CRU’s Decision on Irish Water’s Non-Domestic Tariff Framework

Irish Water Customer Information Paper

NDTFR_IW_010

July 3rd 2019

1

Contents 1. Introduction ...... 3 2. CRU Decision ...... 6 3. Enduring Tariffs reflecting the CRU’s Decision ...... 11 4. Customer Bill Impact ...... 14 5. Customer Communication ...... 40 6. Water Conservation ...... 42 7. International Price Comparison Analysis ...... 43 8. Next Steps ...... 60

2

1. Introduction Irish Water assumed responsibility for water and wastewater services on 1st January 2014. Current water supply and wastewater collection tariff arrangements are set out in the Water Charges Plan (WCP)1. Section 3 of the WCP provides for the application of non-domestic tariffs in accordance with the structures and arrangements in place prior to 1st January 2014. Specifically, each customer is currently charged in line with non-domestic tariff levels and arrangements as applied by their relevant Local Authority (LA) on 31st December 2013.

Across the 31 LAs, there are large variations, with 44 distinct charging methodologies and over 500 different tariffs. Recognising the inequity and complexity of the current arrangements, the Commission for Regulation of Utilities (CRU) requested Irish Water to prepare a submission setting out tariff design options and a proposal for an enduring Tariff Framework for non-domestic customers. The CRU provided Irish Water with a set of regulatory tariff principles to guide the design of the new Non- Domestic Tariff Framework.

On 20th June 2018, the CRU published a suite of papers submitted by Irish Water on the Non- Domestic Tariff Framework. The papers were2:

 Tariff Design Proposals – a technical paper, which sets out Irish Water’s proposed tariff design for the enduring Non-Domestic Tariff Framework, including proposals on the geographical basis for charging customers, customer classification, cost allocation, and tariff structure;  Transitional Arrangements Proposals – a technical paper, which sets out Irish Water’s proposed approach to implementing the new tariff arrangements, including customer transition arrangements where appropriate;  Summary of current tariff arrangements, a technical paper, which provides an outline of the current non-domestic tariff arrangements across each LA; and  A summary paper – which sets out Irish Water’s proposals (on both tariff design and implementation) in a simple, non-technical, manner, to be easily accessible by all customers.

The CRU sought views from the public on each of Irish Water’s proposals during a 10 week public consultation concluding on 29th August 2018. The CRU considered the responses to the public consultation before reaching a Proposed Decision on the tariff design and transitional arrangements of the new Framework. The CRU sought views from the public on its Proposed Decision during a 5 week public consultation which concluded on 20th May 2019. The CRU considered the responses to this second round of public consultation before reaching a Decision on the tariff design and transitional arrangements for the new Framework. The CRU’s Decision is consistent with its Proposed Decision on each aspect of the Framework (tariff design, transitional arrangements and tariff rates)3.

1 Updated Water Charges Plan 1st April 2019. 2 All papers are available here. 3 The CRU’s Non-Domestic Tariff Design and Transitional Arrangements Proposed Decision is available here. 3

Respondents’ comments during the CRU consultation process indicated a requirement for a further supporting document that outlines the key aspects of the CRU’s Decision and how they impact Irish Water’s non-domestic customers. The CRU and Irish Water agreed that a Customer Information paper to complement the CRU’s Decision is appropriate and should include: i. The CRU’s Decision on key aspects of the Framework; ii. The non-domestic tariffs reflecting the CRU’s Decision; iii. Customer bill impact – an illustration of how customers will be impacted by the Decision on enduring tariffs and transitional arrangements; iv. Customer communication – an outline of how and when Irish Water intends to communicate tariff changes to individual customers; v. Water conservation – an outline of the supports Irish Water is making available to non-domestic customers to facilitate water conservation; vi. International price comparison analysis; and vii. Next steps – the remaining work to be completed by Irish Water and CRU in advance of the new Framework being implemented.

The CRU has now published its Decision. The purpose of this Customer Information paper is to help non-domestic customers and stakeholders understand the impact of the CRU’s Decision. Rationale for each element of the Decision can be found in the CRU’s Decision paper and in Irish Water’s tariff design4 and transitional arrangements5 proposal papers.

