WICS proposals for Scottish Water price control 2006-2010

Water Industry Commission final proposals (383 pages, 4.1M PDF) for Scottish Water charges from 1 April 2006 until 31 March 2010.

The operating expenditure projections include a total efficiency improvement of about 11 per cent over four years, with a heavily front-loaded assumed time profile for efficiency improvements.

The cost on capital allowed by WICS is based on a 4.6 per cent nominal cost of debt, plus an allowance for embedded debt, and minus a tax adjustment which, in WICS' view, eliminates incentives for Scottish Water to change its gearing ratio. This is equivalent to a deemed cost of equity of 3.22 per cent nominal or 0.72 per cent real. This cost of capital is applied to a regulatory capital value whose opening value at 1 April 2006 has been set by WICS to about £4 billion, which is “such that Scottish Water would comply with all of the cash-based financial ratios used by Ofwat in 2009-10 if it meets (or outperforms)” the expenditure assumptions embedded in WICS' proposals. Additional income for "fineanceability" has been allowed in the first three years of the four-year price control.

Scottish Water has until late January 2006 to accept the proposals or trigger a Competition Commission inquiry.

For further information or advice please contact Franck Latrémolière.

Filed under Price controls, Water, WICS.

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