RD 21/99

TO THE REGULATORY DIRECTORS
OF ALL WATER ONLY COMPANIES
AND WATER AND SEWERAGE COMPANIES

30 September 1999

APPROVAL OF COMPANIES' CHARGES SCHEMES IN 2000-01

In RD 19/99 I confirmed the timetable for the approval of companies' Charges Schemes for 2000-01. Following this, in MD152 and its associated report, the Director General set out his conclusions on the policies to be followed in order for Schemes to be approved. He also extended the timetable for submission of draft Charges Schemes to 7 October 1999.

This letter is to confirm the arrangements for submission of your draft Charges Scheme, and for tariffs meetings with companies in November 1999.

Draft Charges Schemes

A draft Charges Scheme, signed off by you personally, should be submitted to Ofwat by 12 noon on 7 October 1999.

The draft Charges Scheme should be the Scheme that the company will adopt, subject to the Director's approval. We do not expect the formal Scheme to be submitted in January to contain material changes, other than those required to secure the Director's approval.

Please provide five copies plus one unbound copy, addressed to Elaine Chatham, Executive Support Manager.

It would be helpful if companies could differentiate between those charges which are subject to approval by the Director and those which are not in their Charges Schemes. Charges for services that are not part of the functions of an undertaker under the Water Industry Act 1991 are not subject to the Director's approval. These include charges for the provision of tankered waste services. Companies may also wish to include in their Charges Schemes details of standard connection charges recovered under s45 of the Water Industry Act 1991, which are, again, not subject to the Director's approval.

In addition to the information already requested in MD152, please set out in an Annex to your draft Charges Scheme the calculated or implied values for a number of key policy indicators listed at Annex 1. The tariffs and other assumptions in your Charges Scheme should follow the policies set out in MD152 and your covering letter should explain how the indicators are consistent with such policies. Your covering letter should also draw to our attention any proposals for new tariffs and for significant tariff rebalancing contained within the draft Charges Scheme. Water and sewerage companies should provide an explanation of their plans for the balance between water and sewerage charges and surface water rebates, in the light of guidance included in MD152.

The Director believes that it is important that the Customer Service Committees (CSCs) have an opportunity to consider and to comment upon your proposed charges on behalf of customers. Ofwat will be sending a copy of your draft Charges Scheme to the relevant CSC upon receipt. CSCs cannot, however, be expected to treat information sent to them on a confidential basis and will not be required by the Director to do so.

Supplementary information following the DETR consultation paper

Ministers' draft Regulations on protecting vulnerable groups and on prescribed conditions are expected shortly. You will need to consider these and submit supplementary text to your Charges Scheme to address the requirements outlined in MD152. Please also include your best estimate of the take-up of the allowance provided for by the regulations and set out details of your arrangements to administer and audit the protections for vulnerable groups. Guidance on the content of the supplementary submission is attached at Annex 2. This additional information should be sent to Elaine Chatham by 12 noon on 21 October 1999. As with your draft Charges Scheme, please send five copies plus an unbound version.

Queries on draft Charges Schemes

There may be areas of your draft Charges Schemes on which we require clarification. I envisage that it should be possible, in many cases, to resolve these points via telephone conversations, rather than in writing. It would be helpful if you will indicate when submitting your Charges Scheme, the names and telephone numbers of the people we should contact to discuss queries on the various elements of your Scheme.

Tariffs meetings – November 1999

A meeting will be provisionally arranged with your company during November 1999 to discuss any concerns Ofwat has about your Charges Scheme and proposed tariffs for the charging year 2000-01. We will send an agenda to you three days in advance of your meeting, together with preliminary feedback on your submissions. If we have no substantial issues to raise, a meeting may prove unnecessary.

Following these meetings, by 15 December 1999, you will receive formal written feedback, identifying any elements that will preclude approval, to enable you to prepare your final Charges Scheme by 14 January 2000. This final version, together with your Principal Statement for 2000-01, due by 14 January 2000, should be formally endorsed by the company's Board and signed off by your Managing Director. We will write to you again in December to confirm the arrangements for this submission.

Please telephone me should you have any queries on the above process. Queries on the content of Charges Schemes should be addressed to either Sue Cox (0121 625 1303 – free optional meters, vulnerable groups, timing and methods of payment) or Charles Whitworth (0121 625 1320 – other issues).

