BM50 Sutton E.s.bds

RNS Number:8509Q
OFWAT
1 February 2002


PN 06/02                                                        1 February 2002

OFWAT accepts sutton & east Surrey water's proposal for annual price adjustment


Ofwat has agreed proposals by Sutton & East Surrey Water plc to reduce its price
limits from April 2002 until the next price review in three years' time.


As a result, the company will not raise its price limits above inflation. This
means that on average, customers' bills will rise by less than they would have
done under the price limits set by the Competition Commission in 1999.


Ofwat can adjust price limits up or down between five-yearly price reviews if
certain specified costs differ significantly from the amounts allowed for in the
price review. This process is called an Interim Determination.


In the case of Sutton and East Surrey, these particular costs are lower than
anticipated. The company has asked to be allowed to reduce its price limits
annually from April 2002, rather than wait for adjustment through an Interim
Determination which would not take effect until April 2003. This will result in
greater certainty for both the company and customers.


Keith Mason, Ofwat's Director of Regulatory Finance, said, "We welcome all
proposals that are for the benefit of customers."


But he made it clear that this is not an annual periodic review of price limits.


He said, "Annual changes to price limits are generally incompatible with
incentive regulation. This is largely because of the need for frequent
intervention by the regulator and the consequent uncertainties that this
engenders. However, we are prepared to accept this proposal in principle in the
years up to the next price review in 2004.


"To protect customers' interests we will still make a formal interim
determination of prices if we are unhappy with the company's proposals from
April 2003 onwards."


Notes to Editors




 1. Ofwat set annual price limits for the five years 2000-01 to 2004-05, for all
    the water companies in England and Wales, in November 1999. Copies of 'Final
    Determinations: Future water and sewerage charges 2000-05' are available on
    Ofwat's website and from Ofwat's library.


 2. Twenty-three companies accepted these price limits.Mid Kent Water and Sutton
    and East Surrey Water requested that their price limits be referred to the
    Competition Commission. The Commission re-determined price limits over the
    whole of the 2000-05 period.


 3. The following table sets out the Commission's determination for Sutton and
    East Surrey Water.

Sutton & East Surrey Water  2000-01         2001-02             2002-03     2003-04       2004-05       Five year av
Ofwat Final Determination1       -17.0           -5.0            -2.4             0             0            -5.1
Competition Commission           -17.0           +3.8            +2.1             0             0            -2.5
Decision


 1. Assumed 2% of customers opt for a meter





 1. 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.

 2. Condition B of their licences allows companies to apply for an adjustment of
    their price limit for certain relevant changes in circumstances affecting
    costs that, in total, over a number of years, exceed 10 per cent of their
    turnover (Interim Determination). Ofwat can also serve a Counter Notice if
    the regulator has evidence that companies have not delivered the outputs or
    are no longer required to deliver the outputs that have been funded in set
    price limits.

 3. At the Final Determinations, Ofwat agreed changes to companies' licences
    which allowed them to apply for interim determinations on 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
    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.




 1. Philip Fletcher, the Director General of Water Services (the Director), is
    the economic regulator of the water and sewerage services in England and
    Wales. His primary duty is to ensure that the functions of the companies are
    carried out and that they are able to finance them. The Director also has a
    duty to facilitate competition. Customers' interests are represented by ten
    independent Customer Service Committees, established and maintained by the
    Director, and, at a national level, by the Ofwat National Customer Council.






MEDIA ENQUIRIES TO OFWAT PRESS OFFICE ON:

0121 625 1442/1416

Out of hours enquiries to pager:

08700 555 500 water 509 or 503

Ofwat press releases can be found on Ofwat's website at:

www.ofwat.gov.uk



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