There is always scope to improve the review process, to reduce uncertainty further. But there is no getting away from the underlying principles. Revenues are set to recover the efficient level of operating and renewal costs plus depreciation plus tax payments plus a return on capital employed. In projecting the amounts of each of these components, Ofwat relies on data provided by the companies themselves and by the markets. Depreciation is provided to ensure that, having due regard to current input price levels, asset replacement rates and the changing characteristics of a company's system, its operating capacity can be maintained.
Tax is an arithmetic calculation.
The cost of capital is estimated from empirical market data. Of course, there are refinements from time to time. But none of this is new. Moreover, there are a number of important checks and balances to guard against inappropriate outcomes, especially the provision for interim determinations. Financial checks are performed to ensure each company will remain 'bankable' under its revised price limits.