1.1 Structure of the paper This paper is structured as follows:

 section 2 summarises the CRU’s principal decisions on the tariff design and transitional arrangements of the new Framework;  section 3 sets out the final tariffs reflecting the CRU’s Decision. These tariffs are used in the analysis in sections 4 and 7 and in appendix 2 of this paper;  section 4 considers the impact of the CRU’s Decision on non-domestic customer bills. This section assesses the impact of the tariffs and the role of transitional tariffs in mitigating the impact;  section 5 sets out the approach to communicating tariff changes to non-domestic customers;  section 6 outlines the supports Irish Water is making available to non-domestic customers to facilitate water conservation;  section 7 assesses how the annual charges faced by non-domestic customers compare internationally; and  section 8 sets out the next steps in the process following the CRU’s Decision on tariff design, transitional arrangements and tariff rates.

4 Irish Water’s Non-Domestic Tariff Design proposals are available here. 5 Irish Water’s Non-Domestic Transitional Arrangements proposals are available here. 4

1.2 Scope of the CRU’s Decision The scope of Irish Water’s proposals and the CRU’s Decision covers the design of the new tariff Framework for non-domestic customers. It extends to water supply and wastewater collection tariffs only, excluding Trade Effluent.

Trade Effluent refers to wastewater with a higher strength than ‘normal’ wastewater. Separate charges for Trade Effluent are generally applied by water services utilities on the basis that it is more costly to treat. Such charges are typically calculated based on both the volume and the strength of pollutants in the wastewater. While such Trade Effluent charging arrangements currently exist in some LA areas, they are not applied consistently throughout the country.

Irish Water intends to implement an enduring Trade Effluent charging arrangement once the necessary national monitoring and sampling programme is in place, and following approval by the CRU. Irish Water is currently gathering information on Trade Effluent practices to enable us to prepare a submission to the CRU on these issues in 2020. Irish Water’s submission will be subject to public consultation followed by a CRU decision prior to the implementation of enduring Trade Effluent charging arrangements. In line with the CRU’s direction, Irish Water continues to apply the existing Local Authority Trade Effluent charging arrangements which were in place on 31st December 2013.

5

2. CRU Decision

The following summarises the CRU’s Decision on Irish Water’s Non-Domestic Tariff Framework. This section is structured as follows:

 section 2.1 outlines the geographical basis for charging;  section 2.2 outlines how customers are classified into different tariff classes;  section 2.3 outlines how the costs of providing water and wastewater services are allocated to the different classes;  section 2.4 outlines how the tariffs are structured; and  section 2.5 outlines how customers will transition to final tariffs.

2.1 The geographical basis for charging (national versus regional charging)

Non-domestic tariffs for both metered and unmetered connections will apply on a national basis.

2.2 How to classify customers into different tariff classes

Four separate tariff classes will apply to metered connections (Band 1, Band 2, Band 3 and Band 4). These metered tariff classes will be differentiated by annual usage as set out in Table 2.1 below.

Table 2.1 Customer Classes

Water and Wastewater Customer Classes Tariff Class Annual Usage (m3) Band 1 Less than 1,000m3 Band 2 Between 1,000m3 and 19,999m3 Band 3 Between 20,000m3 and 249,999m3 Band 4 Equal to or greater than 250,000m3

A customer’s classification will be reviewed annually based on the most recent usage data. For each metered tariff class, there will be a separate charge for water and wastewater services. There will be a flat charge for unmetered customers. Unmetered charges will be set for water and wastewater separately at a level equivalent to a small non-domestic user (unmetered Band 1 charge).

Connections currently subject to a high unmetered charge will be reviewed6. It is Irish Water’s intention to meter these connections where possible. If it is not possible to install a meter, a flat charge based on an assumed usage of 1,000m3 will be applied (unmetered Band 2 charge).

6 High is defined as an unmetered charge which is greater than an annual bill assuming usage of 1,000m3, calculated using the current tariffs. 6

2.3 How the costs of providing water and wastewater services are allocated to each customer class

The CRU approves the efficient costs that Irish Water is allowed to recover for its various functions (functionalised costs) under a separate Revenue Control process. Tariff design focuses on allocating functional costs to cost components. This facilitates the collection of allowed revenues from customer classes. Cost Allocation analysis allows the matching of revenue recoverable from particular customer classes to the costs they generate. The CRU’s Decision allocates costs to customer classes on a Fully Allocated Cost (FAC) basis.

