NEW CONNECTIONS CHARGING

Transcription

1 NEW CONNECTIONS CHARGING Our consultation update December 2017

2 Table of Contents Introduction 1 Background 2 Our approach to developing charges 3 Customer engagement & feedback 3 Site specific infrastructure 4 New connections to water mains and sewers 5 New water mains and sewers self laid and requisitioned 7 Water mains diversions and sewer diversions 10 Network reinforcement 11 Promoting environmental protection 13 Water efficiency 13 Sustainable drainage 13 Changes to NAV charges 14 Questions 16 Appendix A 17 Appendix B 26 Appendix C 28 NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER

3 1) Introduction Northumbrian Water Limited operates in the north east of England where it trades as Northumbrian Water (NW), and in the south east of England, where it trades as Essex & Suffolk Water (ESW). Northumbrian Water provides both water and wastewater services whereas Essex & Suffolk Water provides water supply services only. Ofwat has issued regional water and sewerage companies with New Charging Rules ( rules ) that will change the way that we charge for connection services. Typically, connection services include providing water mains, sewers, connections to individual properties, diversions of mains or sewers and work to reinforce water and/or sewerage networks as a consequence of new development. In August 2017 we published an information document for our customers and stakeholders that will be affected by changes to charges relating to connection services. The document, which was updated in November 2017, provides background information to the most of the proposed significant changes. The document can be found on the following web pages: In this document the terms that we use have the same meaning as the terms as defined in Ofwat s rules, unless stated otherwise. Any terms defined by in Ofwat s rules are shown in bold. The purpose of this publication is to provide an update on the work that we have been doing in developing our charges that will apply from 1 April We have chosen not to repeat some of the information set in the November publication and would suggest readers refer to that document in conjunction with this one. In recent months we have been engaging with our customers and stakeholders to listen to their views on how our connections services charges may be developed and structured in the future. This document sets out our latest thinking on the main changes to charges, reflecting the feedback we have received during our engagement process so far. We have included some worked examples in Appendix A to enable different types of customers to understand the potential impact of the key proposed changes may have on them. We have provided some indicative values for our new Infrastructures Charges 1 and for the Income Offset that relates to Site Specific Work. These values are subject to further modification and therefore may change before we publish our Charging Arrangements in late January We would like to give customers a final opportunity to have their say on our proposals and would appreciate you taking the time to respond to the questions in Section 11 of this document by 10 January Defined in Ofwat s Charges Scheme Rules NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 1

4 2) Background As a regional water and sewerage company, we provide connection services to customers to assist them with their Developments. Typically our customers are Developers, Self Lay Providers (SLP) and local water and sewerage companies known as New Appointees (NAV). Developers also have the choice of engaging with SLPs and NAVs to provide them with many of the services that we provide. Please see our November 2017 publication for further information about the services SLPs and NAVs provide. In our November 2017 document, we signposted customers to Ofwat s rules and provided some high level information and commentary on the likely changes. As a reminder, the rules require that any charges that we impose should reflect: Fairness and affordability Environmental protection Stability and predictability Transparency and customer focused service The rules also require us to take reasonable steps to ensure that the present balance of charges between developers and other customers prior to the implementation of these rules is broadly maintained. One of the requirements of the rules means that we will publish more Fixed Charges for our connections services than we did in the past. This will mean that customers are better placed to calculate a reasonable estimate of our charges when planning their new developments. The main changes affect, but are not limited to: How we charge for connecting service connections to Water Mains and Lateral Drains to Sewers How we offset our future revenue against the cost of a new water main or sewer (the Income Offset ) How we will set the level of infrastructure charges to fund any Network Reinforcement that is required as a consequence of new developments. Service connections are the means of supplying water from mains to individual properties. In this document we define a service connection as meaning a pipe (Communication Pipe) laid from an existing or newly laid water main to the boundary of a property, including a meter housing and stop valve. NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 2

