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Letters to Regulatory Directors
RD17/07 6 September 2007 Dear Regulatory Director DRAFT CAPITAL MAINTENANCE ECONOMETRIC RETURN 2008 (CMER08) Earlier this year we started our industry review of the capital maintenance econometrics. In May we published RD10/07 'Capital maintenance relative efficiency modelling for the 2009 periodic review'. We asked companies to comment on our current suite of capital maintenance econometric models and the data we collect for them. We held an industry workshop in July where companies were given further opportunity to comment on the models and data requirement. The company responses to RD10/07 and the papers for the workshop are on our web site. The CMER08 forms an essential part of our periodic review process. It is key to setting capital maintenance efficiency assumptions under our existing approach and would be part of baseline setting if we were to adopt menu regulation. Development of reporting requirement We have reviewed the data requirement and updated the tables and guidance to reflect company's views. This is the final stage of this review process. The draft of the reporting requirement is available from the Ofwat website. We would like comments on this draft by Monday 8 October 2007. This will enable us to include any significant changes before publication of the final reporting requirements at the end of October 2007. We have made a number of changes to the data collected; these are clearly highlighted on the draft reporting requirements. We have tried to reduce the data burden on companies and where possible have used data previously submitted. We have added a number of new lines of data to address the issues raised by companies. We have clearly highlighted these changes in the reporting requirements. Overall we have reduced the required input cells by around five percent compared to the 2002 submission.We have not included any measure of asset age. Although this was suggested by a number of companies as a potential variable it is very difficult to define and consistently report this across the industry. Year of explanatory variables As part of the review of the data requirement we asked for comments on the base year for the explanatory variables we use in the models. By using the same approach as the 2004 periodic review, we can utilise data from company asset inventory submissions. If we were to use an alternative to 2002-03 there would be an increased data burden on the companies, something that we are keen to avoid. Questions on draft CMER08: Timetable for CMER08 May 2007 – RD10/07 Capital maintenance relative efficiency modelling for the 2009 periodic review July 2007 – Industry workshop following responses to RD10/07 End of October 2007 – Final reporting requirements issued Early December 2007 – Capture system sent out Mid to end of February 2008 – Companies submit CMER08 End February 2008 – Reporter commentary on CMER08 March 2008 – Data checking and query process April 2008 – Sharing data with industry From April 2008 – Development of econometric models with industry input How to respond Please send your responses by email to jayne.gregory@ofwat.gsi.gov.uk by Monday 8 October 2007. Please contact Jayne Gregory on 0121 625 1306 or me on 0121 625 1307 if you have any queries on these reporting requirements HELEN TWELVES Head of Comparative Efficiency  |
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