Irish Water’s cost allocation analysis reflecting the CRU’s Decision is explained in detail in Appendix 1. This analysis results in an assessment that revenue from non-domestic tariffs should contribute 22.98% of total allowed revenue. This reflects the costs of providing water and wastewater services to the non-domestic sector. Table 2.2 compares the CRU decision on the non-domestic cost allocation to the current non-domestic contribution to allowed revenue recovery.

Table 2.2 Cost Allocation to the Non-Domestic sector

Cost Allocation to the non-domestic sector Service Total Water Supply Wastewater Trade Effluent Other7 Current Non- Domestic Billed 10.34% 6.14% 1.54% 1.43% 19.45% Revenue CRU Decision 11.25% 8.76% 1.54% 1.43% 22.98% Cost Allocation

2.4 How to structure the tariffs

The tariffs will be structured in the following way:  Application of tariffs to non-domestic customers on a per connection basis;  Application of separate tariffs per service (i.e. water, wastewater);  Application of a national domestic allowance8 for mixed-use9 connections;  Application of two-part metered tariffs, with a fixed (standing charge) and variable (volumetric charge) component, for all metered connections; and  Application of a flat charge per service (i.e. water, wastewater) to all unmetered connections (unmetered Band 1 and 2). Application of Band 1 or 2 depends on the size of the connection’s current bill.

7 Other includes annual revenue from individual water agreements (for example there are some legacy arrangements in place where non-potable water is supplied to non-domestic customers at reduced rates), public Group Water Schemes, and additional services provided to non-domestic customers. 8 The domestic allowance represents the portion (volume in m3) of water used or wastewater collected for domestic purposes in a mixed-use premises. 9 Connections providing water services for both non-domestic and domestic purposes at a premises are termed ‘mixed-use’. 7

With the exception of Operations and Maintenance costs, all functional costs are recovered through the standing charge and volumetric charge in the same proportions as outlined in Irish Water’s Non-

Domestic Tariff Design proposals to the CRU10. Table 2.3 sets out the changes to how Operations and Maintenance costs are to be recovered through the standing and the volumetric charge for each customer class as a result of the CRU’s Decision.

Table 2.3 Operations and Maintenance Cost Allocation to standing and volumetric charges

Tariff Irish Water’s Proposal CRU’s Decision Class Standing charge Volumetric charge Standing charge Volumetric charge Band 1 1% of O/M opex 99% of O/M opex 0.5% of O/M opex 99.5% of O/M opex Band 2 2% of O/M opex 98% of O/M opex 0.6% of O/M opex 99.4% of O/M opex Band 3 4% of O/M opex 96% of O/M opex 0.7% of O/M opex 99.3% of O/M opex Band 4 N/A N/A 0.7% of O/M opex 99.3% of O/M opex

Tables 2.4 and 2.5 set out the split between standing and volumetric charge components for water supply and wastewater collection services respectively. These tables result from the application of the CRU’s Decision to the recovery of functional costs through the standing charge and the volumetric charge.

10 Appendix 3 of Irish Water's Non-Domestic Tariff Design and Enduring Proposals CRU/18/115 25th May 2018.

8

Table 2.4 Water Supply % split between standing and volumetric charges

Water Supply - % revenues recovered through standing and volumetric charges

Water supply customer class Standing Charge Volumetric Charge

Non-domestic overall 8% 92%

Band 1 tariff customers 19% 81%

Band 2 tariff customers 3% 97%

Band 3 tariff customers 3% 97%

Band 4 tariff customers 3% 97%

Table 2.5 Wastewater Collection % split between standing and volumetric charges

Wastewater - % revenues recovered through standing and volumetric charges

Wastewater customer class Standing Charge Volumetric Charge

Non-domestic overall 6% 94%

Band 1 tariff customers 17% 83%

Band 2 tariff customers 2% 98%

Band 3 tariff customers 2% 98%

Band 4 tariff customers 3% 97%

2.5 Transition of customers to the final tariffs

The new non-domestic tariffs will result in bill decreases for some connections and bill increases for other connections. Irish Water and the CRU recognise that bill changes can be a concern for businesses. Therefore, the CRU’s Decision on the Framework also includes arrangements which set out how some connections will be gradually transitioned from their existing tariff to their new tariff over time. A grace period of approximately 10 months11 will also be available to all customers to assist them to plan and budget for the final tariffs.

