Regulatory Application

RNS Number:4042D
Office of Water Services
06 November 2002


PN 64/02                                                         6 November 2002


        OFWAT CONSULTS ON YORKSHIRE AND SEVERN TRENT'S REQUESTS

                    TO RE-EXAMINE THEIR PRICE LIMITS

Water bills are likely to have to rise for Yorkshire Water's customers but not
for Severn Trent's next year, announced Ofwat as it consults on its proposed
response to two companies' requests for a review of their price limits.

Ofwat has scrutinised the cases put forward by Yorkshire Water and Severn Trent
Water. Subject to consultation, it proposes to allow Yorkshire Water to increase
bills next year. The proposed increase will cover the two years from 1 April
2003 to 31 March 2005.

At the last price review in 1999, Ofwat projected that the average household
bill for Yorkshire Water's customers would increase by #1 between April 2003 and
March 2005. Under the proposed changes Ofwat now anticipates that the increase
over this period will be #12.

But Yorkshire Water's customers will still benefit from the real price
reductions in their water bills made in April 2000. The proposed change will see
customers' bills falling by #22 on average over the period of the current price
review (2000-05) rather than the #33 Ofwat anticipated when it last set prices.

Each year water companies can ask Ofwat to look again at their individual price
limits if they face specified new costs, or falls in revenue, that were not
allowed for when prices were last set.

Director General of Water Services, Philip Fletcher, said: "We have looked very
closely at the two companies' claims. In our view Yorkshire Water's extra costs
meet the threshold required to allow it to increase bills, but Severn Trent's do
not.

"I have a responsibility to ensure that efficient water companies can finance
the services they provide to customers. But customers should not have to pay
more than is necessary.

"I will consider carefully comments from customers, companies and other
stakeholders on these draft proposals before I make my final decisions."

The consultation on the draft determinations runs until 27 November. Ofwat will
publish its final decisions in December 2002. Changes to the price limits will
be reflected in customers' bills from April 2003.

Yorkshire Water

Yorkshire Water requested extra revenue because of the statutory ban on
disconnection of households for non-payment of bills, changes to requirements
for monitoring water quality, new standards affecting the incineration of
sludge, an increased programme to tackle sewer flooding and higher construction
costs than were allowed for when Ofwat set prices in 1999.

Ofwat has also taken account of savings Yorkshire Water has made. It will now
cost them less than assumed in 1999 to carry out the revised work programme for
meeting new lead standards. Yorkshire Water has also had additional income from
disposing of land.


Severn Trent Water

Severn Trent Water requested an increase in price limits because it faces extra
costs following the statutory ban on disconnection of households for non-payment
of bills, changes to requirements for monitoring water quality, disposing of
sludge, an increased programme to tackle sewer flooding, discharging surface
water to British Waterways' canals, measures to ensure the continued protection
of assets and connecting properties to sewers for the first time.

Ofwat has also taken account of savings Severn Trent has made because it will
now cost them less than assumed in 1999 to carry out the revised work programme
for meeting new lead standards.

Ofwat proposes that Severn Trent should not be allowed to raise bills next year
because the net extra costs they have experienced do not exceed the required
threshold of 10% of their turnover.

Subject to consultation, Ofwat's proposals mean that price limits will remain
the same. Over the whole period of the current price review, Severn Trent's
customers will continue to benefit from an overall reduction of #41 in their
bills.

Notes to Editors


 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 companies carry out their
    functions and that they are able to finance them. The Director has a duty to
    customers and a duty to facilitate competition. Customers' interests are
    represented by WaterVoice.

 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 Severn Trent Water and Yorkshire Water explaining Ofwat's
    decisions will be available on its 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 Severn Trent Water and Yorkshire Water
    are:



                                            PRICE LIMITS %

                        2000-01      01-02      02-03      03-04      04-05

    YORKSHIRE

    Set in 1999           -14.4        0.0        0.0        0.0        1.0

    New price limits      -14.4        0.0        0.0        4.4        1.3

    SEVERN TRENT

    Set in 1999           -14.1       -1.0       -1.0        0.0        1.0

    New price limits      -14.1       -1.0       -1.0        0.0        1.0



 5. In accordance with the terms of the merger between Yorkshire Water Services
    Limited and the York Waterworks Limited (1 April 2000), the former customers
    of the York Waterworks Limited will receive a reduction of 15% (on average)
    from the level anticipated in the water element of their bills in April
    2004. This is not reflected in the price limits above.

 6. 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.

 7. After the final determinations, Ofwat named three new areas in the companies'
    licences that allowed them 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.


 1. Following a similar process last year Ofwat revised price limits for South
    West Water Ltd, Bournemouth and West Hampshire Water plc and Dee Valley
    Water plc. In 2000, it revised price limits for Dwr Cymru and Tendring
    Hundred Water Services.



MEDIA ENQUIRIES TO OFWAT PRESS OFFICE ON: 0121 625 1442/1416/1496.

Out of hours calls to: 08700 555 550 ask for pager 'water 503/509'


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