RD 13/01

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

6 September 2001

Dear Regulatory Director

TIMETABLE AND PROCESS FOR SUBMISSION OF DRAFT CHARGES SCHEMES AND DRAFT PRINCIPAL STATEMENTS FOR 2002-03

This letter sets out the process and timetable for submission of draft Charges Schemes and draft Principal Statements for 2002-03.

Arrangements for Receipt

We should receive your draft Charges Scheme and Principal Statement for 2002-03 by 5pm on 5 October 2001. Please provide six copies (at least one unbound) of the Charges Scheme and three copies of the Principal Statement. Send your submissions to Bianca Mahoney, Executive Support Manager.

We will provide written comments on your draft submission by 7 December 2001 and earlier if possible.

We do not require the Additional Information Section of the Principal Statement, Special Agreement Information Capture System and Large User Information Capture System at the draft stage. Nor do we require either an Auditor's or Reporter's Report on the draft Principal Statement.

In addition to three hard copies of your draft Principal Statement, we also require an electronic version. Companies should use last year's Information Capture System to prepare their submission. Parts of the Information Capture System are protected to prevent changes. The process to remove this protection is given in Annex 1.

Companies that no longer hold an electronic copy of the Information Capture System should contact Peter Jordan on 0121 625 1312.

Transmission to CSCs

At the same time as companies submit their draft Charges Scheme to Ofwat, they should send a copy to the Regional Manager of the relevant Customer Service Committee. In RD 15/00, the Director General of Water Services said that companies' draft Charges Schemes do not have to be treated as confidential by the CSCs, except for proposals for large user tariffs. Companies should use the covering letter to the CSCs to say whether they want their proposals for large user tariffs to be treated as confidential. Ofwat expects CSCs to take appropriate steps to meet such requests.

All Items Retail Price Index – Assumption for November 2001

Draft Principal Statements should be based on Ofwat's estimate of the annual change in the Retail Price Index to November 2001. To ensure consistency, all companies should use an assumption for inflation of 2.00%.

Revisions to Text of Draft Charges Scheme for 2001-02

Companies should indicate clearly either in an attached schedule or in the Scheme itself, where any textual changes have been made to the Charges Scheme approved by Ofwat for 2001-02. If this is not possible, due to a restructuring of the Charges Scheme, companies should indicate where there have been any changes in policy.

Key Tariff Policy Indicators

Companies should set out in an Annex to their draft Charges Scheme Submission the calculated or implied values for key charging policy indicators for the charging year 2002-03 (in November 2001 prices). Use the attached proforma (Annex 2) .

Measured / unmeasured tariff differential

Last year we calculated the official maximum level of the differential as £31.50. This was then rounded to the nearest pound. Indicative calculations for 2002-03 are that it will remain at £32.

Parts of the calculation depend on the value of November 2001 all items RPI. We will confirm the maximum level of the differential for 2002-03 at the same time as confirming the value of November's RPI in December.

Take-up of New Tariffs

Information on the levels of actual take-up in the charging year 2001-02 to 30 September 2001 of the vulnerable group tariff, assessed charge and surface water drainage rebate scheme should accompany your draft submission. A split should be provided for measured, unmeasured, households and non-households where appropriate.

For new tariffs entered in the measured basket, charge multipliers in the Principal Statement should be based on a forecast of take-up for 2001-02. This forecast should be based on experience to date. Where this take-up estimate is significantly different to that agreed for the 2001-02 Principal Statement companies should re-enter the tariff as described in Annex C(ii) to RD 27/00. This applies only to new tariffs introduced on or after 1 April 2000.

Additional Guidance on Vulnerable Group Tariff

a. Level of Tariff

b. Average Level of Saving

• If you use a different level of saving for the vulnerable group tariff, please include the evidence and calculations that it is based on with your draft submission.

Companies should include in the covering letter to its draft submission an e-mail contact for any queries.

If you have any queries on the timetable or process for submission of draft Charges Schemes or Principal Statements for 2002-03 please contact David Musco on 0121 625 3621 or Peter Jordan on 0121 625 1312.

Yours sincerely

Michael Saunders

Director of Consumer Affairs

Annex 1

Process to remove protection from 2001-02 Principal Statement Information Capture System

1. Create a copy of the Principal Statement
2. Open copy of Principal Statement
3. Press "Enable Macros" and then "Continue"
4. Go to cell Q3 in Principal Statement sheet (cell currently has "1" entered and is next to "version")
5. Type in 'Generate' (capital G required)
6. Save file
7. Close file (click no to save file)
8. Re-open file (press "Enable Macros")

Once protection has been removed any cells and formulas can be changed.

Annex 2

Key Tariff Policy Indicators: Draft Charges Schemes for 2002-03

• 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 2001-02)
• household standing charge – sewerage, £ (and % change on 2001-02)*
• trade effluent/sewerage differential (average treatment basis), p/m³*
• household surface water rebate offered, £ per property (or property band)*