DEVELOPER (NEW CONNECTION) CHARGING CONSULTATION

Transcription

1 DEVELOPER (NEW CONNECTION) CHARGING CONSULTATION OCTOBER 2017

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3 This second consultation document sets out Anglian Water s proposals for the new Developer charging arrangements. This is as a result of the recent charging rules published by Ofwat, due to come into effect from 1st April We consider that these rules present an opportunity to make a step change in the approach to charging, which will promote clearer and more transparent charges. We are also excited by the opportunities that the new charges present to encourage sustainability and water efficiency. This document builds on our initial consultation published in February and two engagement events held throughout Our first event and consultation presented high-level proposals for our new charges. At the second event we presented detailed proposals, indicative costs and worked examples. We are now seeking further feedback on our detailed proposals. Anglian Water provides an equivalent service to all of our customers; Developers, New Appointments and Variations (NAVs) and Self Lay Providers (SLPs). This consultation is relevant to all parties and our proposals aim to be equitable to all. The figures referred to in this document are as a result of detailed historical data analysis. They are subject to further refinement, assurance and approval and therefore cannot be taken as final. We will be finalising our charging regime over the coming months and will publish our charging arrangements in January 2018 ahead of implementation on 1 st April Throughout the document, we pose questions relating to our proposals which we would like particular feedback on. We would really appreciate your comments and opinion; instructions on how to comment on these proposals are outlined at the end of the document. We are seeking feedback on our proposals by 30 th November For information regarding our current charges, please refer to our previous consultation

4 The Water Act 2014 made changes to the Water Industry Act 1991, which allowed Ofwat to set rules about charges for new connections. This is where an owner or occupier of a premise/building, to which the supply of water and/or water-recycling services will be provided, requires access to the existing public water supply or water-recycling system by means of a service pipe or lateral drain and/or a new water main or public sewer. On 29 th January 2016, Defra issued charging guidance to Ofwat 2. The guidance is structured around four key objectives: Fairness and affordability Environmental protection Stability and predictability Transparency and customer focused service Defra s January guidance was clear in stating that: It is right that developers should bear the costs associated with connections to, or adoption of, water and sewerage systems. Charges should ensure that the distribution of costs for new infrastructure between developers and current customers of water and sewerage companies is fair. Cross subsidy between developers and water customers should be limited. Therefore, any new charging framework should retain the existing balance between developer customers and existing bill payers. This can be achieved in a number of ways and will be explored further in this document. Following a consultation in July 2016, Ofwat published the final rules in December Ofwat s rules are principles-based with a strong focus on fixed charges and clear methodologies to support predictability, and transparency to support development. 4 The rules require that companies can only levy a single charge for offsite infrastructure (water and sewerage). The rules do not require companies to send environmental price signals in their charges, but they do allow companies to incentivise sustainable solutions. Given the water scarcity challenges we face, we are pursuing this opportunity to provide water efficiency incentives. This is described further in this document Further iterations of Ofwat s rules are expected in 2017 which may impact our proposals.

5 Our charging proposals are designed to comply with these rules and take advantage of the opportunities they provide to facilitate development and sustainable economic growth. We fully support reform in this area and have played a leading role at all stages of its development. We worked closely with Defra to shape their charging principles, hosting delegations from Defra and Ofwat to shape the guidance and final rules. We have also taken a lead role through the work being undertaken by Water UK. Our initial consultation, in February 2017, was followed by a second engagement event in September. The first event and consultation presented high-level proposals for our new charges; the second event we presented detailed proposals, indicative costs and worked examples. The feedback from the consultation document and engagement events has been taken into consideration in the preparation of this second consultation document. For a summary on the feedback we have received as part of our initial consultation and subsequent engagement events, please see Appendix 1. The figures included in this consultation have been derived from detailed historical data analysis. This includes 500 mains reinforcement schemes for water and 50 sewer requisition schemes. From our research, we were able to calculate the zonal charge by determining the percentage recovery for the offsite (non site specific) element of the works for water and sewerage. The data analysis for water also informed the sitespecific percentage recovery. Carrying out this comprehensive analysis ensures that our proposals maintain the broad balance of charges. Further detail on maintaining the broad balance is explained in Section 3.

