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Dear Colleague

We have launched a consultation about our future charging strategy for the water industry. The consultation examines the charging issues that the water industry faces and sets out our proposed strategy for future charges, as well as our updated charging principles.

The water sector in England and Wales faces significant challenges in the future. It is becoming increasingly important for companies to encompass the risks and uncertainties of challenges such as evolving customer choice, affordability issues and increasing levels of metering in their long-term plans.

We recognise that companies' future charges and charging mechanisms will become more important in meeting the demands and needs of customers and addressing the challenges of sustainability and climate change.

Some of the issues discussed within the consultation (notably metering and the use of RV based charging) are policy issues for the Government. This consultation will inform our opinions and input into any future work on these issues.

We have revised and updated the principles that underpin our decisions on charges by water companies to their customers. These principles are as follows.

1. Fairness and equity.
2. Affordability.
3. Incentives to consumers and companies.
4. Simplicity and transparency.

Our strategy for customer charges recognises a number of evolving strategic themes that include:

• encouraging the development of innovative tariffs and approaches to charging that increase customer choice, facilitate effective competition and reflect the circumstances in which water companies operate;
• support for a faster transition towards high levels of meter penetration, supported by sound cost benefit analysis (CBA), to help to develop a range of benefits; and
• encouraging technological innovation that should develop as a result;