Ofwat update on leakage methodology review

Letter (about 5 pages) summarising the work conducted or commissioned by Ofwat to review aspects of its approach to leakage. This complements the reports published in November 2007.

In relation to methods for setting future leakage targets, the letter links to a consultancy report (119 pages, PDF) and states that:

[A frontier approach to setting leakage targets] involves normalising the leakage management performance of water companies, and driving less efficient companies to catch up with the performance of the best (or 'frontier') companies. This approach has the potential to deliver continuing efficiency improvements for all companies, with innovation from the catch-up companies leading to improvements in industry best practice. We decided that this 'frontier approach' to target setting was worth investigating further. We see it working in conjunction with – rather than replacing – the ELL [efficient level of leakage]. In November 2007 we said that we, together with the Environment Agency, would complete a further piece of work that would set out precisely how a frontier approach would work in practice and examine the costs and benefits of adopting such an approach.

We have now commissioned consultants to carry out the work on developing a frontier approach. They are due to complete their final report in April 2008. We will share this report with the industry and other stakeholders by publishing it on our website. If we conclude that the frontier approach to target setting is achievable and realistic, and that it can deliver net benefits, we will launch a full public consultation in May about the possible change in approach. If the results of the consultation lead us to adopt a new approach, we will report our conclusions by October, so that companies will have time to follow it in their final business plans and water resource management plans for PR09.

For further information or advice please contact Franck Latrémolière.

Filed under Ofwat, Water.

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