The CRU’s Decision on transitional arrangements is summarised below.  The new tariffs will be applied from the start of the new tariff Framework to all connections expected to see: - A decrease in their annual bill; or - An increase in their annual bill of less than €250.

11 The grace period refers to the period of time between the CRU’s decision on final tariff rates and 1st May 2020 when the new tariff framework will be implemented. 9

 All connections expected to see an increase in their annual bill of €250 or greater will be transitioned over time: - Connections facing increases of more than €250 but less than €750 will transition over three years; and - Connections facing increases of €750 or more will transition over a minimum of three years, but with a cap of 10% applied to the annual bill increase (based on base year usage12). Customers can opt out of the cap if they wish to transition more quickly.  Adjustment of tariff levels over Revenue Control 3 (RC3) (2020-2024) - The enduring and transition tariffs will be implemented for all non-domestic customers (and will be applied to customers’ bills) on 1st May 2020. - Enduring tariff (standing charge and volumetric charge) levels will remain unchanged until the end of the 3-year transition period i.e. Q2 2023. - Each year of the transition, Irish Water will assess if there is a material difference between RC3 allowed revenue and the allowed revenue on which enduring tariffs are set (for 2019), and will also consider the impact of updated connection numbers and volume data. o If there is material increase required, the tariff levels will be raised at the completion of the 3-year transition. If there is an immaterial increase required, the tariff levels will not change. o If a decrease is required, the tariff levels will fall at the completion of the 3- year transition. o The assessment will be repeated each year to monitor if a change is subsequently required.

12 Base year usage will be determined under the Annual Quantity process to be completed in 2019. It will be calculated using consumption over a 12 month period. See Section 8 for more information. 10

3. Enduring Tariffs reflecting the CRU’s Decision

Table 3.1 below sets out the tariffs that reflect the CRU’s Decision. The tariffs are included here to support customers’ understanding of the impact of the CRU’s Decision on tariff levels. It is important to note that there will be mitigations in place to ensure that any customer facing a significant bill increase will not move to the final enduring tariffs immediately, but will gradually transition over a number of years (as summarised in section 2.5 and described in the CRU’s Decision paper). To learn more about the impact of these mitigations please refer to section 4.

Indicative enduring tariffs were included in Irish Water’s Non-Domestic Tariff Design proposals submission to the CRU13. These indicative tariffs were based on allowed revenues for Interim Revenue (IRC) Control 2 (2017-2018), 2015 cost driver data (volumes and connections) and Irish Water’s tariff design proposals. These indicative tariffs were subject to change as a result of:

i. CRU’s decision on Irish Water’s 2019 allowed revenues; ii. Updated cost allocation analysis using 2017 cost driver data (volumes and connections); and iii. The CRU’s Decision on the tariff design.

The impact of each change is summarised below.

i. Summary impact of moving to Irish Water’s 2019 allowed revenues The indicative tariffs in Irish Water’s proposals submission were calculated based on CRU’s allowed revenues for IRC2 of €921.5m per annum14. The tariffs reflecting the CRU’s Decision were calculated based on 2019 allowed revenues of €1,042m15. This represents a net rise of 13% in allowed revenues. While operational expenditure has decreased, driven by efficiency gains, capital investment has increased, reflecting economic growth needs and urgent compliance requirements.

ii. Summary impact of moving to 2017 cost driver (volumes and connections) data The indicative tariffs in Irish Water’s proposals submission were calculated using 2015 cost driver data (i.e. domestic and non-domestic volumes and connections). Tariffs reflecting the CRU’s Decision were calculated using more recent 2017 cost driver data. Cost drivers are important as they determine the allocation of costs to different customer groups. With significant economic and population growth, both domestic and non-domestic cost drivers (volumes and connections) have increased between 2015 and 2017. As domestic cost drivers have increased to a greater extent, this has resulted in a slightly lower non-domestic cost allocation.

