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RD 20/02
TO ALL REGULATORY DIRECTORS OF
WATER AND SEWERAGE COMPANIES
AND WATER ONLY COMPANIES 28 June 2002
Dear Regulatory Director
RD09/02: BULK SUPPLIES, COMPETITION AND PERIODIC REVIEW INCENTIVES
On 25 March 2002 we published RD09/02 'Bulk supplies, competition and periodic review incentives' setting out our proposals to refine periodic review incentives relating to bulk supplies and competition. We also explained these proposals at our supply/demand workshop on 1 May 2002. Our proposals aimed to: - improve incentives for companies to use their regulated assets efficiently to generate revenues.
- enable all customers to share in the long-term gains delivered by using resources and assets more efficiently.
- allocate risks appropriately between owners of regulated companies and their customers.
In broad terms we proposed that companies should retain the net revenue gains (or losses) relating to new bulk supplies or competitive non-tariff basket activity for five years, to mirror our approach to rolling incentives for cost efficiencies.
We summarise the responses to RD09/02 in the annex to this letter. We will publish firmer proposals in our October 2002 paper on 'Ofwat's approach to the periodic review 2004' in the light of these responses and the Government's emerging proposals for competition.
George Day
Head of Water Resource Economics | 
Letters to Regulatory Directors
