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Letters to Regulatory Directors
RD 38/03 1 December 2003 Dear Regulatory Director 2004-05 PRINCIPAL STATEMENT This letter contains guidance on how to complete the 2004-05 principal statement, special agreement and large user information capture systems. Arrangements for receipt Please send your charges scheme, principal statement, special agreement and large user information capture systems for 2004-05 to reach us by no later than Tuesday 13 January 2004. Please submit your completed information capture systems both on the enclosed disk and in hard copy. When printing the principal statement please do not print blank charges. Please provide one hard copy (unbound) of your principal statement addressed to me. Your auditor's report and reporter's report need to reach us by no later than Tuesday 20 January 2004. Last year, several auditors opted to enter into a tripartite agreement. If your auditor wishes to do this again this year, we must receive a copy of the agreement no later than the date on which we receive the auditor's report. The agreement must be signed by a Director and the auditor. Principal statement information capture system The enclosed principal statement information capture system for 2004-05 is provided in Excel 97 format. The enclosed disk has been virus checked by Ofwat before despatch. We strongly recommend, however, that you carry out an appropriate virus check prior to using the disk. We have included an electronic help file on the enclosed disk. This provides practical advice on how to complete the principal statement, large user and special agreement information capture systems. Guidance on how to access the help file and the information capture systems is set out in summary form in annex L. Retail Price Index As last year, this letter is being issued before the all items retail price index (RPI) for November 2003 is known. You will therefore need to input this value into the principal statement information capture system yourself. The All Items RPI for November 2003 will be released on Tuesday 16 December at 9.30am. To find the value of the index please look on the following web page: http://www.statistics.gov.uk/press_Release/CurrentReleases.asp Alternatively you can listen to a recorded message giving the value of the index by telephoning 020 7533 5866. Please make sure that you use the all items RPI for November 2003. A further RD letter will be issued following the release of this information to confirm the value of the index. Please enter the value for the November 2003 all items RPI to one decimal place in cell K27 of the principal statement information capture system. This cell is directly below the value for November 2002 All Items RPI of 178.2. The spreadsheet will automatically calculate the annual increase to 2 decimal places. It is important that you carry out this procedure correctly. Any mistake could delay us in approving of your charges scheme and agreeing your principal statement. Links to June return 2003 We will check details in your principal statement against your June return submission. The enclosed information capture system contains elements of the water balance information that you submitted in the June return 2003. We do not expect you to change any of the values for 2002-03 (except for removing information for large users that are excluded from the tariff basket). We recognise that you may wish to provide revised estimates for 2003-04 and 2004-05. The information capture system will highlight any changes made. Please explain in your covering letter any changes you make to the information from the June return submission. The chargeable volume for 2002-03 in table 3 should reconcile with the chargeable volumes in the principal statement. Please input the total volume of water recorded in the principal statement into line A3.15 in table 3. The spreadsheet will automatically convert this volume measured in m3 per year into Ml per day. Line A3.16 is calculated as the measured water delivered at standard rates less meter under-registration less the amount of supply pipe leakage not chargeable (ie that relating to external meters). If line A3.15 does not equal line A3.16, please provide a full explanation. Measured/unmeasured tariff differential The tariff differential should be calculated using the average unmeasured forecast 2004-05 water delivered figures as submitted in Table 3 of your additional information. Where applicable, volumetric charges for different charging areas must be weighted together. A number of companies have asked to vary the way that average volumetric and standing charges are weighted. We have been flexible in allowing companies to do this if they have good reasons. However, when we agree to companies varying the calculations used in the differential, they must continue to do this in future years; we will not allow companies to revert back. If companies wish to use weights or other figures that have not been independently scrutinised before, we will require that reporters scrutinise the information. If companies change methodologies for calculating the differential we shall compare changes between the charging year and prior year differentials using the same methodology. Last year we calculated the official maximum level of the differential as £33.52. This was then rounded to the nearest pound. Indicative calculations for 2004-05 are that it will remain at £34. Applying a split of two-thirds for water to one-third for sewerage with appropriate rounding gives separate service limits of £23 for water and £11 for sewerage. Parts of the calculation depend on the value of November 2003 all items RPI. We will confirm the maximum level of the differential for 2004-05 at the same time as confirming the value of November's RPI. Vulnerable group tariff for 2004-05
You must set the level of the vulnerable group tariff at the forecast average household bill for 2004-05 (to the nearest pound), unless we have agreed otherwise.
In our December 1999 feedback letters we set out average saving assumptions for customers paying on the basis of the vulnerable group tariff. You may now have information on the level of that saving. Consequently, you can use a different level of saving if you provide robust evidence to show that the average level of saving is different to that assumed by Ofwat. Otherwise, you should continue to apply the average saving assumptions set out in our December 1999 feedback letter. If you use a revised level of saving you should make a one-off adjustment that will have the effect of adjusting other charges to what they should have been if previous forecasts had been made using the revised level of saving. Annex E includes details of how to do this. If you use a revised level of saving for the vulnerable group tariff, please include with your submission the evidence and calculations on which that saving is based.