5 3) Our approach to developing charges Our main objective is to ensure that our charges to developers, SLPs and NAVs are in accordance with Ofwat s principles set out in section 2 above. Our approach has been to ensure that our new connections charges are fair, transparent, promote effective competition for connection services and that they remain cost reflective. We intend to set and publish charges that are predictable and remain as stable as reasonably possible. We are confident that we can achieve this whilst still maintaining the broad balance of charges between developer services customers and other customers. We will publish our charges in a way that customers can easily determine which charges relate to Contestable services and which relate to Non-contestable services. This will help developer customers to more-easily compare the cost of provision of equivalent services from us, an SLP or a NAV. 4) Customer engagement and feedback During our customer engagement process we Held over 30 one to one meetings with SLPs, developers and NAV customers Hosted five events (two in Essex and three in the North East) and visited customers at their offices Received responses from 72 customers to our online questionnaire Received written feedback from customers and stakeholders and responded to them where appropriate In our online questionnaire we asked a series of questions relating to for connections services. Some of the questions were particularly relevant to builders of commercial properties and developers that typically develop smaller sites, whilst other questions were only relevant to companies and organisations that require or provide new water mains and sewers for larger development sites. A report summarising the responses is available on our webpages and can be found by following the links in section 1 above. Below is a summary of some of the key preferences customers expressed to us via the questionnaire: 65% of respondents preferred accurate charges with 35% preferring average-based charges When offsetting new income against the costs of new water mains the preferences were: NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 3

6 (a) 39% favoured a fixed amount per property (b) 33% favoured a simplified version of the current Discounted Aggregate Deficit (DAD) When considering infrastructure charges, 56% preferred a fixed amount for household properties. For non-households the preference was to use a charge related to anticipated demand The percentage of respondents that indicated that environmental incentives would significantly affect how the might develop their site was (a) Water efficiency 30% (b) Sustainable drainage 56% There was a very strong preference for all water companies to adopt a common approach to At our events in November and December we presented some options to customers and used the events as opportunities to check with them that we had the correct understanding of how they preferred to be charged in the future. At these events we set out some options for methods and provided some worked examples so that customers could understand what the different options could mean for them. We also considered the preferences expressed in written correspondence we have received from customers, their representatives and from the feedback we had heard in our customer one to one meetings. The consultation process has shown us that many customers that use our connection services have similar views on many elements of new connections. It is understandable however that some customers prefer some methods that are not particularly favoured by others. Our proposals in this document are therefore based upon the options that were considered the most popular amongst those that responded to us. 5) Site specific infrastructure One of the key changes to new connections affects the way customers will pay for site specific infrastructure and how they will pay for any network reinforcement that is required as a consequence of their developments. In our earlier document we set out the boundaries and definitions of site specific and non-site specific infrastructure that have been agreed by water companies, customer representatives and Ofwat. As a reminder we have included diagrams to show the boundaries in Appendix C. In this section we concentrate on site specific infrastructure, dealing with network reinforcement later. NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 4

7 a) New connections to water mains and sewers We intend to maintain our current approach of recovering our reasonable costs associated with providing service connections for developers and for the services we provide to SLPs when they self-lay service connections for their developer customers. We will publish fixed charges for lateral drain connections to sewers. Water: Currently we publish fixed charges that cover the majority of service connections developers ask us to connect to water mains. We also have fixed charges for our chargeable activities related to self-laid connections. Where we provide the service to developers, our fixed prices are currently limited to service connections that are no more than 32 millimetres in diameter and 10 metres in length. Our present charges for the majority of service connections are fixed charges calculated from average cost of a service connection of a particular type. In the Northumbrian area, the traffic management costs we incur as a consequence of service connections are included in our averaged charges for those connections made to existing mains. The approach is different in Essex & Suffolk, where we separately itemise charges for a) our construction work and b) any associated traffic management separately. In our online questionnaire, respondents suggested that they preferred charges that accurately reflect the costs of their connections opposed to fixed or average type charges. At our customer events we checked our understanding with customers and they told us that: a) Fixed charges are preferred for service connections to newly laid mains within a development site. The basis for this is that the costs for one connection is often similar to another and are reasonably predictable. A factor making cost reasonably predictable is that the site is usually within the ownership of the developer. b) Where service connections are requested from existing mains, typically on smaller developments, costs are considered to be less predictable. Construction is often carried out in the public highway and occasionally within third party land. The overall cost of the connection can be significantly affected by traffic management costs for example. For connections to existing mains, customers told us they wished to have the option of both fixed charges and the option for paying based upon a charge calculated in accordance with a published methodology. Our proposal is to publish charges that are fixed and based upon the average costs for service connections we make to newly constructed mains within a development site. For service connections made to existing mains we will provide fixed charges and also provide an alternative method for calculating charges i.e. customers can ask us to calculate an accurate cost based upon the particular circumstances pertaining to their development. NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 5

