming fewer and the composition of RCV reflecting a larger number of underutilised assets.

The process of "cherry picking" by new entrants will undermine the economic sustainability of existing wholesale activities and continued servicing of the RCV will impose greater burdens on those customers who are unable to "opt out"; the largest proportion of these will be domestic customers. As this risk becomes self-evident to the investment community, the cost of capital will be driven higher making the long-term viability of RCV more questionable.[71]

39.  Defra have acknowledged that upstream reforms are likely to have some impact on the cost of capital. The impact assessment which accompanied the Draft Bill (first published alongside the White Paper) assumed a 1% increase in the cost of capital, leading to an increased cost of finance of £426m.[72] This increase would, according to Defra's calculations, be outweighed by the savings that upstream competition would bring: the impact assessment put the net present benefit of the reforms at £1,952 million. The impact assessment did, however, note that the impact of the reforms on financing costs was a "key uncertainty",[73] and that "the final financing impacts are also closely related to Ofwat decisions about how it treats stranded assets and the ongoing protection of the RCV".[74] United Utilities said that the impact assessment's cost/ benefit analysis had been subject only to "limited" consultation by Defra and questioned whether the expected £2 billion benefits would materialise. They called for an independent review of the cost/benefit analysis in the impact assessment, to allow input from a wider range of stakeholders and consideration of industry assessments of costs and benefits.[75] In oral evidence Defra told us that they had not re-visited the impact assessment since its publication,[76] but that a full, updated impact assessment would be carried out before the introduction of the Bill itself.[77]

LOSS OF RESILIENCE

40.  A further concern expressed by many of our witnesses was that upstream reforms could lead to a loss of resilience in the sector. South West Water explained that:

Currently, an element of capacity is built into the network to accommodate peaks in flows or to ensure continuity of service where an aspect of the system fails. However, in a "competitive" environment, where new entrants will be competing to provide resources and assets at the most efficient cost, it is not yet clear how these critical capacity safety nets will be maintained.[78]

Similarly, it was argued that a more competitive, fragmented market would make it more difficult for water companies to work together to safeguard supply. The Food and Drink Federation said that a competitive upstream model could "weaken, or even undermine, the degree of co-operation required between water companies and their customers in terms of maximising the efficient use of resources".[79] The Local Government Association drew on its experience of the severe drought in 2012, noting that it "brought together water companies and a range of stakeholders, including the LGA, to manage the immediate stakeholder concerns and communication needs. Government should ensure that a potentially more complex water sector could still be marshalled this way".[80] Also commenting on the 2012 drought, Wessex Water described how water companies had worked together to transfer supplies to areas of need and said that they were advised at the time that they would not have been able to co-operate in such a way in a competitive market.[81]

41.  We are concerned by the levels of uncertainty in the proposals for reform of the upstream markets and we do not believe that the case for these reforms has yet been fully made out. Given the potentially serious implications of the reforms both for customer bills and for national resilience in the face of climate change and population growth, we believe that further work must be undertaken to establish how upstream reforms can be introduced in a way that will preserve investor confidence, ensure that customers do not face increased bills, and maintain resilience in the sector. We recommend that Defra revisit this issue, inviting evidence from water companies, consumer representatives and other interested parties both on the likely impact of the reforms and on the detail of their implementation. This work should be commenced immediately.

TIMESCALE FOR UPSTREAM REFORM

42.  A great deal of further work must be undertaken by Defra, in consultation with interested parties, before any steps can be taken to introduce upstream competition. Consequently, upstream reforms are unlikely to be brought in at the same time as the retail reforms; there is simply too much preparatory work to be carried out and the Minister told us that the Department had "always anticipated upstream competition being introduced in a phased manner on a slower timescale".[82] Nevertheless, we believe that it is important to be as clear as possible about the reforms' expected timescales to enable water companies and investors to engage with the Government and prepare for the new market. We recommend that the Bill set target dates for the final decision on the form and scope of upstream reforms, and the opening of the upstream market.