13 Appendix 1 of Irish Water's Non-Domestic Tariff Design and Enduring Proposals CRU/18/115 25th May 2018. 14 Based on total revenue for 2017 to 2018 of €1,843 (in 2015 monies) as per page 3 of the CRU’s decision (see here). 15 Based on total revenue for 2019 of €1,042m (in 2015 monies) as per page 4 of the CRU’s decision (see here). 11

Indicative tariffs in Irish Water’s proposals submission using 2015 cost driver data reflected a non- domestic cost allocation of 24.09%. Updated 2017 cost driver data generates tariffs which reflect a slightly lower non-domestic cost allocation of 23.74%.

iii. Impact of the CRU’s Decision on tariff design The CRU’s Decision on tariff design further reduces the non-domestic cost allocation from 23.74% to 22.98%. The principal amendments which result in a lower non-domestic cost allocation are detailed in the CRU paper and summarised below.  Irish Water’s proposal allocated 50% of support, shared, group service costs and non- controllable costs between customer groups and products (i.e. water or wastewater) on a consumption cost driver basis, and 50% on a connections cost driver basis. The CRU’s Decision changes this ‘blended’ split for allocating these costs to a 10% consumption and 90% connections cost driver basis.  The CRU’s Decision amends the water and wastewater cost adjustments proposed in Irish Water’s tariff design submission. For example, the CRU’s Decision includes an additional network leakage adjustment for Band 2, 3 and 4 customer classes.  The CRU’s Decision includes a fourth customer class (Band 4) for customers using 250,000m3 or more of water services a year. The CRU’s Decision increases the water network location adjustment and including a new wastewater network location adjustment for the Band 4 customer class.

These Decision amendments (i to iii) mean tariff levels have changed from Irish Water’s proposal submission to the CRU’s Decision (table 3.1). In addition, tariff levels have now been designed to remain stable up to 2023 taking account of expected inflation and growth (as described in section 4.2.6). The overall impact of incorporating all these changes is to reduce the standing charge by -41% on average16 and increase the volumetric charge by 3% on average17 compared to Irish Water’s proposals to the CRU in May 2018.

16 The calculation of the average standing charge is weighted by the revenue it is estimated to generate per class. 17 The calculation of the average volumetric charge is weighted by the revenue it is estimated to generate per class.

12

Table 3.1 Tariffs based on the CRU’s Decision

Metered Water Service Wastewater Service Combined Service Tariffs Charges Charges Charges Standing Volumetric Standing Volumetric Standing Volumetric Charge Charge Charge Charge Charge Charge (€/year) (€/m3) (€/year) (€/m3) (€/year) (€/m3)

Band 1 43.76 1.87 44.81 1.92 88.57 3.79 (<1,000m3)

Band 2 (1,000m3 – 113.31 1.30 135.79 1.82 249.10 3.12 19,999m3)

Band 3 (20,000m3 – 1,872.98 1.21 1,969.50 1.81 3,842.48 3.02 249,999m3)

Band 4 Class (> 21,771.46 1.05 25,266.78 1.75 47,038.24 2.80 250,000m3)

Unmetered Water Service Wastewater Service Combined Service Tariffs Charges Charges Charges

(€/year) (€/year) (€/year)

Band 1 260.35 243.14 503.49 Band 2 1,413.31 1,955.79 3,369.10

13

4. Customer Bill Impact

The purpose of this section is to help Irish Water’s non-domestic customers to understand how their bill will change as a result of the new tariffs. The tariff design decision set out in section 2 represents a major change from current non-domestic tariff arrangements. Specifically, a single unified tariff structure with 3018 tariff components (water and wastewater standing charges, volumetric charges, and unmetered charges) is replacing 4419 different tariff structures and over 500 different tariff components.

The changes to non-domestic customers’ water and wastewater bills will vary for each customer and the impact will depend on many factors. It is the aim of this paper to assist customers in understanding how the new tariffs may affect their bills. The impacts of the CRU’s Decision on tariff design and transitional arrangements are described in this section as follows:  section 4.1 provides a summary of the impact on customers’ bills;  section 4.2 explains the factors which may influence how a bill is impacted by the changes;  section 4.3 outlines the mitigations (i.e. transitional arrangements) which have been developed to avoid immediate significant bill increases;  section 4.4 provides a range of case studies illustrating how customers are impacted by the new tariffs; and  section 4.5 advises customers on how they can assess the impact on their own bill by using Irish Water’s online Business Tariff Calculator.

4.1 Summary of the Impact on Customer Bills

The impact on customers of changing non-domestic water and wastewater tariffs will vary individually. A customer’s bill may decrease or increase as a result of these changes. Figure 4.1 demonstrates the overall impact of how the move to the final tariffs would affect connections before any transitional arrangements to support customers have been applied.

