NON-HOUSEHOLD WATER CHARGES - CHANGES TO THE CURRENT CHARGING ARRANGEMENTS - CONSULTATION ANALYSIS
1. In February 2005, the Scottish Executive announced its commitment in principle to introduce a fundamental change to the basis on which Scottish Water and the Water Industry Commission for Scotland set charges for providing water and sewerage services to non-household customers. This change was intended to take effect from 2010. This followed an extensive period of public consultation on the subject and recognised customer's concerns that the existing link between premises and their rateable values bore little relation to the cost of providing these services. On 13 November 2006 the Executive further consulted on its detailed proposals, which were developed in discussion with SW and the Commission, for achieving this change. They include the introduction of general metering for all currently un-metered non-household premises and the creation of a system that would place all non-household premises and their surrounding surface areas into one of a number of charge bands intended to reflect the area of roof, car parking etc. that discharges to the public sewers. The Executive's intention is to replace the link between individual non-household premises and their rateable values which exists at present in respect of charging for these services.
2. The consultation also took account of the introduction of competition in the provision of retail services (i.e. those customer facing services such as billing, reading meters, handling complaints etc.) to non-household customers being possible from 1 April 2008. In effect therefore, the consultation sought views on how SW should implement wholesale charges in respect of the changes in charging structure for those that the Commission will licence to compete in the retail market from 2008.
3. The levels of future wholesale charges were not however the subject of the consultation. The paper made clear however that, whatever changes arise as a consequence of the consultation, the level of wholesale charges that Scottish Water levies on retailers will not exceed that permitted by the Commission in its Determination of Charges for 2006-10.
4. The Consultation closed on 19 January 2007 and 56 responses were received from a variety of individuals and organisations. These included business forums, educational institutions, local authorities, public sector organisations and private companies.
5. Respondents were overwhelmingly supportive of the broad proposals to move over time to a more obviously cost-reflective means of charging non-household customers. In doing so however, they identified a number of general practical implementation issues, including:
- the impact of the proposals on sites with large surface areas such as schools, universities, churches, sports facilities, hospitals etc, and;
- whether any new charging structure should take account of more unusual arrangements, such as park & ride facilities, waste disposal centres and landfill sites.
6. The introduction from 1 April 2008 of competition in the provision of retail services to non-household customers was generally welcomed. Concern was however expressed that the licensing arrangements need to be transparent to ensure market confidence. The arrangements would also need to be sufficiently robust to protect customers from overcharging and to ensure that quality of service is maintained.
7. A number of general charging points were raised, some of which may be of greater relevance to the Executive's forthcoming consultation on the principles of charging for the regulatory period 2010-14. This is expected to be published in the autumn of 2007. A more transparent charging system was welcomed. Concerns were however expressed that charge levels do not become inflated and that 'affordability' issues should be a priority. Some respondents expressed the view that fixed charge levels should be set at a level which is appropriate to the service provided.
8. The phased introduction of measured charges received wide support and while questions remained as to the detail of how this would be implemented there was support for a 4 year period of phasing, extending into the next regulatory control period 2010-14.
9. Specific areas of concern however were:
- the abolition of the Water Services Charges Exemption Scheme, which currently affords relief to certain charitable and voluntary organisations. There were some questions as to whether this should be extended beyond 2010;
- that special arrangements (e.g. to effectively 'deflate' charges in certain circumstances) are implemented in any new structure;
- strong objection to the proposal that the obligation is on customers to appeal any new charge levels;
- need for greater flexibility in agreeing arrangements for large volume users;
- increases in water charges to centrally funded organisations (i.e. universities) will result in reducing funds available to 'core' services;
- greater incentives to companies who implement sustainable methods;
- address any imbalances between non-household and household charging, and;
- consider charges comparisons with Europe.
10. The results of the consultation further underlined the broad support (as was previously borne out in the 2004 "Paying for Water Services" consultation) for the introduction of general non-household metering. Several respondents expressed the view that the removal of the effect of cross-subsidies should be implemented at the earliest opportunity.
11. The introduction of metering for low volume users was regarded as the fairest approach although it was recognised that the level of the associated fixed charge had a major impact on charge levels for individual customers. Consequently, there was some support for lower fixed charges to low volume users.
METER INSTALLATION PROGRAMME
12. There were some calls for the meter installation programme to be coherent and structured and that some provision should be made for the involvement of customers in the process - i.e. involved in determining the size of pipe necessary, location of meter etc. Some concern was expressed as to whether the installation targets could be met and that a significant number of premises would remain un-metered when the programme was complete. Questions were asked as to whether a further programme would be required to achieve full installation.
13. Respondents were generally content that charging should continue broadly on the current basis pending the introduction of metering.
14. Care would however be required in dealing with those customers affected by the introduction of retail competition from 1 April 2008 - i.e. in those circumstances where a customer does not have a meter installed by 1 April 2008. Adjustments to charges following the installation of a meter should be phased in.