8 Our proposal includes: Publishing fixed charges for a wider range of service connections i.e. to enable communication pipes consisting of larger diameter pipes and of varying lengths to be reasonably estimated. Publishing separate fixed charges to cover third party costs, such as traffic management. In both the Northumbrian and Essex & Suffolk areas, where a service connection is subject to third party costs, customers will be able to estimate the overall cost by adding the fixed charge for the connection works to the fixed third party charges, such as traffic management where they are applicable. We will publish fixed charges for the Contestable Work and Non-contestable Work we provide to SLPs associated with self-laid service connections. The diagram below sets out our proposal for the service connections customers ask us to provide: In this document we define traffic management cost to include traffic lighting and associated costs, road closure charges and lane rental charges. Wastewater: It is currently extremely rare for customers to ask us to provide a lateral drain to communicate with a public sewer, a so-called requisitioned lateral drain. The current custom and practice is for most developers to, with our prior agreement, self-lay the lateral drain and to construct a connection onto the sewer. NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 6

9 We have statutory powers to insist we design and construct the connection onto a sewer. This happens very rarely in cases where we consider the risk of developers connecting to the sewer to be significant. Whilst we anticipate that developers will continue to construct the vast majority of lateral drains themselves, we are required by Ofwat s rules to publish fixed charges associated with the provision of a requisitioned lateral drain and where we exercise our statutory powers to provide the connection to the sewer. We propose to publish fixed charges based upon criteria such as pipe material, length of pipe, depth, surface type, manhole type and third party costs e.g. traffic management. b) New water mains and sewers requisitioned and self-laid We are required by the rules to provide fixed charges for requisitioned water mains and sewers (Requisition Charges) except where exceptional circumstances exist. WaterUK, the trade body representing water companies, has provided guidance as to what are deemed exceptional circumstances following consultation with stakeholders. A copy of the guidance is included in Appendix B of this document Water: Where new water mains are provided for new developments, we will continue to take into account the future revenue of newly connected and occupied properties associated with the new mains. We propose to discount the amount payable by developers for the ( requisitioned ) mains that developers ask us to provide by way of an income offset. We also propose to continue to make an Asset Payment to developers/slps for self-laid mains that are adopted by us. The gross payment for self-laid mains will be the equivalent of the income offset we would apply had the main been requisitioned. A study has been undertaken to consider the costs associated with providing new mains to development sites. We have looked at the data relating to nearly 300 developments in Essex & Suffolk and over 600 developments in the Northumbrian region. The method we are proposing reflects the most popular choices that customers preferred i.e. an income and a simplified based upon the Discounted Aggregate Deficit (DAD) method used presently. The DAD uses the calculated costs of the scheme and discounts the cost by forecasting future revenue over a period of 12 years, based upon forecasted occupancy rates. Rather than continue with a that depends on property occupancy rates to determine future income we propose a simpler method. Our proposed new method aggregates the discount for future revenue into a fixed single sum per property 2 and maintains the feature that the costs of delivering the site specific mains are variable depending on the development. 2 Where the property is a house, flat or maisonette ( house ) NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 7

10 We propose to apply an income against the costs of the site specific work. To derive income offsets, we calculated the average income that we had offset per property from our data for each operating area. We excluded those developments where network reinforcement was required in relation to non-site specific work as this work will be funded by infrastructure charges in future. For our two operating areas, we propose different income offsets per property 3 for water mains schemes as follows: Northumbrian Water 415 Essex & Suffolk Water 480 As explained earlier, these income offsets are indicative at this time, however we do not expect there to be significant changes to these values for 2018/19. It is also important to note that there are likely to be changes in the treatment, level and applicability of the income offset over future years, so the current approach should be taken as applying only to 2018/19. In the case where connected properties are not houses, we propose to derive an income that varies with its anticipated water demand for domestic purposes; then relate the demand to the equivalent number of houses. Given that the costs of delivering the site specific mains are variable per development, we will publish a range of charges in a way that customers can reasonably estimate their site specific costs. We will publish charges that are fixed for the site specific work we would undertake to provide requisitioned water mains for new developments. Our proposal includes publishing: Fixed charges that account for the factors that affect the cost of provision, amongst other things, design, administration, water main diameter, length of main, pipe material, ground excavation requirements, ancillary equipment, sampling, testing, and inspection. Separate fixed charges to cover third party costs, such as traffic management. A methodology in our arrangements to provide a bespoke estimate Currently our water main requisition charges are based upon a fixed schedule of rates from our delivery partners. We are not proposing to depart from this approach so the capital costs providing water mains under requisition are expected to remain reasonably stable. Customers that requisition water mains from us will be able to estimate the overall cost by adding the fixed charges for the mains we will provide to the fixed third party charges, such as traffic management where they are applicable. They will then be able to calculate the total income offset by multiplying the number of new build properties by the offset amount per property. The total amount of income offset will be no more than the estimate of the 3 Where the property is a house, flat or maisonette ( house ) NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 8

