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Reports on water companies
How we control prices Data
Price limits and average bills We regulate your water and sewerage charges by setting a limit on the average change in charges that your water company can impose in any year. We set price limits (also known as the K factor) for each water (and sewerage) company in England and Wales. The price limit is the percentage by which a company can change its overall average charge above or below inflation each year so that it can continue to deliver the high quality services that customers need and expect, as well as safeguarding the environment. How we apply price limits Each company has a licence, which imposes conditions setting out things the company must do. We enforce these conditions, which include the formula for applying price limits: RPI+K+U ("overall price limit"), set out in condition B of the licence: • RPI is the percentage increase in the Retail Price Index in the year up to the November before the charging year that begins on 1 April. Annual inflation based on the RPI to November 2007 was 4.3%; • K ("price limit") is the limit we set on the increase in the overall average charge for each company for each year; and • U is any unused price limit the company has carried forward that it may use in future years (if they haven't put prices up as much as they could have in the past). Each company must produce an annual audited statement (the "principal statement") so that we can check that the average increase in a company's charges does not exceed the overall price limit. Price limits can be adjusted between price reviews in certain circumstances, as explained in the 'Changes to price limits' section below. The tariff basket The tariff basket is the set of regulated charges to which the overall price limits apply. The charges are grouped under five main headings:
The tariff basket formula allows companies to increase or decrease individual charges in the tariff basket by different amounts, as long as the overall average change does not exceed the overall price limit. A company can, for example, increase charges for unmetered sewerage services by a greater percentage than it increases charges for metered sewerage services. This is known as tariff rebalancing. We explained these issues in 'Tariff rebalancing and the tariff basket: a consultation paper', which we published in May 1997. Price limits for 2005-06 to 2009-10 In December 2004, we set price limits for each company for the years 2005-06 to 2009-10. We published these limits and explained the reasons for them in our report, 'Future water and sewerage charges 2005-10: Final determinations'. The price limits table shows the price limits (or K factors) for each company from 2005-06 to 2009-10. Changes to price limits Although we set price limits for the five-year period from 2005 to 2010, we recognise that unforeseen circumstances, which are outside the control of an efficient company, could result in significant changes in costs (both up and down). To deal with this, we have put in place three mechanisms to protect the companies and their customers from material changes in costs that affect the water industry between price reviews.
Bristol Water is facing significant changes in its costs and revenues because:
Dee Valley Water is facing significant changes in their costs and revenues because:
Current price limits The price limits and average charge increase table shows the price limits and average increase in charges for 2008-09. The average price limit for all companies is 2.5%. The average increase in charges is 5.8% including inflation of 4.3%. The overall price limit column in the table shows the total amount by which we have allowed companies to increase their charges, whilst the next column shows the amount by which they have actually increased their charges. The difference between the two is shown in the last two columns as a voluntary or compulsory price limit (K) abatement. A price limit abatement is when a company does not raise its charges by the full price limit for the year, so charges to customers are lower than they would otherwise have been. If the abatement is voluntary, the companies can carry the unused price limit forward to the next year. We have set out the reasons for the main differences between price limits and actual increases below. Price limit abatements related to enforcement action:
The average household bills for water and sewerage tables show details of average household bills for each company for 2007-08 and 2008-09. The tables also show the percentage changes in average household bills for water and for sewerage services over the past year. The combined water and sewerage average bills graph shows the total average bills for 2008-09. The average bills graph shows average bills from 1989 to 2008 in today's prices, highlighting the trend in bills over the period. We project that the average household bill for 2008-09 in England and Wales for water and sewerage services will be £330 (£157 for water and £174 for sewerage). As an individual customer, the level of your bill will depend on which area you live in, and your own circumstances: for example whether you have a meter or not. Your bill is unlikely to be the same as the average for your water and sewerage company. The level of household bills varies across England and Wales. South West Water has the highest average bill for water at £204 and Portsmouth Water has the lowest at £90. Average sewerage bills range from a high of £293 for South West Water to a low of £115 for Thames Water Approving companies' charges schemes 2008-09 The Water Industry Act 1999 (WIA99) requires all companies to have a charges scheme, which we approve. Household customers can only be charged under an approved charges scheme (This does not affect agreements made between companies and households before the WIA99 took effect). A charges scheme sets out all the charges a company makes to its customers under the WIA99. If you would like to see your own company's charges scheme, you can click on the link above. Our approach to approving charges schemes Companies are responsible for deciding individual charges. Every year they send us their proposed charges schemes for us to check. We make sure that these are consistent with:
The Consumer Council for Water (CCWater) is the consumer representative for the water industry. CCWater's regional committees played an important role in the process of approving charges schemes for 2008-09. CCWater:
The balance between water and sewerage charges The water industry consists of water and sewerage companies, who provide both water and sewerage services, and water only companies, who supply water but do not provide sewerage services. Charges for water delivered and sewage taken away should separately recover the costs of providing each service. This is particularly important if you receive water and sewerage services from different suppliers. We think the balance between water and sewerage charges will be fair if the share of total revenue that companies gain from each service is the same as the share of total costs of providing each service. For 2005-10, we set single price limits for water and sewerage companies rather than separate limits for water and sewerage services. However, as part of our final determinations in December 2004, we published an indicative split showing what the price limits should be for water and for sewerage for each of the water and sewerage companies. The indicative splits for 2005-06 to 2009-10 are shown in the indicative split of price limits between water and sewerage table. Actual expenditure on both water and sewerage services in any particular year may be different from the forecasts the companies made at the price review. We think it is sensible for companies to follow their indicative price limits for the five-year period as a whole, rather than to make adjustments each year based on actual expenditure. So we allowed South West Water, Southern Water and Wessex Water to apply their respective indicative price limits more evenly over the five-year period, to reduce annual changes in water and sewerage bills over the period. The re-profiled indicative price limits that we have agreed for these three companies are shown in the revised indicative split of price limits table. The company performance on balancing water and sewerage charges table shows that companies have closely followed their agreed indicative price limits for 2008-09.  |
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