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Water bills for United Utilities' customers will rise next year if an initial decision made by Ofwat is confirmed following public consultation. The water regulator has scrutinised the case put forward by United Utilities Water for an increased price limit. Subject to consultation, Ofwat proposes to allow the company to increase its water and sewerage charges for the remaining year of the current price review period, from 1 April 2004 to 31 March 2005. Director General of Water Services, Philip Fletcher, said: "After looking very closely at the company's claims, we have concluded that we need to raise their price limit. The extra costs they face are substantial enough to require an increase in bills. "I regret the need for an increase, but I have a responsibility to ensure that efficient water companies can finance the services they provide to customers. "In deciding by how much price limits should increase, I have, where relevant, taken into account reductions in costs to the company since the last price review. "I will carefully consider comments from customers, companies and other stakeholders on these draft proposals before I make my final decisions." Under Ofwat's proposed change, United Utilities' customers would pay an average bill of £272, a rise of £9 above bills projected at the last price review. But the proposed change would mean that average bills for United Utilities' customers in April 2004, before inflation, would be the same as they were in 1999. The increase in price limits in April 2004 will reduce any subsequent increase to customers' bills sought by the company for the period 2005-10 when Ofwat sets price limits for the whole industry in England and Wales next year. Each year water companies can ask Ofwat to look again at their price limits if they face new costs or lower income that were not allowed for when price limits were last set. United Utilities requested extra revenue because it faces increased costs due to:
Ofwat has also taken account of savings made by the company. It will now cost less than assumed in 1999 to carry out the revised work programme for meeting new lead standards. United Utilities has also earned additional income from the disposal of land. In the proposed outcome for United Utilities, Ofwat has deducted the cost of carrying out the final part of a programme of works to improve intermittent discharges of waste water into rivers. This is because Ofwat takes the view that the programme established in 1999 will not be completed by March 2005. The remaining programme requires review and appears to represent very poor value for money. There is an opportunity to consider the issues this raises further before conclusions are reached. The consultation on the draft decision runs until 26 November. Ofwat expects to announce a final decision on the United Utilities' application on 11 December. Notes to Editors 1. The Director General of Water Services 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. They came into effect from 1 April 2000. Copies of 'Final Determinations: Future water and sewerage charges 2000-05' are available on Ofwat's website: www.ofwat.gov.uk and from Ofwat's library (0121 625 1373). 3. Letters to United Utilities explaining Ofwat's decisions will be available on our website: www.ofwat.gov.uk 4. 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 United Utilities are:
COMPARISON OF AVERAGE BILLS
5. Condition B of their licences allows companies to apply for an adjustment of their price limits for certain relevant changes in circumstances affecting costs that, in total, over a number of years, exceed 10 per cent of their turnover. Ofwat can also serve a counter notice if the regulator has evidence that companies have been allowed to raise money for work that may no longer be needed. 6. 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. 7. After the 1999 final determinations, Ofwat named three areas that allowed companies to apply for interim determinations. 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 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. 8. 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.
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