15. A number of respondents expressed a wish to see more developed proposals in terms of the transitional arrangements.
16. Again, consistent with the outcome of the 2004 consultation, the consultation generated unanimous support for the principle of moving towards a system of banded surface drainage charges. There was however a marked disparity regarding the extent and number of bands. Opinion varied from a small number of well defined bands, to a minimum of 12 bands.
17. Several respondents welcomed the assurance that an especial band may be created for those premises (i.e. kiosks, lock ups etc.) with very small surface areas.
18. Some respondents sought clarification about the practical implementation of the proposals in those circumstances where premises, such as sports fields, which have large surface areas but few buildings.
19. There were some calls for incentivising those customers who introduced more sustainable methods of drainage. Perhaps to the extent that a scheme should reflect differences in the type of pollutants discharged to the system. Lower charges may encourage customers to reduce the amount of area to be drained.
DEFINING AND MEASURING THE SURFACE DRAINAGE AREA
20. The consultation considered whether charging for surface drainage should be based on either the total area of a property or on the drained area only. While the majority of respondents preferred charges to be based on the drained areas only, this particular element of the consultation generated a number of concerns surrounding:
- the accuracy of existing data, while GIS was accepted as a sound starting point;
- the need for clear methodology in setting areas;
- that a clear definitions of what exactly constitutes drained areas would be required, and;
- how would permeable paving/soak-aways etc. be taken into account in terms of charging?
21. The need for a robust appeals process was seen as a vital part of the new arrangements.
22. In terms of the measurement of sites some respondents suggested that a significant amount of this data was retained by regional assessors. It could be maintained by local authorities advising Scottish Water of any changes under existing planning regulations.
23. Respondents recognised that measured charging, by whatever method, was greatly preferable to the present system of charging by reference to rateable value. In terms of charging arrangements for multi-occupancy sites, an apportionment of costs between customers was considered the most effective method. This was provided that the process was cost-effective and that businesses incurred no additional costs.
24. In many caravan sites living accommodation for key staff is supplied from the same pipe and meter as the site supply - would they be regarded as part of a 'multi occupancy' site?
25. The consultation set out, that while the Executive's intention is to replace the rateable value link in respect of property drainage, this would not extend to highway drainage. The reason for this is that the alternative would be for such costs to be met by local authorities, placing a new burden on Council Tax, business rates or central government support, and that such an approach would be unsatisfactory. In doing so, the Executive recognised that non-household customers, in particular, consider it unreasonable to pay these charges. This position was evident from past consultation on the subject and was again strongly borne out in this exercise.
26. Several respondents expressed the view that the drainage of roads is to the benefit of all road users and therefore any associated costs should lie with local authorities or the Scottish Executive. They also suggested that to continue with the current basis for charging for this aspect of non-household charging would be inconsistent with the wider principles of charging. Concern was expressed that this could impact significantly on overall charges. There was disappointment that it was envisaged that no suitable alternative could be devised.
27. Respondents also suggested that this aspect of non-household charging could be the subject of more detailed consideration as part of the forthcoming consultation in relation the Strategic Review of Charges for 2010-14. Further comparisons of arrangements in place in England & Wales were also suggested.
28. The general view was, given that the nature of the changes were complex, there was a need to ensure that changes were communicated clearly and promptly to customers by both Scottish water and retailers once the retail market is opened in 2008.
29. Overall (as with the 2004 consultation "Paying for Water Services") respondents have indicated their broad support for the detailed proposals which introduce a more obviously cost-reflective means of charging non-household customers for their water services and encourage water efficiency. Many of those issues which have arisen are practical implementation matters for Scottish Water and the Water Industry Commission for Scotland going forward. These largely relate to the ongoing meter installation programme (which is a key output listed in Scottish Water's Delivery Plan) and the charge appeals process.
30. Future charge levels will largely depend on specific consumption patterns, current rateable values, the wholesale charging scheme that Scottish Water will apply to any licensed retailers, the steps that customers take to manage their demand on the public system and ultimately on the eventual retail charges offered by these retailers to customers with the introduction of retail competition from 2008.
31. To minimise any immediate impact on customers' bills however, the phased implementation of meter related wholesale charges (for all customers not yet paying metered charges) will cover a period of 4 years extending into the next regulatory control period 2010-14.
32. In terms of those questions related to the current water services charges Exemption Scheme, the Scottish Executive has no plans to extend this scheme beyond 2010 or to establish a replacement for it when it expires, a position which has previously been confirmed by Scottish Ministers. Issues however related to the scheme are more appropriate considerations for the wider consultation on the principles of charging for the regulatory period 2010-14, which the Executive expects to publish in the autumn of 2007.
33. The Scottish Executive would like to take the opportunity to thank those who responded to this consultation.
SEERAD - FEBRUARY 2007