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Letters to Regulatory Directors
RD 31/02 19 November 2002 Dear Regulatory Director AQUARIUS 3 FINANCIAL MODEL We have been developing a new financial model, Aquarius 3, to support the price setting process for the next review and beyond. The audit of this first version of the model has now been completed and the model is being released today. This letter explains the release arrangements. Aquarius 3 November release The version of the model released today is based on the methodology we used for the price review in 1999 as coded in the Aquarius 2 financial model and the tariff basket model used by Ofwat in that review. We will release an updated version of the Aquarius 3 financial model in May 2003 following the conclusion of the current consultation on the methodology for the 2004 review set out in 'Setting price limits for 2005-10: Framework and approach'. The update in May 2003 will be the version of the financial model that we will use to determine price limits for 2005-10 in 2004. Distribution and availability The Aquarius 3 financial model has been developed with us by Cap Gemini Ernst & Young (CGEY). Under the terms of our contract with CGEY, one copy of the model is available free of charge to the companies, DEFRA, the Welsh Assembly Government and WaterVoice. Extra copies of the model can be purchased from CGEY. Others who want a copy of the software can also purchase it from CGEY. A contact point at CGEY is given at the end of this letter if you wish to order a copy. The updated model will be distributed free of charge to those who purchase the first release. Documentation We have prepared a rule book to accompany the Aquarius 3 software. This provides an overview of the modelling principles and contains a copy of the audit opinion from RSM Robson Rhodes to Ofwat. It also includes a guide to the inputs with cross references to the sources of the definitions for data items already collected by Ofwat and new definitions for items not previously collected. An electronic copy of the rule book is available on our web site with this letter. Data The Aquarius 3 financial model is populated with a dummy dataset. This dummy dataset has been compiled for a hypothetical water and sewerage company. It is provided so that you can follow the arithmetic of the financial model more easily than reading the excel equations. We propose to change the format of some data inputs in our business plan reporting guidance for the next review. The May 2003 update will be consistent with the business plan formats and tables when these are finalised following the current consultation (RD29/02). We do not intend to distribute the detailed data (either the inputs or the outputs) widely. We intend to share a fully populated model with the companies to support the draft and final determination of price limits in 2004 and expect to receive a fully populated model from the companies to support their draft and final business plans. Workshops We will be holding workshops in December for the water companies where we will present the Aquarius 3 financial model and demonstrate how to use it. Dawn Harrison is writing separately to provide you with further details. A similar session will be held for Reporters and Auditors as part of Joint Workshop 19 on 19 December 2002. Contacts If you have any queries on any aspect of the Aquarius 3 financial model please contact: Dawn Harrison Head of Financial Modelling E-mail – dawn.harrison@ofwat.gsi.gov.uk Tel: 0121 625 1317 Fax: 0121 625 3609To purchase the Aquarius 3 financial model software contact: Hugh Tinsley Cap Gemini Ernst & Young 1 Forge End Church Street West Woking GU21 1DB E-mail – hugh.tinsley@cgey.com Tel: 0870 366 0780 Yours sincerely Keith Mason Director of Regulatory Finance  |
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