6 In the current charging regime, we recover 100% of reasonably incurred costs. In the future, we propose that this is maintained. Therefore, there will be no change to the current balance of charges. These remain consistent with our current charging approach. Therefore, there will be no change to the current balance of charges. A study has been undertaken into 500 mains requisition schemes to demonstrate that the contribution from developers is 12% of the total scheme cost. We propose this to calculate the contribution of reasonable costs against site specific infrastructure. A study has been undertaken into 500 mains requisition schemes to demonstrate that the contribution from developers is 22% of the total scheme cost. We propose to use this as the percentage of the total planned offsite expenditure to be recovered against all properties connected to the water network as the zonal charge. This is how we will maintain the overall balance. Analysis has been undertaken into 50 sewer requisition schemes to demonstrate that the contribution from developers is 21% of the total scheme cost. We propose to use this as the percentage of the total planned offsite expenditure to be recovered against all properties connected to the water network as the zonal charge. This is how we will maintain the overall balance.

7 Geographically, we are the largest Water and Sewerage Company in England and Wales. Not only that, but our region is the driest in the UK, with only two thirds of the national average rainfall each year (approximately 600mm). Anyone building a new home within the UK must comply with Part G of The Building Regulations These regulations state that any new homes must be built to provide no more than 125 litres of water per person per day (p/p/p/d). However, we have ambitions to reach levels of around 80 litres p/p/p/d. We are committed to promoting water efficiency to all of our customers and have recently implemented an alternative water programme within our Developer Services business area. Championing water efficiency is central to our future plans - our Water Resources Management Plan will include an ambitious demand management strategy. As part of the charging regime, Anglian Water would like to incentivise Developers to build water efficient homes. We are proposing that if Developers can provide evidence of intention to build to a level of 100 litres p/p/p/d or less, we would waive the water and sewerage infrastructure charges. This means the zonal charge will exclude the proportion of infrastructure charges. The water calculator 5 is available to quickly and easily evaluate the total litres p/p/p/d, by selecting the products to be installed in the home. We are committed to providing support to reach these levels, however, to ensure compliance, we will also audit developments against the information submitted. We recognise that there are situations where a customer may remove water efficiency fixtures and fittings; therefore, our intention is not to recoup any discounted infrastructure charges if the customer chooses to remove any of the installations. The assessment will be carried out at point of sale only. 5

8 We are proposing the following regime for water, comprising of 3 main elements: 1) Single zonal charge (offsite costs) It is intended that this replaces the offsite requisition charge and includes the infrastructure charge. The proposal for a single zonal charge is a change from our previous stance, which was multiple zonal charges. This change has been as a result of stakeholder feedback suggesting it added complexity to the regime. We recognise that the process of implementing a new charging regime is a substantial change for the industry and therefore propose a single zone, with potential for multiple zones in the future. A summary of the feedback on this can be found in Appendix 1. The zonal charge is equivalent for Developers, NAVs and SLPs. Data analysis informed the offsite reinforcement is, on average, 22% of the total cost of the scheme, multiplied by the number of connected properties within a defined zone benefiting from the expenditure. Using the above, to calculate the zonal charge, we used 22% of the total costs of mains requisition schemes divided by the forecast of the number of new properties within our region. The current forecast figures may need to be amended once they have been confirmed for the following 2 years. In terms of a per plot charge, this is around per plot. This will be added to the infrastructure charge, currently 361 but subject to inflation levels, to calculate the total water zonal charge. The total proposed zonal charge for water, therefore, is ) Site specific requisition charge (onsite costs) This would be based on a fixed percentage of the total scheme cost. Data analysis informed the fixed percentage at 12% of the total cost of scheme, including the work between the site boundary and the existing network. We propose that the 12% is applied only on schemes where the onsite main does not exceed the length of the offsite requisitioned main. This means we would not be asking for our customers to subsidise the construction of mains to be provided for small, remote developments, in a way that would not have occurred under the current charging mechanism. A standard schedule of rates will be published on our website to enable the calculation of the total scheme cost and then the requisition charge.

