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Regulating large users charges
What is a large user?
A large user is a customer who is, or is likely to be, supplied with not less than 50 million litres (megalitres – Ml) of water a year by a water company in England. For the companies operating largely in Wales, the threshold is 250 Ml of water a year.
Large users and the tariff basket
If you are supplied with 50 Ml a year or more, your charges are not subject to the price limits that we set. These charges were removed from the tariff basket because large users form part of an emerging competitive market and their charges do not require the same degree of regulation as other groups of customers. Large user charges are still required to be neither unduly preferential nor unduly discriminatory.
Charges for large users
Charges can reflect the lower costs of providing services to large users, such as:
- delivering large quantities of water to a single point, which does not require all levels of the distribution system
- supplying water to customers whose peak demands do not coincide with the system’s
- delivering a lower level of service to customers on an optional basis.
Unit charges should not be lower for large business customers simply because they use a large amount of water. Charges should provide incentives for customers to avoid wasting water.
How companies set large user charges
We expect each company to justify its large user charges on a robust allocation of accounting costs across the groups of customers concerned. In MD159, ‘LRMC and the regulatory framework’, we said that failure to do this would be the principal means by which we would assess abuses of market power and undue discrimination.
Large user charges should also take note of robust estimates of long-run marginal cost (LRMC). This is particularly important in areas where water resources are constrained. MD170 ‘The role of long run marginal costs in the provision and regulation of water services‘ has more information about this.
We monitor changes to the difference between large-user and household charges each year. This is to make sure that charges for both groups of customers are neither unduly preferential nor unduly discriminatory.
