Transcript Document
Water Services Training Group
16th Annual Conference
Water Sector Reform
Programme
Implementation
INEC, Killarney, 8th November 2012
1
Water Sector Reform
Programme Implementation
Economic Regulation of Water
Cathy Mannion
Director
Commission for Energy Regulation
Overview
1.
Background
2.
The Emerging Model
3.
Form of Regulation
4.
Regulatory Challenges
Background
Water services currently provided by 5 city councils
and 29 county councils
Annual financing costs: €1.2bn
Opex: €715m
Capex: €500m
Non-domestic charges finance €200m
State finances the €1bn balance
Background
State has invested €5bn in infrastructure over 2000 –
2012.
Rate of expenditure unlikely to decline in coming decade
due to:
- poor state of network – huge leakage etc.
- population growth
-business demands (Forfas Report 2008)
-EU obligations (Water Framework Directive)
Background
Room for efficiencies
- Opex per connections is higher than UK by 50% - 100%
- Leakage levels (41%) are double UK average (20%)
- Employees per water connections/customer served are
higher than in U.K.
- Collection rates for non-domestics in Ireland (53%) lower
than U.K. average collection rate (78%).
Emerging Model
Centralised delivery of services in one utility, IW
IW to operate service level agreements with Local
Authorities (tool for driving efficiencies in opex)
All users charged for the provision of public water
services
Universal free allowance
Affordability measures
Roll out of meters commencing in 2013
Charging commences 2014
Independent economic regulation of water services
Why Regulate Networks?
Monopoly Function
Protection of Customers
Efficient Operation
Appropriate level and type of investment
Sustainable development of the network
Quality of service
Transition from Local Authority model to centralised model
at lowest cost
Overview of Revenue Regulation
Opex and Capex
Regulated Asset Base
Asset values, lives and depreciation profile
WACC - return on investment
Incentives
Cost reduction
Outputs
Service improvement
Building Blocks of the Price Control
Allowed revenues =
Asset lives
Depreciation
Cost of capital
(WACC)
+ Return
RAB
Opening RAB
+ CAPEX
– Depreciation
– Disposals
+
OPEX
(+/-)
Adjustments &
Incentives
Revenue Regulation
Multi-annual revenue control framework (electricity and gas)
Provide certainty and flexibility to manage costs and gain
efficiencies
Strong incentives for efficiency
Tariff revenue must be less than or equal to an approved
amount, less an efficiency factor
Efficiency gains are shared with the customer
Review of historic and future expenditures and revenues
For Irish Water, the first revenue control would focus on setting
the appropriate baseline and key targets for coming years
standard approach when costs are known
Regulation in the Initial Period
Service Level Agreements in place
Irish Water ability to make a detailed cost submission to
CER?
Roll out of meters incomplete
Decisions required by year end/mid next year:
Universal allowance
Treatment of affordability
Level of state funding
Level of investments
Total opex
Enabling legislation
Tariff revenue
requirement
2013, CER consults on tariff structures and levels
Publish rates in October
Regulation in the Initial Period
Priorities
Consult widely on domestic tariff structures and
levels for metered and unmetered supplies
Require IW to put in place a Customer Charter
Establish a dispute resolution service
Give IW incentives to maximise recovery of
domestic and non-domestic charges
Review structure and level of non-domestic charges
and consult on approach to harmonise charges
Establish a robust CER function for the economic
regulation of water with the necessary skill set
Regulatory Challenges
Examples:
Bad timing for setting water charges
Public acceptance that water charges are required
Communicate clearly and openly
Setting of charges for unmetered supplied
Universal allowance/affordability measures
Scale and duration of continued state funding
Driving efficiency during period of transition (SLAs)
Significant capital expenditure required to bring
infrastructure up to new standards
Thank You
[email protected]