Accounting separation and price cap regulation
This report considers the issues raised by the introduction by Ofwat of accounting separation (AS) into the water sector and the possible development of multiple price controls for different services or business units across the water supply value chain.
Our aim is to identify some of the key issues to be faced in the implementation of AS in order to stimulate further debate and engagement. Accordingly this report:
- describes how AS has been implemented and used for regulatory purposes in a number of other regulated industries;
- discusses the costing standards used in setting price controls supported by AS;
- identifies some of the issues associated with introducing these disaggregated price controls in the water sector; and
- concludes on the implications for how Ofwat should progress its reform programme.
The report has been prepared with the sponsorship of Water UK and represents the results of independent work by Deloitte LLP.