11 cost of providing of the requisitioned mains. This condition maintains an equivalent limiting feature for offsetting income that exists in our current method using the DAD model. For self-laid mains, an SLP/developer will be able to calculate the gross asset payment we will pay on adoption of those mains by multiplying the number of new build properties by the offset amount. The asset payment that we will pay will be no more than the estimate of the cost of provision of the mains had they been requisitioned. This condition also maintains the equivalent limiting feature for asset payments that exists in our current method using a simplified DAD model. We will publish fixed charges for the contestable work and non-contestable work we provide to SLPs associated with self-laid mains. NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 9

12 Wastewater: It is currently rare for customers to requisition sewers from us to serve their developments. Most developers prefer to self-lay the sewers and offer them to us for adoption, subject to a suitable agreement being in place before or during construction. We anticipate that it will be rare for a customer to requisition sewers within their development site. However the fixed charges we will publish in relation to lateral drains can be used to derive a reasonable estimate of charges for requisitioned sewers within a development site. Occasionally developers ask us to use our statutory requisitioning powers to provide sewers and this nearly always happens where part of the new sewer network needs to cross third party land outside of the development site ( off-site ). The developer usually only requisitions some or all of the off-site part of the sewer where third party land affects their ability to construct the part of the sewer themselves. Our involvement in providing off-site requisitioned sewers is limited and the solutions we have delivered have been extremely variable in circumstances, complexity and cost. When we held our customer engagement events we highlighted this variability to attendees and explained that providing averaged fixed charges for off-site sewer requisitions could lead to charges that would be significantly inaccurate for many schemes. Customers were understanding and supportive of us continuing to charge them on the basis of recovering our reasonable site specific costs and discounting those costs by the future revenues we receive from properties that connect to the requisitioned sewer. We therefore propose to publish a methodology that will explain how we will calculate costs for the off-site requisitioned sewers and also indicate how we will calculate the income offset. In terms of offsetting income we propose a method using a simplified DAD for the time being We do not propose to provide an income offset where sewers are offered for adoption or where a lateral drain is requisitioned from us. This maintains our current approach. 6) Water main diversions and sewer diversions Customers with an interest in land that contains our existing water or sewerage assets can arrange to alter or move those assets to allow development work to progress. The process of altering or removing those assets is known as a diversion. All or part of the diversion works may be constructed by a suitably qualified third party contractor to undertake any contestable elements, but only with our explicit prior agreement. In cases where we carry out some or all of the diversion work, we are only entitled to recover our reasonable costs. Ofwat s rules require us to set out our method for for diversion works (Diversion Charges). The rules state that we may provide upfront fixed charges and we may publish an alternative method for calculating the charges. NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 10

