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Water companies to be allowed to finish late on spending to smooth market

Water companies in England and Wales will be able to extend their capital expenditure across regulatory periods to iron out peaks and troughs in their spending, NCE can reveal.

A consultation due to be published by industry regulator Ofwat next week will propose the introduction of late finishes to agreed portions of water firms' five-year Asset Management Plans (AMP).

Ofwat officials hope this will help prevent the drought in work that traditionally marks the start of each AMP period and ease the deluge of contracts towards each period's end.

Ofwat corporate affairs director Fiona Pethick said next week's consultation on how the regulator should run its review of water prices between 2010 and 2015 would make it clear that water companies would be expected look beyond the five-year period when planning their investment.

"The paper will look at bridging that gap between the two [AMP] periods," she added.

"Some funding in principle could be agreed within the first five years to run over into the next five year period."

Lobby group for water industry consultants and contractors British Water estimates that the peaks and troughs of the current spending regime costs the sector £168M to gear up for each investment programme through associated recruitment and attrition of staff.

British Water director Paul Mullord gave the likely introduction of "late finishes" a cautious welcome.

"The early start programme didn't work for whatever reason and if we thought that there was a cast iron solution, we would be shouting it from the rooftops," said Mullord.

"But there isn’t one single solution. There needs to be a raft of different actions by different people."

In an attempt to iron out the peaks and troughs of the spending cycle during the current AMP 4 period, Ofwat introduced an early start initiative that encouraged water companies to begin new capital programmes as soon as Ofwat had finished its price review.

However, this had little success as water firms were only able to procure a small proportion of work early as they were unsure how much they would have to spend under the price review.

Mullord added that the delayed spending in the Scottish Water industry, which looked likely to soften the blow of any downturn in work in England and Wales in 2010, provided anecdotal evidence that the late finish concept might fare better than early starts.

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