Evaluation of Bulk Charges for New Appointments and Variations Regime in the Water Industry

About

Water Services Regulation Authority (Ofwat) awarded a contract to Cambridge Economic Policy Associates Limited for evaluating bulk charges available to New Appointments and Variations (NAVs) in the water industry in England and Wales.

The supplier assessed waste and potable water charges provided by incumbent water companies, using publicly available information and data obtained from the incumbents, to determine an appropriate cost base.

The evaluation covered the 2019/20 period, during which one small water-only company had not yet published NAV tariffs, and two companies (United Utilities and Yorkshire Water) had published indicative tariffs and were consulting before finalising.

Initial analysis indicated a broad range in wholesale margins offered to NAVs and varying transparency in how these margins were determined.

Concerns raised by some NAVs included inconsistencies between published NAV tariffs and incumbent water companies' existing tariffs, with some NAV tariffs always higher than the Non-Household Tariff and others significantly worse than their 2018 NAV tariffs.

Other NAVs argued that incumbent charges did not reflect geographic differences in costs of supplying services, which may not be captured within charges to developers or Bulk Charges.

Unexplained variations in the application of NAV tariffs as connection size increased were also noted.

The consultant sought to understand methodological differences and differences in actual cost driving margin variations across companies and by site-specific criteria such as site size, number of connections, and geographic location.

The contract value was £77,905.