13 Given that routine pipe laying sometimes forms a large part of many diversions, customers will be able to use our water mains requisition charges and the requisition charges for lateral drains as a means of estimating those elements of the diversion. We will also offer to provide a bespoke estimate of the work in accordance with a method that will be set out in our Charging Arrangements. Where our estimates include charges that are not fixed upfront, we will explain clearly how these charges have been derived. 7) Network Reinforcement Network reinforcement is work that needs to be carried out in consequence of the site specific work associated with a new development. Occasionally we will be required to carry out network reinforcement work to ensure that a new development does not result in a degradation of service to our other customers. In terms of degradation we mean the service would fall below our company s standard for the relevant service. Under Ofwat s new Charges Scheme Rules, developers will contribute towards the capital cost of network reinforcement through infrastructure charges. This means that individual developments will no longer contribute towards the cost of increasing network capacity when water mains are requisitioned/self-laid or when sewers are requisitioned. This is because the cost of providing capacity will be recovered through newly-defined infrastructure charges which will apply when all new properties connect to our networks for the first time 4. We are required by Ofwat to ensure that our network reinforcement expenditure broadly matches our total infrastructure charge revenue over a five year rolling period. To ensure that we have access to sufficient funding to provide for growth in our areas, we will set our infrastructure charges annually but expect infrastructure charges to remain reasonably stable. We have substantially concluded our work to forecast the level of investment that may be needed to reinforce our water and wastewater networks to support new developments. We considered the extra capacity required by developments over the five years from 1 April 2018 to 31 March Our forecast has been carried out by taking into account information on anticipated growth that we have from: Our pre-development enquiry database The water and wastewater applications we have recently received in respect of new infrastructure provision for proposed developments Our pro-active interaction with local authorities planning processes and the strategic studies we have carried out on the impacts of proposed developments on our water and wastewater networks 4 or reconnect after being disconnected for a period of five years or more NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 11

14 We have identified a different requirement to provide water network reinforcement in the Northumbrian area compared within Essex and Suffolk. Whilst the Essex area is separate geographically from Suffolk, our analysis of possible network reinforcement indicated that the requirements were broadly similar in both areas. Therefore, we intend to publish different water infrastructure charges for a) Northumbrian Water and b) Essex & Suffolk Water. Our wastewater infrastructure charge will apply to the whole of the Northumbrian region. We received feedback from one NAV customer that they had a preference for zonal infrastructure charges that reflect the costs of network reinforcement at a development site level. We are proposing an operating area infrastructure charge approach as it has general support from many other customers that have engaged with us during our consultation on new connections. Whilst we have a small amount of work to complete on infrastructure charges, we are expecting to publish charges no greater than the following values: Operating area New water infrastructure charge per property 5 New wastewater infrastructure charge per property 6 Northumbrian Essex & Suffolk 250 Not applicable Currently our infrastructure charges are for water and for wastewater, so our new infrastructure charges will be lower than the current rates in all cases. Where connected properties are not houses, we propose to derive an infrastructure charge per property that varies with its anticipated demand for domestic purposes; then relate the demand to the equivalent number of houses. This approach was supported by customers through our engagement process and will be similar to the method we use currently. In the case of redeveloped sites, we will continue to give credit against infrastructure charges where applicable. Credits will apply where former properties on the development site were connected to our networks in the five years prior us receiving a valid connection application. We will subtract an infrastructure charge credit for each of the houses (or the equivalent number of houses for non-household properties) that were connected within the previous five years. 5 Where the property is a house, flat or maisonette ( house ) 6 Where the property is a house, flat or maisonette ( house ) NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 12

15 8) Promoting environmental protection We intend to introduce incentives for customers to develop their new properties in such a way as to promote efficient water use and to drain them in a sustainable way. Our proposal is to offer discounts against the water and wastewater infrastructure charges where the properties have been shown to meet certain design criteria in advance of being sold to the future property owners. a) Water efficiency We intend to offer a discount to customers that design and build properties to promote a lower consumption of water. We will offer to waive the water infrastructure charge in the event that evidence is provided to show a property is to be built to achieve a consumption of no more than 105 litres per person per day. The level of water efficiency of a property can be derived by using the calculator tool on the following website: b) Sustainable drainage Our proposal is to offer a discount to customers that design and build properties that drain wastewater away from our existing sewerage networks. The work that we have carried out to determine future reinforcement on our sewer networks (including pumping stations) informed us that 85% of forecast investment is required to accommodate surface water flows from new developments and the remainder to provide additional capacity for foul flows. Therefore our intention is to discount the wastewater infrastructure charge on the following basis: Drainage arrangements No surface water drains to an existing public sewer No foul sewage drains to an existing public sewer No surface water and no foul sewage drains to an existing public sewer Indicative wastewater infrastructure charge per property 7 Discount factor Amount payable per property based on our indicative infrastructure charge % % % 0 7 Where the property is a house, flat or maisonette ( house ) NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 13

