Estimation of Scottish Water capital expenditure needs

WICS consultation (24 pages, 3M PDF) and supporting information (nine PDF files) on the estimation of capital expenditure requirements for the review of Scottish Water's charges for the period 2010-2014.

For capital maintenance, WICS considers that “it would not be possible to use the UKWIR common framework in the Strategic Review of Charges 2010-14”. Instead its proposed method would rely on Ofwat's econometric models (modified to include Scottish Water data) “to establish an initial estimate of the appropriate allowance for capital maintenance”. WICS believes that these models will enable it to “determine the amount of capital maintenance that should be allowed for with some accuracy”. The next step would be an upwards adjustment for an "efficiency gap":

We propose to increase the modelled estimate of the amount of capital maintenance required in order to reflect the capital efficiency gap that exists between Scottish Water and the companies south of the border. We propose to use the Ofwat cost base technique to establish the size of any efficiency gap.

This would be followed by a downwards adjustment for future efficiency gains:

We propose to use Ofwat's cost base technique to assess the scope for efficiency in Scottish Water's procurement. We are currently consulting with Ofwat to determine whether we can work jointly on our use of the cost base approach.

Responses by Friday 19 October 2007.

For further information or advice please contact Franck Latrémolière.

Filed under Price controls, Water, WICS.

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