Balance of charges for developer services in the water industry in England and Wales

This study concerns the balance of charges, which is the costs that are incurred by water companies as a result of new connections and new developments and the revenue that they receive from developers, new and existing customers.

The motivation for the study is that we think that our rule for the balance of charges in our English rules can be improved, and we anticipate that we may decide to include a rule on balance of charges in the charging rules for developer services that we introduce for Welsh companies. We want to use this study to help inform us as to how we might reformulate balance of charges rules for English companies and, separately, Welsh companies. In doing this, we would bear in mind other considerations, including our future engagement and consultation with stakeholders, and having regard to relevant government charging guidance. The focus of this study is on our charging rules rather than companies' adherence to them.

The requirements are:

review our approach, as set out in our charging rules, to the balance of charges, in particular with reference to underlying economic rationale or other rationales given in policy documents and elsewhere;

review arrangements analogous to the balance of charges in similar industries, for example in the water sector in Scotland or internationally, and for insets in the electricity and gas markets in England; differences in approaches and their underlying rationales; develop options for future balance of charges arrangement that are focused on meeting specific objectives, to be agreed as part of the study

assess each option using an assessment framework developed for the study.

The Supplier will be required to prepare a clear explanation of the broad cost categories incurred by water companies as a result of new connections or new developments and how those costs are recovered:

One-off costs incurred directly as a result of the specific development, including new connections, mains requisitions and diversions, and the charges associated with these;

Other one off costs and charges for the wider network, shared across developments , new connections and other sources of growth, e.g. increases in treatment capacity

Income offset provision; Ongoing costs incurred as a result of serving customers in the new properties, and how these compare to costs for existing properties. It will be key to distinguish between marginal costs associated with new customers versus average costs of customers, as well as costs associated with maintaining infrastructure for new developments as compared with the wider network.

The Supplier should include within scope the wider social and environmental costs associated with the water sector, notably water scarcity / water resource costs, and infrastructure resilience.

The Supplier should advise on the scale of different costs rather than providing a detailed analysis of individual cost elements, how they might vary between developments, the complexity of estimaties

Additional information: For further information,please contact procurement@ofwat.gov.uk