Ofwat has published its final Report on alternative approaches to leakage target setting.

In July 2006 Ofwat launched a review of its approach to setting leakage targets which took into account views from a wide range of stakeholders. The three specific pieces of work commissioned  are now sufficiently complete for Ofwat to publish the key reports and to set out the next steps that it will take.

The aim of the Alternative approaches to leakage target setting project was to review and compare alternatives to the Economic Level of Leakage (ELL) as a means for setting leakage targets. The report has recommended that a 'frontier approach' to target setting be analysed as a workable alternative to the ELL.  Together with the Environment Agency Ofwat will complete a further piece of work by spring 2008 that will set out precisely how a frontier approach would work in practice and examine the costs and benefits of adopting such an approach.

If Ofwat concludes a change of approach is required a full public consultation will be launched.  Ofwat are aiming to publish conclusions following the consultation in time for companies to follow the new approach in their final Business Plans and Water Resource Management Plans, subject to any practical constraints.

Two other related reports have also been published by Ofwat. Variation in per capita consumption (PCC) estimates considers whether the current variation in PCC across companies is to be expected and to make recommendations for improvements to companies' methodologies. The report has concluded that national variation in PCC can be explained by differences in the underlying drivers of PCC and makes recommendations for companies to improve their own methods of calculating PCC.  Ofwat will monitor companies' progress in meeting these recommendations through the June returns.

Providing best practice guidance on the inclusion of externalities in the ELL calculation aim is to provide practical guidance to companies on the inclusion of environmental and social costs and benefits in the ELL calculation. Ofwat’s consultants have produced two documents  -one report explores the issues and summarises the guidance to companies, the other is a guidance document that can be used directly by the companies.  These documents are in draft form at present while a small number of companies test the guidance document for usability and to assess the potential impact that the guidance will have on the ELL.  Ofwat will publish the final documents in the New Year and expect all companies to follow the guidance in their Business Plans for PR09.