Ofwat has announced details of changes to charges schemes for the water companies which will apply from 2016-17 – moving from an approval process to a rules-based approach to regulating the schemes.
Until now Ofwat has set the overall revenues that the companies are allowed to recover from customers over a period of five years via price controls. The companies are then free to set their own charges to recover their allowed revenues.
Provisions in the Water Act 2014 removed the requirement for charges schemes to be approved by Ofwat. Instead, the regulator now has the power to set ‘rules about charges schemes’ that the schemes must comply with.
The Act also gave Ofwat new enforcement powers – if it considers that a company’s charges scheme does not comply with the rules or certain other requirements it now has the power to issue a direction to the water company to ensure compliance. Ofwat can also take further enforcement action, such as imposing a financial penalty, if a company fails to comply with a direction.
Ofwat has now issued the charges scheme rules that water companies must comply with when setting customer charges for 2016-17 and future years. The rules came into effect on 17 November 2015 and will apply to any new charges schemes, in particular those for the year 2016-17 and onwards.
Among other things, the rules require each company to:
- consult the Consumer Council for Water on their proposed charges scheme;
- consider handling strategies for significant bill increases;
- offer a rebate for customers where they know (or should reasonably know) that surface water does not drain to a public sewer;
- provide reasonable choice as to the times and methods of payment of charges; and
- publish the charges scheme clearly on their website by the first working day of February each year.
In addition to setting charges scheme rules that companies must comply with, the regulator has set out details of the information it requires companies to provide as assurance.
The 18 largest companies must now publish a statement of any significant bill increase by no later than 11 January 2016 which also says whether the company had anticipated any bill increases of more than 5% from the previous year and if so, which customers are likely to be affected and the handling strategies it has adopted.
All companies, including new appointees, must publish their charges schemes and a statement of Board assurance by no later than 1 February 2016.
Ofwat also has the option of updating the rules whenever appropriate to reflect changes in the way the sector operates. The charging rules will be reviewed again in 2016-17 – Ofwat said they where would be changed “where necessary to protect customers.”
The regulator will shortly publish more details of its further expectations for companies’ charges schemes for 2016-17.
Click here to download Ofwat's Charges scheme rules
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