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RD 19/00

TO THE REGULATORY DIRECTORS OF ALL

WATER AND SEWERAGE COMPANIES AND

WATER COMPANIES

17 August 2000

Dear Regulatory Director

LOWERING OF INSET APPOINTMENT THRESHOLD TO 100Ml PER YEAR – TARIFF BASKET AND PRINCIPAL STATEMENTS

As you are aware regulations were laid by DETR Ministers on 20 July 2000 to lower the threshold for inset appointments, contained in Section 7(5)(a) of the Water Industry Act 1991, from the previous limit of not less than 250 megalitres per year to not less than 100 megalitres per year, for companies in England. The regulations will come into force today, 17 August 2000. The National Assembly for Wales is considering taking similar action in Wales.

This letter reminds companies of the implications of this change for the definition of those large users tariffs excluded from the tariff basket. It also gives preliminary guidance to companies as to how large users should be handled for the 2001-02 Principal Statement.

Licence Condition B and Excluded Large Users

The wording of the amended licence condition accepted by all companies in 1999 and by Sutton and East Surrey Water in July 2000 allows for an automatic amendment upon the coming into effect of any regulation made under Section 7(6) of Water Industry Act 1991, redefining the inset threshold. Therefore, from the Charging Year 2001-02 any charges made for large users (from today premises supplied with not less than 100Ml of water per year) will be treated as "Excluded Charges" and so be excluded from the tariff basket.

The above applies to those water, sewerage and trade effluent customers to whom these charges apply. This means that the charge details of sewerage and trade effluent customers whose premises are supplied with water of amounts not less than 100Ml per year should also be removed from the tariff basket. This is still the case where a customer is supplied with water of not less than 100Ml per year but discharges less than 100Ml per year.

Implications for 2001-02 Principal Statement and Additional Information

For the 2001-02 Principal Statement (draft and final submission) companies in England should not enter any large user tariffs for customers using not less than 100Ml of water per year. In addition, charge multiplier details for customers whose premises are supplied with not less than 100Ml per year should be excluded from the Principal Statement. Weighting year revenue for these large user customers should also be excluded from Section 0. Additional guidance on how companies should do this was set out in RD 25/99 and my subsequent letter to companies of 5 January 2000.

Companies have previously submitted as part of the Additional Information with the Principal Statement details of those customers whose premises are supplied with not less than 250Ml of water per year (Large User Information Capture System). Following today's reduction in the threshold, companies will be required to include in the return of large user information details of those customers supplied with not less than 100Ml per year. Current arrangements for companies in Wales (Dee Valley Water and Dwr Cymru) are not affected.

Yours sincerely