Yours sincerely

Dr A J Ballance
Chief Economist

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ANNEX 1
KEY CHARGING POLICY INDICATORS – DRAFT CHARGES SCHEMES 2000-2001

Companies should set out in an Annex to their draft Charges Scheme the calculated or implied values for the following key charging policy indicators for the charging year 2000-01 (all in estimated November 1999 prices):

• RPI increase assumed (if charges not in 1999-2000 prices)
• weighted average charges increase (WACI), %
• weighted average charges increase – water, %*
• weighted average charges increase – sewerage, %*
• measured/unmeasured differential – water, £
• measured/unmeasured differential – sewerage, £*
• Household standing charge –water, £ (and % change on 1999-2000)
• Household standing charge –sewerage, £ (and % change on 1999-2000)*
• Trade effluent/ sewerage differential (average treatment basis), p/m3*
• Household surface water rebate offered (where applicable), £ per property (or property band)*

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ANNEX 2
PROVISIONS UNDER REGULATIONS TO PROTECT VULNERABLE CUSTOMERS

Each water company is required to send to Ofwat by 22 October a supplementary submission to their draft Charges Scheme, which should be made up of two parts. The first is the additional draft text, which should sit within the Charges Scheme, as per Annex A to MD152, covering the charges to which vulnerable customers are entitled and an outline of the process of submitting claims and establishing eligibility.

The second part of the supplementary submission should cover the company's administrative arrangements for implementing and auditing the Scheme and estimates of the expected numbers of applicants in 2000-01. This annex gives further guidance on the scope of this second part, which should cover at least the following points.

Ofwat accepts that companies will have had limited time to study the draft Regulations. However, companies should set out their broad approach on the following issues to allow Ofwat to reach a view on the likely effectiveness of the companies intended arrangements.

Administration of applications

This should cover the administrative arrangements for receiving and processing application forms, including:

• Where and how customers will be able to obtain an application form.
• The company's target time-scales for checking an application, and advising the customer of the outcome (or advising the customer that their application is under review if evidence is being validated).
• What the process will be for dealing with incomplete forms and applications not accompanied by evidence.
• How the company will remind protected customers of the need to re-apply after 12 months to maintain their eligibility.
• For water-only companies: how the company will advise the sewerage undertaker of the customer's entitlement to the capped bill and the time-scale for doing this.
• How complaints/disputes will be handled.
• How the company will make information available about the protection available to measured customers, including whether any other information, such as a leaflet or "ready-reckoner" to help customers decide whether or not they will benefit.

This section should cover how the company will implement the protection on customers' bills.

• How the company will implement the tariff change for customers whose last bill was based on an estimated reading
• How the company will ensure that the customer has received "the lower of" their usual bill or the capped bill at the end of the 12 month period. Are amended bills envisaged, will manual bills be necessary or will the billing system automatically produce the appropriate bill?
• What provision the company will make to ensure that customers who have not resubmitted an application are removed from the Scheme after 12 months.
• For sewerage undertakers (without a common billing agreement): the target time-scale for implementation of the protection on sewerage bills after receipt of notification of eligibility from the water undertaker.
• For sewerage undertakers the process for communicating with applicants.

This section should cover what steps the company will take to check and audit applications in the interests of avoiding the acceptance of fraudulent applications. This should include:

• What "reasonable steps" the water company will take on a routine basis to verify evidence and to satisfy itself of the entitlement of the customer to the protection.
• What internal checks the water company will make to ensure that items of evidence are not being used by more than one applicant.
• On what criteria the company will decide to check eligibility with the Benefits Agency or Medical Practitioner e.g. incomplete or unconvincing evidence, random samples etc.
• What information will the company seek from the Medical Practitioner; and will it include advice about likely water usage because of the medical condition.

Companies should set out their best estimates of the likely number of applicants qualifying for protection in the 2000-01 charging year. These should be set out as follows:

• Numbers of applicants qualifying under the draft regulations on low income, large families (ie on qualifying benefit and with three or more children under 16).
• Numbers of applicants qualifying under the draft regulations on specified medical conditions (if possible this should indicate numbers having each stated medical condition and using significant additional amounts of water).

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