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Letters to Managing Directors
MD192 17 June 2004 MODIFICATION TO LICENCE CONDITION N - CONSULTATION Introduction On 7 April 2004 Elliot Morley, Minister for Environment and Agri-Environment at the Department for Environment, Food and Rural Affairs (Defra), made an announcement on the structure of the new Consumer Council for Water (CCW). This included that 1 October 2005 was the expected date for the establishment of the CCW. In 'Ofwat forward programme 2004-05 to 2006-07' we set out our intention to consult companies on the recovery of the costs of the set up of the CCW. We are now consulting you on a change to Licence Condition N to recover the set up costs of the CCW. At a later stage there will be another consultation to amend Licence Condition N, to recover the separate running costs of the CCW and Ofwat/Water Services Regulation Authority (WSRA). The timing of this will be confirmed later this year. Section 37 of the Water Act 2003 provides for modification of appointed companies' Licence Conditions relating to the costs of water regulation and consumer representation(1). It allows certain Licence Conditions(2) to require appointed companies to pay the expenses of the Director and the Secretary of State or the Welsh Assembly Government related to setting up the CCW. Section 37 also gives the Director the power to modify Licence Conditions where he considers it necessary or expedient to do so in consequence of, or in preparation for, the establishment of the CCW or the abolition of the Customer Service Committees. Prior to such modification, the Director must consult the appointed companies. The implementation of the CCW is managed by a steering group chaired by Defra officials, with membership from the Welsh Assembly Government, WaterVoice and Ofwat. The group is responsible for implementing the Minister's decisions and for ensuring that value for money is achieved in setting up the CCW. It is estimated the set up costs will be circa £1 million, to be recovered from companies in 2004-05 and 2005-06. Any residual ongoing costs such as stranded leases or early retirements would be included in annual licence fees. The recovery of the set up costs would be based on the following formula. CCW Implementation fee – chargeable in 2004-05 and 2005-06 I = M x t/T I = Implementation fee charged to appointed company M = Implementation cost in 2004-05 and 2005-06 t = Company turnover in previous financial year T = Total industry turnover in previous financial year Next steps We propose to write this formula into a new paragraph 2(8) in Licence Condition N. The remainder of Licence Condition N would remain unchanged at this stage. The next consultation on Licence Condition N will require a complete revision to reflect the separate costs of Ofwat/WSRA and the CCW. The CCW implementation group will prepare its budget forecast for 2004-05 and 2005-06 by September 2004, with the expectation that the implementation fee invoices will be issued in the second half of this financial year and at the start of 2005-06. The implementation fee income will be earmarked specifically for the costs of Defra or the Welsh Assembly Government and the Director in setting up the CCW and will be subject to audit. Any excess will be offset against appointed companies' future licence fees. We will make every effort to ensure the cost to appointed companies is kept to a minimum and will notify you in due course of the estimated set up costs for 2004-05. Please send your response to this consultation letter to Roger Dunshea, Director of Operations (roger.dunshea@ofwat.gsi.gov.uk), by Friday 16 July 2004. Philip Fletcher (1) Section 37 was brought into force by The Water Act 2003 (Commencement No. 1 and Transitional Provisions) Order 2004, on 1 April 2004. (2) Those made by virtue of section 11(1)(c) Water Industry Act 1991.  |
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