Figure 4.1 is based on the impact of moving to the final tariffs. This is the difference between a customer’s current actual bill extracted from Irish Water’s billing system and the bill they would receive with the final tariffs before any transitional arrangements have been applied. This analysis is based on Irish Water’s 183,479 non-domestic connections and the impact can be broken down as follows:  46% (85,088 connections) will see a decrease in their bill, while  54% (98,391 connections) will see an increase in their bill as a result of moving to the enduring tariffs.

18 30 is the count of all tariff components in table 3.1. 19 The Local Government Reform Act 2014 came into effect on 1st June 2014 and dissolved town councils and amalgamated some LAs reducing the number of LAs to 31. 44 sets of tariffs remain given that charging structures are frozen since 1st January 2014. 14

Figure 4.1 Impact of final (or enduring) tariffs on Non-Domestic customers

Bills are expected to decrease for c.46% of connections. In addition bills are expected to increase by less than €250 for a further c.37% of connections. Combined, c.83% of connections are expected to see either a decrease or an increase of less than €250 as a result of moving to the new tariffs.

There are an estimated 31,303 connections (c.17%) which can expect to face increases of more than €250. To minimise the impact on these customers, transition arrangements will apply (summarised in table 4.2).

Table 4.1 below illustrates the impact on annual bills by summarising the estimated decreases and increases in both monetary and percentage terms. The table shows:  The estimated number of connections whose bill will decrease or increase;  The estimated monetary and percentage magnitude of the decrease or increase; and  The estimated total number of connections impacted at each monetary and percentage decrease or increase.

15

Table 4.1 Increases and decreases in Non-Domestic connections annual bills as a result of enduring tariffs (€ and %)

16

4.2 Factors which may influence bill change In this section Irish Water considers the factors that are changing as a result of the CRU’s Decision, and which will drive changes in non-domestic customer bills. The interaction of all factors for a given customer will determine how their total bill changes.

4.2.1 Local Authority The local authority is a key factor in determining how bills will be impacted. Customers located in a local authority where the existing charges are relatively low are likely to see bill increases. Customers located in a local authority where existing charges are relatively high are likely to see bill decreases.

4.2.2 Standing charge Connections in Band 1 (representing 94% of connections), using less than 1,000m3 annually, will generally see a decrease in their standing charge. If a decrease in a standing charge is complemented by a decrease in a volumetric charge a connection’s bill will decrease. If a connection is a very low user of water (i.e. the standing charge represents a relatively high proportion of the total bill), an increase in the volumetric charge may be off-set by a reduction in the standing charge resulting in an overall bill decrease.

For larger users of water, the standing charge will represent a relatively low proportion of their overall bill. Therefore changes to the standing charge level will be generally outweighed by changes to the volumetric charge level.

Connections in Bands 2, 3 and 4 (representing 5.9%, 0.2% and 0.01% of connections respectively) will generally see increases in their standing charge. In some cases, this increase will be outweighed by a corresponding decrease in the volumetric charge resulting in an overall bill decrease. In other cases, a standing charge increase will be accompanied by a volumetric charge increase resulting in an overall bill increase.

4.2.3 Volumetric charge The extent of the change in a connection’s volumetric charge will be impacted by their location (local authority) and customer classification (i.e. customer Band 1, 2, 3 or 4). Connections in higher bands (Bands 2, 3 and 4) will be charged lower volumetric charges compared to customers in Band 1. The volumetric charge reduces for every step up in customer classification (i.e. the volumetric charge in Band 2 is lower than Band 1 etc.). Connections assigned to higher classification bands (customer Band 2, 3 or 4) are more likely to see a decrease in their current volumetric charge.

4.2.4 Unmetered charges Connections in local authorities with relatively low unmetered charges are likely to see bill increases. Unmetered connections in local authorities with relatively high unmetered charges are more likely to see a decrease in their bill. Customers in unmetered Band 1 will be impacted differently from customers in unmetered Band 2.

17

4.2.5 Domestic allowances Mixed use connections use water services for domestic and non-domestic purposes and are entitled to a domestic allowance. The domestic allowances currently in place in each LA will be replaced by a national domestic allowance of 213m3 for households with 0-4 occupants. Households will be entitled to an additional 25m3 allowance for each additional occupant (above 4). Mixed use connections located in local authorities with existing domestic allowances which are lower than the new domestic allowance will receive a higher domestic allowance which will reduce their bill.

