RD 9/00

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

17 March 2000

APPROVAL OF CHARGES SCHEMES 2000-01: REVIEW OF PROCESS

Background to the Review

In approving charges schemes for 2000-01, we followed closely the timetable set out in the 1999-2000 Report on Tariff Structure and Charges. The criteria that the Director used for approving charges schemes were set out in his letter to Managing Directors in September 1999 (MD152). We now wish to review the process both for approval and for establishing policy criteria. Lessons from the review can then be applied to the charges schemes approval process for 2001-02. This letter seeks your company's views on the process followed in 2000-01 and what should be followed for 2001-02.

We would be grateful if companies would structure their responses around the three main areas identified. These are set out in the paragraphs below. Any additional comments on issues not specifically raised will also be welcome.

1. Process in 2000-01 and for 2001-02

Comments on what went well and what could have been done differently are sought on each of the key stages of the process. These were:-

• consultation on and establishment of policy criteria for approval (culminating in MD152), in September 1999);
• tariff meetings with the water and sewerage companies during summer 1999;
• submission of draft charges schemes and supplementary material, which were discussed at meetings with all companies in October/November 1999;
• formal comment from Ofwat in 15 December 1999 letters to the companies and RD 25/99;
• consideration and approval of Principal Statements and Charges Schemes for 2000-01.

If we were to follow broadly the same process and timetable for approval for 2001-02, we would welcome your views on the suggestion that, for 2001-02, draft charges schemes should also be accompanied by a draft Principal Statement based on an estimated RPI increase (for November 2000). This would allow earlier identification of the key factors driving change in bills for individual groups of customers, and of companies' draft assumptions on take-up of new tariffs (including for vulnerable groups) in 2001-02.

2. Role of the Customer Services Committees (CSCs)

The Director attached importance to consultation with and comment received from CSCs on companies' draft charges schemes. Comments from companies are particularly requested on the working arrangements in respect of confidentiality reached with the CSC for handling draft charges schemes (ie full disclosure to the CSC except where companies have withheld particular parts of their draft charges scheme on grounds of commercial confidentiality, eg large user tariff proposals).

3. Policy issues for consultation in June/July 2000

The Director has already committed to review both the level and the structure of the measured/unmeasured tariff differential during summer 2000. We also said in the 15 December letter to companies that we could continue to discuss with them, in the light of the final guidance received from the Secretary of State, proposals to introduce low user tariffs (ie zero standing charge tariffs). In the light of these commitments, are there other tariff policy issues that your company would want to see re-examined and/or covered in any summer consultation paper?

Receipt of comments

Companies should structure their responses, including any nil returns, using the headings set out above. We will then publish a summary of these along with any appropriate conclusions on the process at the same time as the Director consults on policy issues for 2001-02 in summer 2000.

Comments are invited on all of above from companies as soon as possible. Please address your comments to Charles Whitworth, Head of Tariffs to be received by no later than Friday 7 April 2000.

Yours sincerely

M J Saunders

Director of Tariffs & Consumer Affairs