RD 16/01

TO REGULATORY DIRECTORS OF ALL
WATER AND SEWERAGE COMPANIES
AND WATER ONLY COMPANIES                                                                 19 September 2001 

Dear Regulatory Director

Re: Ofwat Financial Model – Aquarius 3

We have now signed a contract with Cap Gemini Ernst and Young (CGEY) for the delivery of a new financial model. This new model (to be called Aquarius 3) will replace the model used for the 1999 price review. It will provide new functions for Ofwat that will enhance the speed, flexibility and reporting for the modelling of price limits. It will also improve the transparency of the financial modelling process.

CGEY have proposed a Microsoft based application that has a Visual Basic user interface and an Excel calculation engine. The solution will run on current standard specification computers and will be easily used by analysts/modellers proficient in Excel.

The new model will be delivered to Ofwat by May 2002. We will commission an independent audit of the model prior to its final acceptance. This will confirm that the model is fit for purpose.

The model will be issued free of charge to the appointed water and sewerage companies in England and Wales and DEFRA in the autumn of 2002. The model will be available to other parties, such as other regulators, government departments, City institutions and consultants at a charge set by CGEY.

We plan to hold workshops explaining the structure and operation of the new model. The exact timing of the workshops will be confirmed to you in the coming months once the development process is under way. The proposal is to hold a workshop in the autumn of 2002, for staff working in companies' regulatory offices to clarify user issues and ensure the model is fully understood. Once the model has been issued, we will hold a further workshop in early spring of 2003, to explain the structure and mathematics of the model.

As part of the PR04 consultation due to start in late 2002, we will set out the process of sharing input and output data between Ofwat and each of the water and sewerage companies for modelling the determinations.

Any comments you have on the process and timetable above should be returned to me by Friday 19 October.

Yours sincerely

Roger Dunshea
Director of Operations