Call-Off Econometric Modelling Services - Cost Assessment

Objectives

The Customer seeks expert advice on the econometric modelling of water companies’ costs for the purposes of setting price limits at the 2019 periodic review.

The Contractor must be able to provide robust advice that can withstand scrutiny from the water industry and other stakeholders.

The Contractor will be required to:

• Provide general advice and consultancy services on matters relating to efficiency and cost assessment. • Inform Ofwat’s decision making on econometric modelling, reviewing, refining and updating a set of models. • Provide expert advice on Ofwat’s approach to econometric modelling of water company costs and activities. • Undertake advanced econometric modelling to assess cost efficiency. • Provide documentation for the work undertaken. • Comment on cost assessment and efficiency analysis carried out by the companies themselves, other stakeholders and by other contractors.

Scope and Key Tasks

Ofwat will provide data to the Contractor for their scrutiny, opinion and advice on the use of econometric modelling tools. The Contractor will be required to use econometric methods to analyse data provided by Ofwat:

• To assist in reviewing, refining, updating and developing a set of models to determine efficient costs for the water and sewerage companies;

• To provide general advice and consultancy services on matters relating to efficiency and cost assessment, including written documentation.

Deliverables and timeframe

Ofwat will start receiving new data for cost assessment from the water companies in August 2016. We aim to consult on our approach to cost assessment in one or two stages starting from June 2017.

Ofwat will provide guidance on the timing of the key deliverables which will align with the price review timetable and any subsequent price review referrals. These will include (but are not limited to):

• advice on econometric modelling of cost functions;

• development of appropriate models and advice on integrating these models into Ofwat’s wider approach to cost assessment;

• contributing to Ofwat policy papers and discussions on cost assessment; and

• contributing to industry working groups on cost assessment.

Additional information: Please note that this is a call-off contract so it is difficult to quantify exact spend.