Allocation of risk

A range of external factors impact on water company costs and outcomes. These include, for example, changes input prices and wages, the impacts of the weather and inflation. Internal management can also impact directly on costs and outcomes, by affecting the efficiency of the business, and can also act to mitigating some of the impacts of external factors. Ofwat's price review framework has a number of mechanisms to share these risks between companies and consumers. This aims to encourage companies to control costs and outcomes where they can, but also to limit their exposure to risks where…