Engagement with the devolved administrations

43.  Water policy is a devolved issue. The Draft Bill has been developed in conjunction with the Welsh Government and will apply in both England and Wales. In written evidence the Welsh Government criticised Defra's engagement.[83] The Minister told us that he had recently met with the Welsh Minister and "agreed to have further discussions in the very near future to make sure we are ironing out any difficulties that may be perceived to exist across the border".[84]

44.  The legislation will enable the creation of a joint English-Scottish market. Creating such a market will require close working between the UK and Scottish Governments and the respective regulators. The Scottish regulator, the Water Industry Commission for Scotland (WICS), has expressed concern that some of the provisions in the Draft Bill for reform of the upstream market south of the border could have unintended consequences in Scotland. WICS argued that "the combination of the Competition Act and legal precedent could result in de-averaging in England spilling over into Scotland".[85] Defra told us that they did "not fully understand the issue that WICS has raised and will be exploring this further with them. We currently believe that changing the regime in England and Wales will not make any substantive difference to the legal position in Scotland under the Competition Act".[86]

45.  Given the UK-wide implications of the Draft Water Bill, it is essential that Defra takes a collaborative and consultative approach to engagement with the devolved administrations. In its response to this report we expect Defra to be able to confirm that there are no outstanding areas of dispute or concern with either the Welsh or Scottish administrations.


16   The threshold requirement would remain in Wales unless and until new licensing arrangements are fully commenced in Wales. Back

17   The Welsh Government's current policy is for the existing 50 million litre a year threshold to be retained in Wales. Back

18   Draft Water Bill, p18 Back

19   Professor Martin Cave, Independent Review of Competition in Water Markets; Final Report, April 2009 Back

20   Retail competition in Scotland was introduced through the Water Services etc. (Scotland) Act 2005 Back

21   Q 66 Back

22   Q 84 Back

23   Ev 88 Back

24   Ev w80 Back

25   Ev w14 Back

26   Ev w21, w4 Back

27   Ev 99 Back

28   See, for example, the discussion in Professor Martin Cave's interim report on Competition and Innovation in Water Markets, pp 78-80. Back

29   Q 69 Back

30   Q 71 Back

31   Q 69 Back

32   Q 119 Back

33   Q 119 Back

34   Q 324 Back

35   Water for Life, p70 Back

36   Ibid, p72 Back

37   Ev 74 Back

38   Q 227 Back

39   Q 222 Back

40   Q 115 Back

41   HC (2012-13) 374, para 78 Back

42   HC (2012-13) 374, para 80 Back

43   Ev w83; Qq 116-118 Back

44   See Qq 19-22 and Q 228  Back

45   Q 326, Q328 Back

46   Ev w29 Back

47   Ev w25 Back

48   Draft Water Bill, p10, para 26 Back

49   Q 321 Back

50   Q 36 Back

51   Q 124 Back

52   Ev w83 Back

53   Draft Water Bill, p9, para 24 Back

54   Q 320 Back

55   Draft Water Bill, Clause 4 and Schedule 3  Back

56   See Q 46 Back

57   Department for Environment, Food and Rural Affairs, Defra's Strategic Policy Statement for Ofwat: Draft for Consultation, November 2012, p9 Back

58   Q 184 Back

59   Q 143 Back

60   Ev w48 Back

61   In December 2012, following the conclusion of our oral evidence sessions, Ofwat published a consultation on revised proposals for the modification of company licences which it said would reduce levels of uncertainty about the impact of the licence changes. Back

62   Moody's Investors Service Announcement, Continued uncertainty for UK water sector with proposed licence changes, 29 October 2012 Back

63   Q 171 Back

64   Q 185 Back

65   Q 192 Back

66   See Ev w87 Back

67   Ev w59 Back

68   Q 128 Back

69   Ev 88 Back

70   Q 301 Back

71   Ev w51 Back

72   Impact Assessment Upstream Competition p49. The impact assessment considered a range of sensitivities for the increase in the cost of capital, ranging from 0.5% (low) - 2.5% (high). Defra assumed a medium financing cost increase of 1% in arriving at the figure of £426 million. Back

73   Impact Assessment: Upstream Competition, p33 Back

74   Ibid. p49 Back

75   Ev w51 Back

76   Q 291 Back

77   Q 293 Back

78   Ev w45 Back

79   Ev w17 Back

80   Ev w28 Back

81   Q 43 Back

82   Ev 80 Back

83   Ev w61 Back

84   Q 336 Back

85   Ev w82 Back

86   Ev 81 Back


 
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Prepared 1 February 2013