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Following consultation, Ofwat today confirmed that it would allow two water companies in England to increase their price limits. The decision will permit Northumbrian Water (including the Essex and Suffolk region) and United Utilities to raise water and sewerage charges for the remaining year of the current price review period, from April 2004 to March 2005. Director General of Water Services, Philip Fletcher, said: "I regret the need for an increase, but I have a responsibility to ensure that prudent and well-managed water companies can finance the services they provide to customers. The extra costs the two companies face are substantial enough to require an increase in bills. "But customers must pay no more than is necessary. We considered carefully the comments from customers' representatives and the companies before reaching our decisions. "In deciding by how much price limits should increase, I have taken into account relevant reductions in costs to the companies since the last price review." Ofwat's final decision is that the companies should be allowed to increase prices by a slightly higher amount than proposed in the provisional decisions published on 5 November 2003. Further discussion with the companies has allowed Ofwat to reflect accurately the actual additional costs and savings that the companies have experienced since 2000. Overall, in September 2003 prices, the average water and sewerage bill for a Northumbrian Water customer will increase by around £21 from £212 in 2003-04 to £233 in 2004-05. This means that, before inflation, Northumbrian Water customers' bills in April 2004 will still be around £36 lower than they were five years ago. The average water bill, in September 2003 prices, for an Essex and Suffolk Water customer will increase by around £11 from £117 in 2003-04 to £128 in 2004-05. This means that, before inflation, Essex and Suffolk customers' bills will still be around £13 lower in April 2004 than they were five years ago. Overall, in September 2003 prices, the average water and sewerage bill for a United Utilities customer will increase by around £21 from £252 in 2003-04 to £273 in 2004-05. This means that, before inflation, United Utilities customers' bills have remained broadly the same as they were five years ago. Ofwat has deducted the cost of carrying out the final part of United Utilities' programme of works to improve intermittent discharges of wastewater into rivers. This is because Ofwat believes that the programme, established in 1999, will not be completed by March 2005. The remaining programme needed to be reviewed because it appeared to represent poor value for money. United Utilities and the Environment Agency are discussing revised proposals that will ensure that the ministerial guidance for the last price review is still addressed. After it has been revised, reasonable net additional costs will be accepted at the 2004 periodic review. The increase in price limits in April 2004 will reduce any subsequent increase to customers' bills sought by both companies for the period 2005-10 when Ofwat sets price limits for the whole industry in England and Wales next year. The increase in price limits proposed for Northumbrian Water also includes a proportion under the 'substantial effect' clause of its licence. The company has demonstrated that a reduction in demand for water from what was forecast in 1999 has led to lower revenue which has had a substantial effect on its business. Ofwat considers that Northumbrian Water should be entitled to increase its income in 2004-05 to enable it to earn the level of return and achieve the appropriate interest cover that was forecast in 1999. This is substantially less than reimbursing the company for the entire revenue shortfall it has experienced since April 2000. Ofwat will be consulting on changes to this particular licence condition to ensure that in future it applies only where a significant threat to the future financing of the company exists. Any revision will come into effect at the start of the next price review period in April 2005. Note 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 Northumbrian Water and United Utilities explaining Ofwat's decisions will be available on our website: www.ofwat.gov.uk 4. Both Northumbrian Water and United Utilities requested extra revenue because they face increased costs due to: - Increasing customer debt which has led to higher debt-collection costs and loss of revenue; · - Changes to requirements for monitoring water quality; and · - Measures to ensure the continued protection of assets. 5. United Utilites also faces higher construction costs. 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. 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 Northumbrian Water and United Utilities are: PRICE LIMITS %
COMPARISON OF AVERAGE BILLS
7. 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. 8. After the 1999 final determinations, Ofwat named three items 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. 9. Licence Condition B14.3 allows a company to ask the Director General to consider whether a circumstance has occurred which has a substantial adverse effect on the Appointed Business. 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.
11. Ofwat confirmed on 1 December 2003 that Anglian Water had withdrawn its application. In the light of Anglian Water's decision Ofwat withdrew its counter notices. Anglian Water customers will see bills increase in line with the amount determined in 1999. Net savings identified by Ofwat in the provisional decision will be used to offset increases that may be needed at the start of the new price review period, in April 2005. 12. Northumbrian Water trades as Northumbrian Water in its northern region and as Essex & Suffolk in its southern region. 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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