Bills and revenues

1. Bills and revenues Paul Hope, 16 November 2007

2. Bills and revenues Two questions: • What stops companies from encouraging consumers to use water wisely? • Is there a fair balance between what happens to metered customers’ bills and what happens to companies’ costs when consumers decide to use more or less water?

4. Costs of supplying water £

5. Cost of supplying water

6. Short term costs

7. Short term costs

8. Short term costs

9. Short term costs

10. What happens to revenues? Metered charges are based on all those costs, so revenues increase significantly £

11. Water efficiency incentives Reduction in revenue Reduction in costs Incentive £

12. Fairness Increase in revenue Increase in costs Fairness £

13. Is there a solution? Incentives and Fairness Change in revenue Change in costs £

14. Revenue correction mechanism • continue as present until PR14 • each year, from 2010, we will report on companies’ revenue performance. • at PR14 correct for revenue “surplus” or revenue “shortfall” between 2010 and 2015, plus interest. • we will spread the correction over the following review period.

15. Revenue correction mechanism Revenue 2010 2015 2020 Bills 2010 2015 2020

16. Why not sooner… Bills Bills

17. What’s the catch? • Important for companies bill all possible properties • costs are spread over more consumers • bills are lower • Correcting revenues removes companies’ incentive to do this • Answer - adjust the correction if companies bill more or less properties than we expect

18. Summary Revenue corrected price cap • Make water charges fairer • Replace the disincentive for companies to promote water efficiency to metered consumers with a small incentive.