16 In addition we will consider applying the discount where wastewater drains to a recently adopted public sewer that has been specifically designed to serve further phases of development. This is conditional upon the newly adopted sewer not being connected to the existing sewerage network. 9) Changes to NAV charges We are committed to offering NAVs levels of service and charges that are equivalent to those for our developer and SLP customers. In their consultation of November 2017, Bulk Charges for NAVs: a consultation, Ofwat set out their expectation that water companies should ensure a level playing field for NAVs by amending the treatment of the income offset. From 2020 onwards, it is envisaged that the income offset will be applied against infrastructure charges, rather than site specific charges. This would level the playing field, as it is site specific works that NAVs compete for. For the intermediate period Ofwat has proposed temporary requirements such that incumbent water companies may offer an income offset as a payment to NAVs. As we mentioned earlier, we have considered several hundred water mains requisition schemes and calculated the cost of providing the assets under requisition. The cost of providing the site specific works is avoided by us when a NAV becomes the supplier of water services. We have calculated these avoided costs and also calculated the contribution developer customers would have paid towards the on-site mains if they had been requisitioned. We intend to apply our water income offset to NAV sites at 415 per property 8 in the Northumbrian area and 480 per property 9 in Essex & Suffolk. These income offsets will only be paid for NAV bulk supply agreements made after 31 March They will be offset against the NAV wholesale charges made as part of the agreements. As we are not offering an income offset for sewers, there will be no payment to NAVs for this. In the Ofwat guidance, there is also a requirement for companies to offer a NAV tariff for ongoing bulk supply charges. We will be publishing this as part of our Wholesale Charging Scheme. As this relates to our general Wholesale Charges Scheme, we have not dealt with this in this section. Our proposals relating to infrastructure charges and incentives to efficient use of water and sustainable drainage solutions apply to NAVs in the same way as they do to other customers. 8 Where the property is a house, flat or maisonette ( house ) 9 Where the property is a house, flat or maisonette ( house ) NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 14

17 10) Transitional Arrangements Moving to new arrangements presents uncertainty for customers, particularly where they may have already committed to a development based on previous arrangements. WaterUK has worked with stakeholders to agree a set of principles by which water companies will base their charges during the transition period. We are supportive of the principles that WaterUK agreed. Below we have set out our transitional arrangements: Site Specific Work 1. Quotations for site specific work provided under current arrangements (the old rules ), and accepted before 1 April 2018 are to continue to apply until 1 April 2023 unless we agree to vary the quotation in consultation with the customer. 2. Where a legal agreement is already in place in relation to charges for site specific work carried out as part of an adoption, then the charges defined within that agreement remain valid for the life of the agreement unless we agree to vary those charges in consultation with the customer. 3. Charges relating to the old rules, will be adjusted by inflation if the quotation or legal agreement includes an appropriate provision for adjusting the charges. 4. Applications received between 1 February 2018 and 31 March 2018 for site specific work that will be carried out after 1 April 2018, will be quoted under the old rules or the new rules. Developers and SLPs will be invited to choose their preferred method. 5. Developers or SLPs that have received a quotation or draft adoption agreement under the old rules, but have not formally accepted can re-apply after 1 February 2018 for a quotation in accordance with the new rules. Infrastructure Charges 1. After 1 April 2018, connections made to a main or sewer that was provided as a requisition under s98 or s41 of the Water Industry Act 1991 or a water main that was self-laid under s51 between 1991 and April 2018 will be charged using the lower of the old and the new infrastructure charge. 2. After 1 April 2018, connections made to assets other than those above will be charged in accordance with the new infrastructure charge as defined in the rules. NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 15

18 11) Our consultation questions We would appreciate customers and stakeholders taking the time to respond to the questions below. Please feel free to add any comments or views that you may have in addition to answering the specific questions. Many thanks. Please respond via to or write to us at the following address no later than 10 January 2018: ConnectConsult, Developer Services, Northumbrian Water Limited, Boldon House, Wheatlands Way, Pity Me, Durham DH1 5FA 1. A report summarising the responses to our online questionnaire can be found on our webpages below: Do you agree that our proposals reflect the preferences expressed by the majority of customers that responded to our online questionnaire? 2. For water service connections we provide to existing water mains, we propose to separate out third party costs such as traffic management. This will mean that only those that require connections that specifically require traffic management will pay for it. Do you agree with this proposed method of? 3. For service connections we provide to newly laid water mains, i.e. the mains have been constructed within a development site, do you agree with our approach of using a charge that represents the average costs of a service connection of a particular type? 4. We are proposing to publish more fixed charges for water service connections and lateral drains. Do you agree that it is reasonable for us to limit the number of fixed charges to pipes of certain size, say 110 millimetres in diameter for a service connection and 300 millimetres in diameter for a lateral drain connection as well as offering to provide bespoke prices for larger pipes? 5. Do you support our proposal to provide a fixed income for requisitioned water mains and mains constructed by SLPs and NAVs? 6. Where sewers are requisitioned do you agree with our proposal to use actual costs and to offset income by using a simplified DAD? 7. Are you supportive of our proposals to incentivise efficient use of water and sustainable drainage solutions? NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 16