4.2.6 Stable tariffs The tariffs in the CRU’s Decision have been designed to remain stable until the end of the 3-year transition period. Expected growth and inflation estimates between 2020 and 2022 have been built into the tariffs which will not be subject to change over this period. Tariffs levels will be reviewed each year during the transition period in accordance with the CRU’s Decision.

4.3 Mitigations measures to address bill increases Table 4.2 outlines the distribution of connections by bill impact and the associated transition arrangements which have been designed. Connections whose bill is increasing by more than €250 will qualify for a transition mechanism. In addition, to help customers reduce their usage and bills, Irish Water has developed a range of water conservation resources which are available on its website – Irish Water Conservation. These include tips to reduce water usage and guidance on the identification and prevention of leaks.

Table 4.2 Transition Decision Estimated Impact on Bill Transition Arrangements Number of Connections 85,088 Move Immediately to Final Decrease (46%) Tariffs 67,088 Move Immediately to Final Increase <€250 (37%) Tariffs Increase >€250 and <€750 21,286 or Three Year Transition (12%) Increase >€750 and <10% increase in every transition year 10,017 Increase >€750 and >10% increase in every Minimum Three Year Transition (5%) transition year Opt-Out 10% Cap

There are 3 mitigations proposed to smooth customers’ transition to the enduring (or final) tariffs:  A grace period of approximately 10 months;  3 year transition; and

18

 An opt-out 10% cap on annual increases.

4.3.1 Grace period A grace period (of approximately 10 months) will apply from the when the CRU makes its decision on the final and transition tariffs until the new framework is implemented on 1st May 2020. The grace period is designed to allow customers to budget and plan before the new tariffs come into effect. Customers will be notified during this period of the final tariffs and transitional arrangements (if applicable) which will apply to them once the grace period has ended.

4.3.2 Three year transition Connections whose annual bill, calculated using the final tariffs and the base year usage, increases by between €250 and €750 will be entitled to a three year transition20. If the connection’s bill increases by more than €750 they will also be entitled to a three year transition, but with a cap of 10% per annum on the bill increase. The effect of the 10% cap will be to lengthen the transition period, and customers may opt out of this cap if they wish to do so.

A three year transition will gradually increase a connection’s tariffs (standing charge and/or volumetric charge) over a three year period to the final tariffs. The graduated increase is designed to reduce bill impact for customers.

In example 1 below a Band 1 connection in Fingal County qualifies for a three year transition. This requires the volumetric charge to increase from €1.02/m3 in 2019 to €1.87/m3 by 2022. The volumetric charge for water rises by €0.28/m3 in each year of the transition. In section 4.4 below, case studies 2, 4 and 7 provide additional details on how a customer will be transitioned on a three year transition.

Example 1 Annual Change in Tariff Component per annum (퐹𝑖푛푎푙 푉표푙푢푚푒푡푟𝑖푐 퐶ℎ푎푟𝑔푒 − 퐶푢푟푟푒푛푡 푉표푙푢푚푒푡푟𝑖푐 퐶ℎ푎푟𝑔푒) 퐴푛푛푢푎푙 𝑖푛푐푟푒푎푠푒 = 3

(€1.87 − €1.02) = = €0.28 3

Current LA 2020 2021 2022 Rates Tariff €1.02/m3 €1.30/m3 €1.58/m3 €1.87/m3 Annual Change €0.28m3 €0.28m3 €0.28m3

4.3.3 Opt-out 10% Cap A connection whose bill, calculated using the enduring (or final) tariffs and base year usage, increases by more than €750 and by more than 10% per annum will be entitled to a 10% cap on the annual increase. The cap ensures the bill, for a given level of usage, will not increase by more than

20 Base year usage will be determined under the Annual Quantity process to be completed in 2019. It will be calculated using consumption over a 12 month period. See Section 8 for more information. 19

10% per annum. The cap will result in a gradual bill increase and is designed to reduce bill impact for those customers most adversely affected by the enduring tariffs. A 10% cap may result in some connections taking longer than 3 years to transition to the enduring tariffs. It is IW’s intention to avoid any significant yearly step changes in the future for connections who remain on transition beyond the 3 year transition period, consistent with the stability principle. The CRU will hold a public consultation on the need for further transitional arrangements for these connections. In section 4.4 below case studies 3, 6 and 8 provide additional details on how a customer will be transitioned on a cap.