9 3) New connection charge We intend to publish fixed charges, where possible, however it is noted that there will be exceptions in certain situations. In these situations, a fixed methodology for calculating the charge will be published. Details on this are provided further in this document. The fixed charges will reflect 100% of reasonable costs incurred. Commercial properties/developments will be charged using the relevant multiplier. A non-household supply will pay a zonal charge based on the number of domestic properties their domestic water usage equates to. Non-domestic water usage will attract a non-discounted zonal charge based on the property equivalent of the usage. Diversions will not be included in the fixed charging framework; however we plan to provide a fixed methodology for calculating the charge in our Charging Arrangements, to be published in January The fixed methodology will be in the form of a table showing information on the schedules of rates by each pipe size, fitting type, pipe material type, surface category and labour rates. This will enable calculation of the costs should you wish to do so. For self lay, we plan to calculate the asset payment based on the inverse of the site specific requisition charge. Therefore, the asset payment would equate to 88% of the total cost of the scheme. We propose to use a fixed methodology for the mains connections work and this will be published in our charging arrangements. The information within this will enable calculation of the mains connection work by SLPs. Anglian Water is open to completing works on behalf of SLPs, where we are requested to do so. For example, where the existing water main is located on the opposite side of a dual carriageway, the SLP can appoint Anglian Water to complete the works on their behalf if they choose to. As this is contestable work, we would not suggest this to be compulsory in any way, however it provides further options for SLPs should they wish for us to complete such works. The reasonable costs of this work would be deducted from the asset payment for the site. With regards to service connections, these will be published as a fixed charge, to be inflated annually in line with RPI. 6 6 Ofwat is currently considering transition to using CPIH as the relevant index for inflation for the next price control, PR19. If Ofwat does transition away from using RPI as an index then we would consider following suit on the indexation of the fixed charges.

10 We are proposing the following regime for sewerage, comprising of the following 2 elements: 1) Single zonal charge (offsite costs) We propose that this replaces the offsite requisition charge and includes the infrastructure charge. Data analysis informed offsite reinforcement is, on average, 21% of the total cost of the scheme, multiplied by the number of connected properties within a defined zone benefiting from the expenditure. This zonal charge is equivalent for Developers and NAVs. Using the above, to calculate the zonal charge, we used 21% of the total costs of sewer requisition schemes divided by the forecast of the number of new properties within our region. The current forecast figures may need to be amended once they have been confirmed for the following 2 years. In terms of a per plot charge, this is around 101 per plot. This will be added to the infrastructure charge, currently 361 but will inflate with RPI, to calculate the total sewerage zonal charge. Therefore, using the current forecast, the total proposed zonal charge is ) Fixed sewer adoption/connection/diversion charges The approach to charging in these instances remains consistent with the current policy. These will be fixed charges which are published annual in line with the yearly inflation rates. Developments within a local plan and with full and valid planning permission will pay against a zonal charge. Only developments of non speculative nature will qualify for zonal charging. We are unable to include speculative developments in the calculations for the zonal charge, given that the details of these are relatively unknown. Speculative developments are defined as those not within a local plan. We propose to charge speculative developments with a similar approach as at present. We would expect the design costs to be underwritten before paying the associated percentage of the estimated costs upon signing into the mains/sewer agreement. If a situation arises where you require the design work to commence before you gain full planning permission, we plan to request that you enter into an underwriting for the design costs. This will be removed once full planning permission has been granted. Should you require the infrastructure to be constructed before you have valid planning permission, we propose for you to enter into an underwriting for the design costs and an agreement for the construction.

