Charging by site area is the fairest way to charge

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Charging by site area is the fairest way to charge

Why is charging by site area the fairest way to charge?

Site area charging is the fairest because it best reflects the cost of providing the service: that is the larger the site, the more surface water is likely to drain from it. The "site" should relate only to the area of roof or hardstanding that drains to the sewers (ie: after excluding areas which drain naturally, such as most grassed sports fields and graveyards). This means that larger premises which are making most use of the surface water drainage service will see the largest bills. Customers with smaller premises will pay less. Other methods of charging for surface water drainage will include a cross subsidy. This means that some customers with smaller sites will pay more than their share of the costs and larger sites would not pay enough.

The costs generally depend upon:

the surface area of the property drained to the sewer because the larger the site area, the more surface water will drain from it; and

the volume and intensity of the rainfall and, hence, of surface water run-off.

In 2003 we reviewed companies' approaches to charging for surface water drainage.

Following our review we recommended, in RD35/03, 'Surface water drainage – charging policy', that companies should consider charging for surface water drainage by site area. We said that the fairest method of charging should reflect the costs of providing the surface water drainage service.

We concluded that charging according to site area was the best method of charging for surface water drainage. We recommended that water companies considered introducing site area-based charging for surface water drainage – particularly for non-domestic customers where the process is simpler to put into practice.

Ofwat does not have any legal powers to insist companies charge for surface water drainage by site area.

The Consumer Council for Water supports the proposal for all companies to charge for surface water drainage by site area. It confirmed this in its response to the Future Charges consultation, point 44.

What benefits are there in charging by site area?

Customers pay a fairer, more cost reflective charge and can take action to reduce their surface water drainage by reducing the amount of water which drains from their premises.

There are also environmental benefits. Surface area based charging offers financial incentives to customers to reduce their surface water drainage, for example by installing soakaways or permeable surfaces for car parks. This can help to reduce the likelihood of flooding from overloaded sewers.

This approach is in line with the Government's water strategy for fair, affordable and cost reflective water and sewerage charges which incentivise environmentally responsible behaviour.

The Pitt Review of last year's flooding events in Gloucestershire, Yorkshire and Humberside reinforced the message that surfaces which did not allow water to soak through them, such as concrete and asphalt, increased the likelihood of flooding. It stated that many respondents felt that the summer 2007 floods were partially due to the loss of permeable surfaces in urban areas, for example through businesses' concrete or asphalt car parks and householders paving over front gardens. It proposed that both households and non-households should require planning permission to lay impermeable surfaces, but not for permeable surfaces such as gravel or permeable paving.

Are all non-domestic customers charged in the same way?

Yes, within each company area the charges will be the same for all non-domestic customers. Each company has a responsibility to all its customers, and Ofwat has a duty to protect all customers. Companies must ensure that charges are neither unduly preferential nor unduly discriminatory between groups of customers. This is a requirement under their conditions of appointment.

Companies should not see any net increase on revenue as a consequence of changing the basis of charges: as some customers with large site areas pay more, others with smaller areas pay less.

Ofwat considers that no non-domestic customers should be treated differently to other non-domestic customers.

However, it is for the companies to decide if the benefits of implementing site area SWD charging outweigh the costs.

Why aren't households charged by reference to site area?

Household premises could be charged according to site area but companies assume that most households' site areas are broadly similar. There is not much difference between the size of roof, drive and other impermeable surface between a terrace and a large detached home. To assess the small differences in each property's site area would be very costly.

In contrast non-household premises vary greatly in site area, from small retail premises to huge factory or warehouse complexes. Therefore the costs they impose on the system also vary hugely.

If charging by site area is the fairest method why doesn't Ofwat make all companies charge this way?

Although we recommended in RD 35/03 that companies should consider introducing site area-based charges for SWD, we also stated that companies must decide if benefits from implementing site area charging outweigh the set-up costs.

Ofwat does not have any legal powers to insist companies charge for surface water drainage by site area.

What effect has the phasing had?

Ofwat is under an obligation, set out in the Secretary of State's Guidance published in 2000, to ensure customers have stable and predicable charges. It also states that phasing in of any large changes in charges should be considered.

As a result we request that companies which want to change their method of charging for surface water drainage phase in any changes. For Northumbrian Water and United Utilities the changes have been, or will be, phased in over three years.

Further reading:

RD 35/03:

http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/Content/rd3503

CCWater response to Defra Consultation on improving surface water drainage:

http://www.ccwater.org.uk/upload/doc/ccw_res_Defra_cons_on_Surface_Water_Drainage.doc

Defra consultation:

http://www.defra.gov.uk/corporate/consult/water-drainage/letter.htm

Pitt Review:

http://www.cabinetoffice.gov.uk/thepittreview/final_report.aspx

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