RD19/99

TO REGULATORY DIRECTORS

OF WATER AND SEWERAGE COMPANIES

AND WATER ONLY COMPANIES

20 August 1999

The timetable for the approval of water companies' charges schemes for 2000-2001

Ofwat's proposed timetable for the approval of water companies' charges schemes was set out in Chapter 2 of the 1999-2000 Report on Tariff Structure and Charges (see Annex 1). The closing date for the consultation was 30 June 1999.

Issues raised in responses

Twenty one written responses to the timetable consultation were received (see Annex 2): fourteen from the water companies (including eight from the water and sewerage companies), one from Water UK, and six from customer/environmental protection bodies (although, of these, only two actually commented on the proposed timetable itself). These responses are held in the Ofwat library. The main comments and concerns raised in the responses can be summarised as follows:

1. Some respondents questioned 31 January 2000 as the date for the submission of the final charges schemes (and Principal Statements), whilst others questioned mid/end February 2000 as the date for the receipt of approval of charges schemes (and Principal Statements) - stating that both of these dates were too late (citing the need to start billing by the second week in February). This was the companies' main concern, and some were willing to submit Principal Statements early to improve the proposed charges scheme approval timetable.
2. Some respondents questioned 30 September 1999 as the date for the submission of draft charges schemes – stating that it was too early in the year (some cited a possible delay in the publication of the Government's draft regulations, whilst others cited the fact that the Periodic Review was still in progress).
3. A few respondents wanted more information on how much detail was required for their draft charges schemes.
4. A few respondents questioned what was meant by the summer tariff meetings.
5. One respondent raised the need for confidentiality in dealing with any new tariff proposals.

Ofwat's response and conclusions to the comments and concerns raised are set out below:

1. Submission of Final Charges Scheme for Approval/Processing of Principal Statements

Ofwat has noted companies' concerns that late approval of the charges scheme should not delay company billing plans (from mid-February onwards). Ofwat needs a period of 4 weeks to complete the necessary checks for the Director to give approval. The Director believes therefore, that in order to enable companies to meet their billing timetables, final charges schemes should be received from companies no later than 14 January 2000.

It also makes sense for Ofwat to receive the Principal Statements and the final charges schemes at the same time (ie no later than 14 January 2000) and consider them together – albeit that the Director does not approve companies' Principal Statements. It would not be sensible for the Director to signify approval of a charges scheme before considering whether the charges in the Principal Statement complied with Conditions B and E of the Licence (or vice versa).

If companies submit charges schemes and Principal Statements by 14 January 2000 - provided there are no significant matters of concern to be resolved with companies - the latest date for approval of the charges schemes and an indication that the Principal Statement complies with Licence conditions B and E should therefore be the 15 February 2000.

Under the existing Licence, the latest date for receipt of the 2000 Principal Statements remains set at 31 January 2000. However, if companies submit Principal Statements (and/or charges schemes) after the 14 January, the 15 February 2000 date for approval of charges schemes may not be possible.

2. Submission of Draft Charges Scheme on 30 September 1999

This is the first year the Director will be approving charges schemes and a new a more intensive process is therefore required. It is important that there is adequate time for Ofwat and the Customer Service Committees (CSCs) to consider companies' proposed charges schemes for 2000-2001 in the autumn of 1999. This is essential to ensure that the tight timetable in January/February 2000 can be adhered to (see above). To achieve this Ofwat has also committed to give written feedback (on their charges schemes) to companies (and CSCs) by 15 December 1999.

Because of this, the Director wishes to keep the 30 September as the date for submission of draft charges schemes including new tariff proposals (including major revisions to the structure of existing tariffs). Of course companies will not be able to reflect in their charges schemes the impact of the Government's draft regulations if these are not published prior to this date. Supplementary submissions on these issues may be requested by Ofwat in October/November 1999. Under an appropriate agreement of confidentiality, upon receipt, Ofwat will send the draft charges schemes directly to the Customer Service Committees for them to advise the Director by 31 October 1999 of their comments.

3. Content of the Draft Charges Scheme

The Director will expect a complete set of draft charges to be included in the draft charges schemes submitted in September, including of course proposed changes to the companies' charging structures (eg new tariffs and/or significant rebalancing).

The charges should be based on the draft price limits published by the Director in July 1999. They should also take account of any points made by the Director in his public letter to water companies which will be sent in early September in response to the consultation on the paper Approval of Company Charges Schemes in 2000-2001. Whilst these numbers will be only indicative they will, along with companies' major new tariff proposals, provide a substantial basis for detailed discussion with companies in October/November 1999 and subsequent written feedback.

4. Summer tariff meetings

The summer tariffs meetings are meetings held between Ofwat, all the individual water and sewerage companies and the relevant CSC to discuss the company's tariff structure and charges for the subsequent year.

5. Confidentiality of new tariff proposals

Ofwat supports the request for the increased need for confidentiality.

Yours sincerely

Dr A J Ballance

Chief Economist

ANNEX 1: PROPOSED PROCESS FOR APPROVAL OF CHARGES SCHEMES

The proposed timetable for the approval of charges schemes for the year 2000-2001 is set out below:

• consultation with Ofwat Customer Service Committees (CSCs) on the process and the scope of the power to approve charges schemes (May 1999);
• issue of a consultation paper on the criteria that the Director intends to apply in approving charges schemes for 2000-2001 (mid June 1999);
• discussion with companies during the summer round of tariffs meetings on the proposed criteria (July 1999);
• response to consultation from companies and other interested parties (end July 1999);
• publication of conclusions on consultation (end August 1999);
• submission of draft charges schemes by companies (end September 1999);
• discussion with companies on draft charges schemes during autumn round of tariffs meetings (October/November 1999);
• formal written feedback to companies on charges schemes by Ofwat (by 15 December 1999);
• feedback to the CSCs on the outcome of Ofwat's considerations (end December 1999);
• companies' submission of charges schemes for approval by the Director along with Principal Statements (by 31 January 2000); and
• processing of Principal Statements and approval of charges schemes
• (by mid/end February 2000).

ANNEX 2: RESPONSE TO CONSULTATION

Anglian Water

North West Water

Severn Trent Water

South West Water

Thames Water

Dwr Cymru Water

Wessex Water

Yorkshire Water

Bournemouth & Hampshire Water

Cambridge Water

Essex & Suffolk Water

Mid Kent Water

North Surrey Water

Portsmouth Water

Water UK

Wessex CSC

Age Concern

Chartered Institution of Water and Environmental Management

Federation of Small Business

Royal Society for the Protection of Birds

Utility Buyers Forum