Part One: Invitation to Comment

Comments on the issues raised in this document are invited by 17 September 1999.

The Water Industry Act 1999 (the Act) introduces a new structure for the setting of water companies' charges. Under the Act:

• Non-household customers may be charged either by agreement between the company and the customer or under a charges scheme.
• For household customers, water companies are required to establish charges schemes which cover all dwellings. This includes an obligation to set out the timetable for installing meters when customers request them (by serving a "measured charges notice")
• Charges schemes are to be approved annually by the Director General of Water Services (the Director), although he may not use his power of approval for the purpose of limiting the total revenues of companies from charges fixed in accordance with charges schemes.
• The Secretary of State may give guidance to the Director on the exercise of his powers to approve charges schemes. The Director is required to have regard to that guidance.
• In addition the Secretary of State has powers to prescribe in Regulations issues with which charges schemes must comply, such as measures to protect vulnerable groups. These powers may also not be used for the purpose of limiting the total revenues of companies from charges fixed in accordance with charges schemes.

1. This consultation concerns the Secretary of State's guidance. The Director has also instituted a separate consultation on the criteria he proposes to use in approving charges schemes for 2000-01, subject to this guidance from the Secretary of State; and the Department plans a separate consultation on the use of regulation making powers in respect of charges schemes.

Coverage of draft guidance

2. The new powers for the Secretary of State will transfer to the National Assembly for Wales in respect of the charges schemes for Dee Valley Water and Dwr Cymru (Welsh Water). This consultation document covers the remaining water undertakers and sewerage undertakers in England and Wales.

3. The guidance applies to charges for both household and non-household services, although many of the considerations primarily affect households.

Issues

4. Draft guidance is attached. In preparing this, the Government has taken account of comments made during the consultation process on "Water Charging in England and Wales - A New Approach" in 1998. It has also taken into account issues raised during Parliamentary debates on the Water Industry Act 1999.

5. The key objectives to be addressed are outlined in para 6 of the attached draft. These objectives are principally:

Fairness and affordability. The framework of water charging should provide for a fair distribution of costs between customers, recognising the affordability of the service for different groups of customers as well as the costs of provision of the service. Household charges schemes covering both measured and unmeasured charges should take account of customers’ ability to pay, and address the needs of all those on low incomes, for example through specially designed tariffs and payment options, in recognition of the particular problems which such customers face.

Environmental considerations. Companies' charges schemes should take proper account of the impact of the use of water services on the environment.

Stability and predictability. These are important factors for consumers. There should not be disproportionate changes in costs between years where the charging basis remains the same, customers remain in the same property and their use of water services does not change markedly.

Transparency and customer focused service. Charges should be clear and transparent. They should be closely related to the services provided to customers. Customers' needs and local pressures should be taken into account in devising charges and other issues addressed in charges schemes.

6. The Government is committed to a full and open consultative process. It would welcome views in particular on:

• whether the scope of the draft guidance is sufficiently wide and whether further issues should be covered to ensure the promotion of a fair charging scheme;
• whether the draft guidance properly reflects the interests of all consumers;
• the right balance and division of responsibility between guidance from the Secretary of State, the setting of criteria by the Director and discretion for companies.

Views are also invited on the approach the Government proposes to adopt to the individual issues addressed in the draft guidance.

Comments on Government proposals

7. Comments on the issues raised in this document are invited by 17 September 1999.

8. Responses should be sent

By post to Jerry Harrison Water Supply and Regulation Division
Department of the Environment, Transport and the Regions
3/G19 Ashdown House
123 Victoria Street
LONDON SW1E 6DE

By fax to 020 7944 5398 (or 020 7944 5398)

By e-mail to jerry.harrison@defra.gsi.gov.uk

Wider context of Water Industry Act 1999

Supporting explanation is given in paras 9 to 38 of the attached document.

9. The guidance envisaged in the draft would be made under the Water Industry Act 1999. Other measures in the Act, covering England and Wales, will also play a major role in achieving the Government’s objective of having fair and affordable water charges - particularly for vulnerable customers - while ensuring the sustainable use of water supplies and protection of the aquatic environment.

10. The Act therefore

a. Removes water companies’ powers to disconnect water supply for non-payment, or to limit the supply with the intention of enforcing payment, from a list of different premises. These premises are:

• private dwelling houses, caravans, houseboats, houses in multiple occupation and sheltered accommodation (where these are someone's main home);
• children's homes, residential care homes;
• prisons and detention centres;
• schools, premises used for children's daycare, institutions of further and higher education;
• hospitals, nursing homes, GPs' and dentists' surgeries (including surgeries set up as primary care pilot schemes); and
• premises occupied by the emergency services.

b. Extends powers for rateable values to be used as a basis for water charging. Such powers were previously due to expire on 31 March 2000. This delivers stability in water charging for the majority of water customers.

c. Introduces greater customer choice in water charging.

• customers currently paying an unmeasured charge will have a new right to remain on an unmeasured charge in their current home where they are using water only for basic household purposes.
• customers will be able to opt for a meter, to be installed free of charge. Where customers request a meter, they will have 12 months in which to revert to an unmeasured charge if they find it does not suit their needs.

Part Two: Draft Guidance to the Director General of Water Services under Section 4