11 Our intention is for your site to be transferred to the zonal charging regime once you have valid planning permission. Should you not receive planning permission, you will therefore bear the full cost of the design and/or construction work undertaken to date. We will continue to work with you to ensure any planning conditions are removed in line with any agreements. We have taken a lead within the industry by offering new appointees an income offset against the bulk agreements to ensure equivalence. As the onsite infrastructure is installed by the NAV, this is outside of this charging regime. However, the same income offset has been applied to the offset infrastructure as shown in the self lay and requisition examples, shown later in the document. We propose to use a fixed methodology for the mains connections work and this will be published in our Charging Arrangements document. The information within this will enable calculation of the mains connection work by NAVs. Ofwat has recently concluded a study of the NAV market 7. Future action by Ofwat following this study and also its work on the application of income offsets could affect our charging proposals for NAVs. We will monitor these developments to ensure we continue to offer our NAV customers an equivalent service. Our intention is to provide a fixed charge for works wherever possible. However, there will be circumstances outside of our control where this will not be possible or helpful. In these cases the works become complex and unpredictable and additional costs are incurred both in terms of the work we carry out and in terms (occasionally) by way of payments (for example to a third party). In order to align with Defra s principles, we believe there to be a balance between fixed charges and fairness. Given that elements of non standard work are unpredictable and highly variable in cost, we believe an approach of appropriate cost pass through is fairer and more transparent for our customers. The elements of non standard exceptions are as follows: Where the consent of the crown or an undertaker protected by Section 183 and Schedule 13 of the Water Industry Act 1991 are required. Where there is contaminated land. 7

12 Where the connection works are untaken in a dual carriageway. Where we are required to complete a road crossing. Where construction of a water booster station or water pumping station (with or without land to accommodate it) are required. Where the requisitioned main or sewer may cross or impinge upon a dual carriageway, motorway, or a river. Where construction of a sewage pumping station (with or without land to accommodate it) are required.

13 We have generated some worked examples to show you how the new charging regime will work in practice. The current 2017/18 infrastructure charges and schedule of rates have been used to build up the costs in this example. Total cost of work involved: 167.6K Discounted Aggregate Deficit calculation: 32.1K Infrastructure Charge: 36.1K Total contribution: 68.2K Total cost of work involved: 167.6K Site specific work: 5.7K (12% of site specific work) Infrastructure Charge: 36.1K Zonal charge: 8.9K (22% of the offsite work) Total contribution: 50.7K Total cost of work involved: 167.6K Asset payment: 42.1K Connection costs: - 2.7K Net Asset Payment: 39.3K Offsite works: 26.3K Infrastructure charges: 36.1K Total contribution: 65.1K

14 Total cost of work involved: 167.6K Asset payment: 42.1K (88% of the offsite works - inverse of the site specific charge %) Connection costs: - 2.7K Net Asset Payment: 39.3K Zonal charge: 45K (22% of the offsite work plus infrastructure charges) Total contribution: 50.7K Total cost of work involved: 122.4K Connection costs: 2.7K Offsite works: 26.3K Infrastructure charges: 36.1K Total contribution: 65.1K Total cost of work involved: 122.4K (does not include onsite costs) Site specific work: 2.7K (connection) Zonal charge: 45K (22% of the offsite work plus infrastructure charges) Total contribution: 47.7K

15 Total cost of work involved: 169.4K S104 Vetting fee: 3.8K S98 Discounted Aggregate Deficit calculation: 165.6K Infrastructure charge: 36.1K Total contribution: 205.5K Total cost of work involved: 169.4K S104 Vetting fee: 3.8K Zonal charge: 46.2K (21% of the offsite work plus infrastructure charges) Total contribution: 50K (Developer) Total contribution: 46.2 (NAV subtracting the vetting fee) We appreciate that the above examples show a favourable position in the new charging regime. However, in order to maintain the broad balance of charges, there will be scenarios where connecting customers pay more than they would have under the existing regime. These are as follows: We propose that the zonal charge is levied against all new water connections, including connections to existing water mains. Currently, water connections to existing water mains do not pay for offsite infrastructure. Our intention is that the zonal charge will be levied against connections from new water mains, whether or not the development requires offsite reinforcement. Under the current regime, for these types of development, offsite reinforcement would not have been necessary and therefore no charge would have been levied. We propose that the zonal charge is levied against all properties connecting to the foul public sewer network. Currently, properties connecting to existing sewers do not pay for offsite infrastructure.

