Targeted Review of Sludge and Water Resources

The objective of the targeted review will:

• Give us confidence in the robustness and consistency of some of the data we already request;

• Improve our understanding of sludge revenues, in particular around non-appointed income, and;

• Develop our understanding of the effect of the 2009 Modern Equivalent Asset Values (MEAV) revaluation.

In order to inform our thinking as we move towards a separate price control for water resources and sludge at our next price review in 2019.

The scope of this work includes looking at companies’ methodologies for recording and reporting costs, revenues and assets in the water resources and sludge business unit and between sludge appointed and non-appointed activities.

We do not intend to review the water resources or sludge business unit boundaries or the activities and services within the water resources or sludge business units as developed through accounting separation and defined in Regulatory Accounting Guidelines (RAG 4).

In order to meet the business objectives, the project will involve the Contractor performing the following tasks:

• Attending and leading meetings with all 10 WASC’s at their premises with a member of the Ofwat team supporting.

• Discussions and short debrief with the Ofwat team following each company meeting.

• Input into pre-meeting briefing/information pack for WASC’s as necessary.

• Regular weekly discussions with the Ofwat team regarding the project, next steps and highlighting any areas of concern.

• A weekly email to the project manager concerning budget spent, remaining and forecast expenditure for the remainder of the contract.

The Contractor will be required to produce the following deliverables:

• A draft and final report; detailing the approach and findings of the targeted review. This should be focused on addressing the questions highlighted in the Terms of Reference and include findings from discussions with companies and methods of addressing any concerns regarding robustness and consistency of cost recording, cost allocation and revenues.

The draft report should be produced no later than 19 February 2016. Earlier versions can be shared and discussed prior to this. We may request that the draft report be presented to a group of Ofwat colleagues. Suggested changes to the data collected in Regulatory Accounts if necessary. These should be produced no later than 19 February 2016.

• The final report (a full and a redacted version if required), suitable for publication, should be produced no later than 3 March 2016.

Suggested changes to the Regulatory Accounting Guidelines if necessary by 3 March 2016.

Ofwat may wish to disclose the final report separately or as part of a publication.