19 APPENDIX A The financial impact of our proposed method of for requisitioned or self laid water mains The following examples are based upon actual water mains requisition or self lay schemes. They provide a comparison to the amounts payable by developers and paid to SLPs under the current and proposed methods. Northumbrian area of supply Number of units: 477 Current water infrastructure charge: 365 Length of main: 3,100 metres Proposed water infrastructure charge: 200 Construction cost: 151,000 Proposed income : 415 REQUISITION of Sum payable by developer for new mains Water infrastructure charges 174,105 95,400 Total payable to NW 174,491 95,400 SELF LAY of Gross sum payable to developer/slp for new mains Connection to existing main (noncontestable work) - 150, ,000 2,000 2,000 Water infrastructure charges 174,105 95,400 Net amount payable to NW 25,191-53,600 NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 17

20 Northumbrian area of supply Number of units: 228 Current water infrastructure charge: 365 Length of main: 1,750 metres Proposed water infrastructure charge: 200 Construction cost: 85,000 Proposed income : 415 REQUISITION of Sum payable by developer for new mains Water infrastructure charges 83,220 45,600 Total payable to NW 83,342 45,600 SELF LAY of Gross sum payable to developer/slp for new mains Connection to existing main (noncontestable work) - 84,878-85,000 2,000 2,000 Water infrastructure charges 83,220 45,600 Net amount payable to NW ,400 NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 18

21 Northumbrian area of supply Number of units: 39 Current water infrastructure charge: 365 Length of main: 450 metres Proposed water infrastructure charge: 200 Construction cost: 19,100 Proposed income : 415 REQUISITION of Sum payable by developer for new mains 0 2,917 Water infrastructure charges 14,235 7,800 Total payable to NW 14,235 10,717 SELF LAY of Gross sum payable to developer/slp for new mains Connection to existing main (noncontestable work) - 19,100-16,183 2,000 2,000 Water infrastructure charges 14,235 7,800 Net amount payable to NW - 2,865-6,383 NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 19

22 Northumbrian area of supply Number of units: 8 Current water infrastructure charge: 365 Length of main: 105 metres Proposed water infrastructure charge: 200 Construction cost: 7,500 Proposed income : 415 REQUISITION of Sum payable by developer for new mains 6,264 4,180 Water infrastructure charges 2,920 1,600 Total payable to NW 9,184 5,780 SELF LAY of Gross sum payable to developer/slp for new mains Connection to existing main (noncontestable work) - 1,236-3,320 1,500 1,500 Water infrastructure charges 2,920 1,600 Net amount payable to NW 3, NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 20

23 Northumbrian area of supply Number of units: 46 Current water infrastructure charge: 365 Length of main: 471 metres Proposed water infrastructure charge: 200 Construction cost: 35,000 Proposed income : 415 REQUISITION of Sum payable by developer for new mains 1,758 15,912 Water infrastructure charges 16,790 9,200 Total payable to NW 18,548 25,112 SELF LAY of Gross sum payable to developer/slp for new mains Connection to existing main (noncontestable work) - 33,242-19,088 2,000 2,000 Water infrastructure charges 16,790 9,200 Net amount payable to NW - 14,452-7,888 NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 21

24 Essex & Suffolk area of supply Number of units: 362 Current water infrastructure charge: 365 Length of main: 2796 metres Proposed water infrastructure charge: 250 Construction cost: 81,400 Proposed income : 480 REQUISITION of Sum payable by developer for new mains 9,310 0 Water infrastructure charges 132,130 90,500 Total payable to ESW 141,440 90,500 SELF LAY of Gross sum payable to developer/slp for new mains Connection to existing main (noncontestable work) - 72,090-81,400 2,000 2,000 Water infrastructure charges 132,130 90,500 Net amount payable to ESW 62,040 11,100 NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 22

