Ofwat has launched a new a consultation on the approach for water and sewerage companies (WaSCs) to value their bioresources assets ahead of the upcoming 2019 Price Review.

The water industry regulator  has launched the consultation to inform the the way it will allocate the legacy wastewater Regulatory Capital Value (RCV) at 31 March 2020 between the network plus and bioresources controls at PR19 and the information that is required from companies in September 2017.

 Launching the consultation, Ofwat said it was important that a robust and accurate valuation of sludge assets could support the proposed RCV allocation to bioresources, in order to provide a level playing field for bioresources trading and processing and to protect customer interests,

The proposed guidance in the consultation document sets out Ofwat’s view of the appropriate approach to asset valuation. The main proposals are:

Companies will complete a valuation based on the future economic value of bioresources assets, as at 31 March 2020. An allocation of the pre-2020 legacy wastewater RCV between bioresources and wastewater network plus using this valuation will help promote a level playing field for the development of markets.

Companies should undertake cross checks to provide assurance that the RCV allocation based on economic value is appropriate and protects customer interests. These should include testing if the allocation has an impact on customer bills or on the company’s ability to set charges in line with both charging rules and competition law.

If the cross checks reveal an issue arising from the proposed allocation of RCV, the company should propose an alternative allocation of the RCV, explaining why this allocation is appropriate to protect customers including by promoting a level playing field for markets.

Collecting bioresources asset economic valuation information at site level will allow companies to make best use of the most relevant information available to them, at a lower cost than requiring costing of existing assets and collecting data on their condition as at previous valuation exercises.

The regulator has also published a report commissioned from Reckon LLP (with Jacobs) alongside the consultation that is intended to be used by companies as they consider their valuation of sludge assets to inform their proposed RCV allocation. The report provides supporting guidance on the topics considered in the consultation.  

Ofwat wants the companies to submit a detailed explanation of their proposed RCV allocation by 29 September 2017. The timetable is intended to allow the regulator to provide feedback by the end of January 2018, well in advance of submission ofmcompany business plans in September 2018.

Ofwat will confirm the allocation of RCV to the bioresources price control and network plus price control (the remainder) as part of PR19 determinations.

The regulator said it had have committed that the price control framework for PR19 would provide the same nature and degree of regulatory protection as at present, for the RCV allocated to bioresources at 31 March 2020.

Deadline to make comments or representations on the proposals is 31 March 2017

Click here to download the consultation paper

Click here to download the Reckon report