Scene set for 2009 water industry price review

The Environment Department (DEFRA) has kicked off the water industry’s fifth price review with a statement outlining the process and the key issues to be considered.

In its first publication on the water industry’s 2009 price review, the Environment Department (DEFRA) has set out the process for the benefit of the water industry and its regulators.

There are few surprises for those familiar with the previous five-yearly cycles. But the present round, which will cover investment and prices from 2010-2015, is special because it covers the beginning of river basin management planning under the EU’s water framework Directive. The plans aim to detail measures needed to deliver good ecological status for all waters by 2015.

The Environment Agency is to publish draft river basin management plans in December 2008 according to a timetable set in the Directive. These will not be finalised until the end of 2009, when the financial regulator Ofwat will have set the prices that companies will be allowed to charge for the coming five years.

The timing is far from ideal. DEFRA warns that firms and regulators "should be prepared to make adjustments" to take account of water framework measures that are identified too late for inclusion in the price limits. This may mean a round of interim determinations, where firms go back to Ofwat to have prices reset, or of "logging up", where firms count up the extra costs they incur for consideration in the next price review.

Climate change will also make its mark. DEFRA promises "more detailed guidance" on adaptation this year, but companies are already required to produce long-term water resource plans and strategic direction statements (see pp 8-9 ).

A major development for water firms in the next review period will be the start of the government’s Carbon Reduction Commitment (ENDS Report 390, pp 41-43 ). The scheme will introduce a mandatory carbon trading system for large organisations not eligible for the EUETS and using more than 6,000MWh of electricity per year. It is likely to cover all but perhaps the very smallest water-only suppliers.

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