RD 22/01

TO THE REGULATORY DIRECTORS OF ALL
WATER AND SEWERAGE COMPANIES AND
WATER COMPANIES 11 December 2001

Dear Regulatory Director

2002-03 PRINCIPAL STATEMENT: RPI AND THE TARIFF DIFFERENTIAL

The All Items Retail Price Index (RPI) for November 2001 was 173.6.

Please enter this value in cell K27 of the 2002-03 Principal Statement Information
Capture System to one decimal place. This cell is directly below the value for
November 2000 All Items RPI of 172.1. The spreadsheet will automatically calculate
the annual increase as 0.87%.

The maximum level of the 2002-03 measured/unmeasured tariff differential is £32.00.
Applying a split of two-thirds for water to one-third for sewerage with appropriate
rounding gives separate service limits of £21.00 for water and £11.00 for sewerage.

Please calculate the tariff differential using the average unmeasured forecast water
delivered figures for 2002-03 as submitted in Table 3 of your Additional Information.
Where applicable, you must weight volumetric charges for different charging areas by
the respective charge multiplier as per the Principal Statement.

Any queries on the content of this letter should be addressed to Peter Jordan on
0121 625 1312.

I am copying this letter to Rodney Anderson (DEFRA), Bob Macey (National Assembly
for Wales) and Pamela Taylor (Water UK).

Yours sincerely

Paul Hope
Head of Tariffs