Water industry regulator Ofwat has launched a formal consultation on a new approach to connections charging for companies wholly or mainly in England.

Introducing the consultation, Ofwat said the new approach marks a significant change from the past which it expects to deliver major benefits to developers and other customers. The proposals build on and refine Ofwat’s March proposals in ‘New connections charging – emerging thinking for discussion’, which received significant support during the consultation process.

The regulator believes the enhanced proposals will help to ensure benefits and protections to a range of stakeholders, including:

Developers will:

• benefit from clearer, more predictable and stable charges that better support their business models, for example, through being offered fixed charges which give earlier visibility of their connection costs;
• benefit from charges tailored to their needs;
• benefit from fairer charges – Ofwat will require infrastructure charges’ revenues to balance, as far as reasonably possible, with relevant expenditure over a rolling five-year cumulative period, ensuring developers don’t pay for pre-existing issues and only pay on a pro-rata basis for assets that benefit a wider set of customers;
• benefit from more effective competition, for example through ensuring charges work for self-lay organisations and new appointees;
• benefit from potentially faster connections, because companies can set charges which are simpler and quicker to calculate (that is, without the need for  ad hoc modelling) and charging arrangements that can better accord with anticipatory investment.

Ofwat said other customers will also benefit from companies being able to:

• encourage developers to locate and design their developments in a way that lowers companies’ costs, enabling bills to fall particularly in the long term;
• incentivise lower water consumption – reducing their costs, and also benefiting the environment and improving resilience; and
• be protected because the balance of costs must remain broadly as now.

New appointees and self-lay organisations will be protected from being disadvantaged or discriminated against.

Ofwat said it intends to use a wide range of regulatory tools, which not only means formal enforcement action for rule breaches, but also includes:

• asking companies to report their compliance in an annual assurance report, signed off by their board of directors, that they have implemented Ofwat rules;
• using the  company monitoring framework to promote adequate governance and assurance;
• using improved annual performance reporting to monitor companies’ spending and revenues
• exploring how to  use risk-based reviews to promote better stakeholder engagement between companies and their stakeholders.

Commenting on the new approach, Ofwat said it wants innovative charging arrangements to emerge. For example, Southern Water and Eastleigh Borough Council – supported by Waterwise - are piloting a variable infrastructure charge which could benefit developers, customers and the environment.

The regulator said it also recognised concerns raised by some stakeholders regarding the absence of a proposed standardised structure for new connections charges. “We will monitor the development of companies’ charging arrangements and continue to engage with stakeholders. We can consider further standardisation or guidance in future should the circumstances warrant it.” Ofwat added.

Defra expect to publish more detailed guidance on new connections charges in autumn 2016.

Deadline for responses to the consultation is 26 August 2016. Click here to download the consultation paper.