25 Essex & Suffolk area of supply Number of units: 84 Current water infrastructure charge: 365 Length of main: 888 metres Proposed water infrastructure charge: 250 Construction cost: 48,300 Proposed income : 480 REQUISITION of Sum payable by developer for new mains 5,047 7,971 Water infrastructure charges 30,660 21,000 Total payable to ESW 35,707 28,971 SELF LAY of Gross sum payable to developer/slp for new mains Connection to existing main (noncontestable work) - 43,253-40,329 2,000 2,000 Water infrastructure charges 30,660 21,000 Net amount payable to ESW - 10,593-17,239 NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 23

26 Essex & Suffolk area of supply Number of units: 55 Current water infrastructure charge: 365 Length of main: 221 metres Proposed water infrastructure charge: 250 Construction cost: 12,300 Proposed income : 480 REQUISITION of Sum payable by developer for new mains 1,303 0 Water infrastructure charges 20,075 13,750 Total payable to ESW 21,378 13,750 SELF LAY of Gross sum payable to developer/slp for new mains Connection to existing main (noncontestable work) - 10,997-12,300 2,000 2,000 Water infrastructure charges 20,075 13,750 Net amount payable to ESW 11,078 3,450 NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 24

27 Essex & Suffolk area of supply Number of units: 8 Current water infrastructure charge: 365 Length of main: 112 metres Proposed water infrastructure charge: 250 Construction cost: 5,246 Proposed income : 480 REQUISITION of Sum payable by developer for new mains 566 1,405 Water infrastructure charges 2,920 2,000 Total payable to ESW 3,486 3,405 SELF LAY of Gross sum payable to developer/slp for new mains Connection to existing main (noncontestable work) - 4,680-3,841 1,500 1,500 Water infrastructure charges 2,920 2,000 Net amount payable to ESW NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 25

28 APPENDIX B Exceptions to standard (Requisitions Only) The following text is taken directly from WaterUK s latest guidance: Due to the nature of connections work, there are circumstances where the cost incurred by companies is affected by external factors. These external factors may be outside of the immediate knowledge or control of the water company and, in a limited set of exceptional circumstances, could lead to significant cost variance. For this reason, Ofwat has agreed that companies are not required to provide fixed upfront charges in respect of the following: 1. Diversion works (see s185 of the Water Industry Act), and; 2. Water and sewerage infrastructure work requested by the developer (see s41 and s98 of the Water Industry Act) where it would be unreasonable to expect an undertaker (i.e. water company) to do so. For standard water and sewage connections no such exception applies and these must therefore be subject to fixed charges. In principle, having consulted stakeholders, water companies consider that in the following circumstances, it may not be reasonable for them to provide an upfront fixed charge for the work: a. The technical complexity of the work is high or the type of work required is bespoke or carried out infrequently, or; b. Third parties can legitimately recover their costs from companies and there is not a reasonable level of certainty of those costs in advance of connection work being undertaken, or; c. Third parties have rights to protect their assets or interests in a way that affects the construction method. The third parties requirements are unknown upfront, or; d. The work is to be carried out on or close to land with particular environmental, historical or archaeological characteristics. These characteristics mean that specific measures are required during construction or reinstatement. The details of these measures may not be fully defined in advance of construction. NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 26

29 Where the above circumstances occur, companies will be unable to provide a fixed upfront charge for the entire works, and should provide a budget estimate comprising a mixture of: i. Indicative or estimated charges for the elements of works affected by the circumstances above, and; ii. Fixed upfront charges for the elements of the work where there is sufficient certainty and it is reasonable to do so. Water companies anticipate that there will be occasions where providing an indicative estimate is not possible or where the estimate will not meet the degree of confidence desired by the customer. In such cases, the parties will need to decide how to proceed. NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 27

30 APPENDIX C Site Specific Works and Network Reinforcement Site Specific Works are bounded by the areas shown in dark green. Network Reinfocement applies to the areas bounded by light green. Water: Wastewater: NORTHUMBRIAN WATER AND ESSEX & SUFFOLK WATER Page 28