16 From 1 st April 2018, where applicable, charges will be fixed until 31 st March From 1 st April 2020, they will remain fixed for 5 years. This is to align the fixed charges with the five year regulatory and business planning period. We suggest that reconciliation be completed annually at a water and sewerage level, rather than a development level, and published on a cost-recovery basis. If the reconciliation outcome deviates significantly from our projections, there will be a new fixed charge for future schemes within the 5 year period. Otherwise, any reconciliation activity will only be used to inform future periods of fixed charges aligned to price control periods. If your site spans beyond a fixed charge period, the prevailing charge at time of your water connection will be levied. In line with the current charging regime, we propose to inflate the infrastructure charge part of the zonal charge by RPI annually. This allows us to maintain the broad balance of charges. New connections and sewer adoptions/diversions/connection vetting charges will be reviewed and published annually, to take into account inflation costs.

17 We recognise that transitional arrangements are key during times of significant change to the way we charge. We are aware that transitioning between regimes may cause uncertainty for Developers, NAVs and SLPs, with regards to purchasing land or developing a site. Consequently, from February 2018, we plan to begin sending out dual offers on all our Mains (Section 41/51A, Water Industry Act 1991) and Sewerage (Section 98, Water Industry Act 1991) schemes. This gives you a period of time between February 2018 and 1st April 2018 to decide whether you would like to sign into the agreement with our new charging rules in place or the existing charging rules. From 1st April 2018, if an agreement has not been finalised and signed, we will levy the new charging regime, given that it would be the only mechanism to charge from, unless it remains within its validity period. For offers which have not yet been paid for, we will honour the original offer until the validity period expires. If you have applied and paid for a new water main or sewer, but the work has not yet begun by 1st April 2018, then we can offer a replacement offer under the new charging regime, subject to agreement. If you have already signed into and paid for a new sewer (S98) or new water main (S41), we will not levy the zonal charge against that site until 2020.

18 We will be finalising our charging regime over the next few months. The next paper Anglian Water will be publishing is our Charging Arrangement document in January We welcome your responses to this document. Please get in touch with us before 30 th November You can your responses to Alternatively you can also submit your response by post to:

19 The following feedback was obtained through the publication of the first consultation document and subsequent engagement events with our customers. The feedback was given at the second engagement event in September 2017 and, where applicable, has been updated following this. Support for single zonal charging Our initial intention was for multiple zones for water based on areas of high, medium and low water scarcity, informed through our water resources management plan data, which forecasts water supply and demand for 25 years. The feedback from our first consultation was that this introduced levels of complexity where the remainder of our proposals attempted to simplify charges. Our proposal for sewerage has always been a single zone, until at least 2020, given that the connectivity and exact locations of assets is still being captured as a result of the private sewer transfer in Given the feedback, we propose a single zonal charge (with incentives for water efficiency) initially for water and sewerage. We will keep the zonal charges in the future and may move to multiple zonal charges in the future if appropriate. Reconciliation is not required per scheme but visibility of reconciliation should accessible. We propose that reconciliation is completed annually and published on a costrecovery basis. If this deviates significantly from our projections, there may be a new fixed charged for future schemes within the 5 years. Otherwise, any reconciliation activity will only be used to inform future periods of fixed charges. There was not enough emphasis on NAVs or SLPs in our first consultation In our second engagement event in September 2017, we provided further clarification that all non site specific (offsite) charges are relevant and equitable to Developers, NAVs and SLPs - whoever the customer is. We have made specific reference to NAVs and SLPs in this consultation document to provide further reassurance of this.

20 The idea of water scarcity causes complexity within the proposals. Promoting water efficiency is central to our future plans - our Water Resources Management Plan will include an ambitious demand management strategy. As such, we think it is really important to include water-efficiency within our new charging regime. This consultation details how we intend to provide discounts for homes built to a water efficient standard, which we propose is 100 litres or less p/p/p/d. Charges should be fixed, where possible, for a minimum of 5 years. We propose to fix the zonal charge and site specific percentage from Thereafter, we intend for the zonal charge and the site specific percentage to be fixed for 5 years, beginning in This fits in line with our Asset Management Plan (AMP) period. We propose that the new connections and sewerage adoption/diversion/connection vetting charges are to be reviewed annually, to allow us to take into account inflation. Transitional arrangements are required This second consultation document details our proposals around transitional arrangement specifically to provide assurance to our customers. Further detail around Section 98 agreements is required Within the second consultation document, we provide information around how we plan manage sewer requisition requests, in particular, where we would require and underwriting and agreement for those not within a local plan (speculative developments).