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Dr M Brooker
Managing Director
Dwr Cymru Welsh Water
Heol Pentwyn
Nelson
Treharris
CF46 6LY

15 November 2000

INTERIM DETERMINATION – provisional response

On 29 September you made an application for an interim determination of your company's price limits under Part IV of Condition B of the licence. You cited five changes, namely greater numbers of customers taking up the free meter option; the cryptosporidium monitoring requirements placed upon your company by the Drinking Water Inspectorate (DWI); requirements for plumbosolvency treatment as well as new undertakings you have given to the DWI and finally a further series of improvements to effluent discharges imposed by the Environment Agency. Your estimates of the effect of these changes on your costs and revenues were set down in a report attached to your application and are summarised inAnnex A.The Reporter, Jeremy Hawkins of Halcrows submitted his report on your application on 10 October.

We have completed our initial assessment of your application in the light of all the information available to us now. Our approach and our initial findings, judgements and conclusions are summarised in Annex B attached to this letter. We will provide you with some explanatory notes expanding on Annex B in the next few days. Our provisional views on the impact of the changes on your costs and revenues for the two scenarios outlined below are set down in the summary tables (Annex A).

We are still awaiting decisions from the DWI and the First Secretary of the National Assembly for Wales on two of the items cited. We anticipate these matters will be resolved by the end of the month. If they confirm your interpretation of the changes then our initial assessment is that in total the impact of the changes on your cost and revenue do exceed the materiality threshold. Under this scenario the revised price limits set out in the attached table would apply from April 2001 with the result that the average household bill in 2004-05 would increase by a further £3 to £276. If they do not confirm the items then the total it is not sufficient to exceed the materiality threshold set down in Condition B of your licence. In these circumstances we would find no basis for changing the price limits set in November 1999.

We are inviting written representations from you on these draft determination scenarios of your application. Please could these be with us by the close of Monday 27 November. We shall be meeting you on 4 December to hear first hand your representations.

We would be grateful for written representations from other interested parties by the close of Wednesday 6 December.

We shall make our final determination of your application by no later than end of December consistent with the timetable set out in Condition B.

We are placing this draft determination in the Ofwat library at the same time as announcing our decision to the London Stock Exchange.

This letter and enclosures has been copied to Bob Macey (NafW), Alan Davis (DETR), Michael Rouse (DWI), Roger Thomas (Environment Agency for Wales), Raymond Roberts (Chairman of CSC for Wales), to all the members of the Welsh Assembly, your local Members of Parliament and Members of the European Parliament.

PHILIP FLETCHER