In 2003-04 we asked companies to enter estimates of the number of customers that would be on the vulnerable groups tariff at March 2003, in conjunction with corrections for over- or under-forecasts made in 2002-03. Companies could also choose to enter forecasts for the 2003-04 uptake of the tariff. For the 2004-05 principal statement, if you consider that the future uptake of the vulnerable group tariff is unlikely to have a significant impact on your revenue, you may choose to enter actual weighting year take-up figures in line mwvgt01 (and msvgt01 for WaSCs) instead of entering charging year estimates. If you do this then you may not enter a forecast for the 2004-05 uptake. You must enter an adjustment line in the first year that you enter weighting year actuals to account for any over- or under- forecasts in the previous year's principal statement. If you would like to continue to benefit from protection from revenue losses resulting from additional customers successfully applying for the vulnerable group tariff then you should continue to enter prior year estimates in line mwvgt01 (and msvgt01 for WaSCs), so that you can continue to enter corrections and forecasts. Annex E sets out in detail how you should enter the vulnerable group tariff in the 2004-05 principal statement. We have revised the guidance this year to make it clearer, as a result of several companies finding it difficult to follow. We have also added guidance on how to enter revised levels of saving, and how to change to entering weighting year actual multipliers. In the 2003-04 principal statement we allowed you to forecast additional take-up beyond the maximum set out in annex E. This was due to the changes in benefits and tax credits that the Government introduced in April 2003, making more people eligible for the vulnerable group tariff in 2003-04 than in 2002-03. This was a one-off extra forecast, and as such you may not make such a forecast in the 2004-05 principal statement. Defra has yet to publish the conclusions to the consultation on the Vulnerable Groups Regulations. We have reminded Defra of the timetable that the approval of charges schemes follows, and asked that they inform companies at the earliest opportunity of the results. However, this is unlikely to be in time to implement any additional forecasts in the principal statement, should this be required. As a result you must not make an additional forecast for this in the 2004-05 principal statement. Recording of non-return to sewer allowances in the principal statement There has been some variance in the way that companies record their measured sewerage volumetric charges/multipliers in their principal statements. Some companies have reported the full non-abated volumetric rate(s) in the prior year and charging year columns and adjusted the charge multipliers so that they reflect the volume actually returned to sewer. Other companies have reported an abated volumetric rate and the full water delivered figure as a multiplier. Companies should show the full non-abated volumetric rate(s) in the prior year and charging year charge columns. The multiplier should be adjusted to show the number of units actually billed for. For example, if a company has a non-return to sewer allowance of 5%, the multiplier for the volumetric charge should be reduced by 5% to reflect this. Also, if a company gives rebates to individual customers on the grounds that more than the standard allowance is not returned to sewer, the multiplier should reflect this too, rather than showing a separate rate on a separate line. Companies should show their standard non-return to sewer allowances in the MSRET section of the principal statement. Auditors should check that the multipliers have been reported in the correct way. Special agreement register and large user capture system The weighting year revenue/volume relating to a supply should be reported either in the principal statement or the large user information capture system or the special agreement register. Only large users that are charged in accordance with a charges scheme should be included in the large user information capture system. Any customer charged on a basis other than in accordance with a charges scheme must be included in the special agreement register. For the weighting year, details should only be entered in the special agreements register if a customer is a special agreement customer in that year. For the weighting year, details should only be entered in the large user information capture system if a customer is a large user in that year. This will ensure that volume/revenue is not double counted between the principal statement, large user information capture system and special agreement register. No revenue/volume should be reported in more than one information capture system. All current agreements should be shown, regardless of whether any water has been received/delivered in a particular charging year. New guidance has been included in Annex H to show how to record an agreement that has terminated within the last two years. All transfers of water from one company to another should be recorded within the bulk supply section of the special agreements register. The revenues associated with such transfers should not be shown on the principal statement. Annexes In addition to the principal statement & additional information capture system, the special agreement capture system and the large user capture system, I enclose twelve annexes that set out guidance to help you prepare the above. The annexes are as follows: Annex A Principal statement requirements Annex B Charge multipliers for measured charges Annex C Treatment of new charges Annex D Treatment of new charges: new optional measured tariffs Annex E Entering the vulnerable group tariff (including a worked example) Annex F Abolishing or suspending a charge Annex G Additional information requirements & certification Annex H Special agreement requirements Annex I Large user requirements Annex J Audit requirements Annex K Guidance for reporters Annex L Information capture system guidance (circulated to water companies only) Ofwat process after 13 January 2004 Please note that we will analyse principal statements and charges schemes in order of receipt. We have made a commitment to approve companies' charges schemes and agree principal statements by 13 February 2004. Where possible we will aim to give approval and agreement respectively before this date. Where principal statements and final charges schemes are not submitted simultaneously by companies this will delay checks on both. If you have any queries regarding the principal statement information requirements please contact Suzanne Wright on 0121 625 1389. I am copying this letter to Robert Weeden (Water UK), Rodney Anderson (Defra) and June Milligan (Welsh Assembly Government) Yours sincerely Paul Hope Head of Tariffs  |
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