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Ofwat is to consider increasing the price limits of three water companies because of changes to their financial position. Anglian Water Services Ltd, United Utilities Water plc and Northumbrian Water Ltd say they have experienced major changes to their income and costs that were not included in Ofwat's assumptions at the last price review. They want to raise more revenue from customers to cover these costs. If the regulator agrees with the companies' arguments, customers' water bills would go up in April 2004. The outcome of these reviews will be taken into account when Ofwat sets price limits for 2005-2010. Ofwat set the current price limits for all water companies in November 1999. The regulatory system allows each water company to ask Ofwat to review their price limits if there are major financial changes, between the five yearly price review, that satisfy specific criteria set out in their licence. Ofwat can also carry out its own interim review if it considers, in similar specified circumstances, that price limits should be reduced. Philip Fletcher, Director General of Water Services, said: "We shall be looking carefully to see whether the financial changes are big enough for us to reset the companies' price limits. I must by law set price limits to enable efficient companies to finance their functions. But in reaching my decision I will ensure that customers pay no more than is necessary to allow the companies to continue to deliver an efficient service. "If an increase were to be allowed from next April it would alter any subsequent increases to the price limits sought by the water companies from April 2005." Both Anglian Water and United Utilities say they are facing extra costs because of: · higher construction costs; · increasing customer debt which has led to higher debt-collection costs and loss of revenue; · changes to requirements for monitoring water quality; and · addressing foul flooding from sewers. Northumbrian Water is requesting an interim price review because of increasing debt and changes to requirements for monitoring water quality. Northumbrian Water has also applied for a further review of prices under the 'substantial effect' clause of its licence. The company states that it has suffered a substantial and unforeseen reduction in revenue since price setting because of: · lower demand from large users; and · fewer new properties than anticipated. For Ofwat to consider the request the company must show that: · the Net Present Value of the losses calculated over 15 years exceeds 20 per cent of turnover of the appointed business; and · these losses could not have been avoided by prudent management action. Mr Fletcher said: "Because the substantial effect clause must deal with a range of unforeseen events I have greater flexibility in responding than to a standard application for an interim determination. We will scrutinise Northumbrian Water's application and consider the most appropriate remedy." For each company Ofwat will offset savings made since the last price review against any request for an increase in prices. For example for United Utilities Water and Northumbrian Water this includes lower costs for the revised work programme for meeting new lead standards. Ofwat will now consider all cases, and consult on draft decisions in early November. It will announce final decisions in mid-December this year. Any changes will apply to water bills from April 2004. Mr Fletcher added: "Where companies have benefited significantly by raising money for work that has not taken place, or other specific conditions set out in the licence, the regulatory system allows Ofwat to pass these benefits back to customers through lower bills. "Sutton and East Surrey Water and Mid Kent Water have benefited from material gains on relevant items in this period. We have discussed this with the companies and they have agreed to an adjustment in prices in the next periodic review that will return the benefits to customers while keeping bills more stable over the period 2004-10." Notes to Editors: 1. Philip Fletcher, the Director General of Water Services (the Director), is the economic regulator of the water and sewerage companies in England and Wales. He exercises his powers in a way that he judges will allow them to carry out their functions properly, and finance them. WaterVoice represents customers' interests. 2. Price limits were set on 25 November 1999 for all the water and sewerage companies in England and Wales for the period 2000-05. They came into effect from 1 April 2000. Copies of 'Final Determinations: Future water and sewerage charges 2000-05' are available on the Ofwat website (www.ofwat.gov.uk) and from the Ofwat library (0121 625 1373). 3. Condition B of their licences allows water companies to apply for an adjustment of their price limit for certain relevant changes in their financial circumstances. Ofwat can also serve a Counter Notice if the regulator feels that companies have been allowed to raise money for work that may no longer be needed or made certain relevant gains or savings. 4. The movement in the construction price index relative to inflation is greater than assumed when we set price limits in 1999. Only three companies (Anglian Water, United Utilities and Yorkshire Water) have a licence that allows them to ask us to make an adjustment for this reason. 5. After the Final Determinations, Ofwat agreed changes to companies' licences which allowed them to apply for interim determinations in three new areas, which all arose from provisions of the Water Industry Act 1999. They were: · changes in expenditure (including losses of revenue) attributable to the greater take-up of free meters than assumed; · the consequences (debt-recovery costs and bad debt) of removal of the companies' right to disconnect domestic customers for non-payment; and · the cost of a new scheme to protect vulnerable customers with measured bills, against significantly increased water bills, because they have three or more children under 16 in the household, or a member of the household suffers from a designated medical condition. 6. Price limits are set using the formula RPI+/-K, where K is the number by which the company can change its charges to customers above - or below - the level of inflation. The price limits for Anglian Water, United Utilities and Northumbrian Water are as follows: PRICE LIMITS %
1 Anglian Water merged with Hartlepool Water in 1998. As such there are no price limits for Hartlepool Water but those for Anglian Water apply. 2 Northumbrian Water and Essex & Suffolk Water have merged. A combined licence came into effect on 1 April 2000. This set out the combined price limits for the merged company. The companies are required to comply with the separate price limits set in November 1999 for the two areas in addition to the combined price limits set out in the licence amendment. AVERAGE BILLS 2003-04
7. Following a similar process last year Ofwat increased price limits for Severn Trent Water and Yorkshire Water Services. In 2001, Ofwat increased price limits for South West Water, Bournemouth & West Hampshire Water and Dee Valley Water. MEDIA ENQUIRIES TO OFWAT PRESS OFFICE ON: 0121 625 1416/1496/1442 Out of hours enquiries to pager: 08700 555 500 water 503/509. Ofwat publications and press notices can be found on Ofwat's website at: www.ofwat.gov.uk  | ||||||||||||||||||||||||||||||||||||||||||||||||
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