A bill issued to a connection on a cap will be calculated using tariff components (i.e. standing and volumetric charges) which have been calibrated to ensure the bill does not increase by more than 10% above the previous year’s bill, assuming base year usage (i.e. that your usage has not increased above the base year usage). The 10% cap applies in every year of the transition. If usage exceeds the base year usage it will be charged using the same calibrated (i.e. capped) rates; therefore additional usage above the base year usage will contribute to an annual bill increase of more than 10%.

4.4 Case Studies

This section presents a range of case studies which have been developed to assist customers to understand in more detail how the changes to tariffs may impact a bill. A total of nine cases studies have been developed. A broad range of customer types and locations have been chosen to provide a representative customer impact. Table 4.3 lists the case studies which are included in this paper.

Table 4.3 List of Bill Impact Case Studies

Case Local Authority Annual Services Customer In receipt Transition Path Study Usage Class of a DA (m3) Water + 1 Wicklow 150 Band 1 No No Transition Wastewater 3 Year 2 Dublin City 750 Water Band 1 Yes Transition Water + 3 Galway City 2,000 Band 2 No 10% Cap Wastewater 3 Year 4 Limerick County 14,000 Water Band 2 No Transition 5 Longford 40,000 Water Band 3 No No Transition Water + 6 Fingal 70,000 Band 3 No 10% Cap Wastewater 3 Year 7 Cork County 300,000 Water Band 4 No Transition Water + 8 South Dublin 600,000 Band 4 No 10% Cap Wastewater 3 Year 9 Mayo County Unmetered Water Band 1 NA Transition

20

Each case study demonstrates the annual bill currently and also under the final tariffs. If the bill under the final tariffs is at least €250 greater than the current bill the customer will be entitled to a transition. Where applicable, each case study outlines how bills change for customers over the transition period.

The values of water and wastewater usage have been chosen to represent a broad range of customer types. An indication of the customer or business type for a given level of usage is provided for each case study. This information is taken from Irish Water’s billing system. Customer type information is only available for approximately half of the connections on the Irish Water non-domestic database at present. Irish Water is therefore unable to provide a more detailed or accurate breakdown of all possible customer types at present.

The formulae below outline how a bill is calculated by Irish Water. The water and wastewater components of a bill are calculated separately and are summed together for the total charge. Billable usage refers to total water and/or wastewater usage net of any domestic allowance.

푾풂풕풆풓 푩풊풍풍 = 푆푡푎푛푑𝑖푛𝑔 퐶ℎ푎푟𝑔푒 + (푉표푙푢푚푒푡푟𝑖푐 푢푛𝑖푡 푟푎푡푒 푥 푏𝑖푙푙푎푏푙푒 푢푠푎𝑔푒)

푾풂풔풕풆풘풂풕풆풓 푩풊풍풍 = 푆푡푎푛푑𝑖푛𝑔 퐶ℎ푎푟𝑔푒 + (푉표푙푢푚푒푡푟𝑖푐 푢푛𝑖푡 푟푎푡푒 푥 푏𝑖푙푙푎푏푙푒 푢푠푎𝑔푒)

푻풐풕풂풍 푩풊풍풍 = 푊푎푡푒푟 퐵𝑖푙푙 + 푊푎푠푡푒푤푎푡푒푟 퐵𝑖푙푙

21

Case Study 1

Case Local Authority Annual Services Customer In receipt Transition Path Study Usage Class of a DA (m3) Water + 1 Wicklow 150 Band 1 No No Transition Wastewater

This case study outlines the impact of the final tariffs on a customer located in Co. Wicklow. The customer is connected to both the water and wastewater networks and has recorded usage of 150m3 of per annum. As the usage is below 1,000m3, the customer will be classified into Band 1.

Irish Water’s customer data shows that customers using approximately 150m3 are often the following customer types: small retail or office units including cafés and restaurants, hairdressers, and schools.

Table 4.4 shows the impact of moving to the new tariffs for this customer. As can be seen, the volumetric charges for water and wastewater are increasing. This leads to a higher volumetric charge overall. The standing charge is decreasing. As this customer is a relatively low user of water and wastewater services the reduction in the standing charge is large enough to reduce their overall bill. The reduction in this customer’s bill means that the final tariffs will apply immediately on commencement of the new tariff Framework.

Table 4.4 – Case Study 1: Bill Impact Current Tariffs Final Tariffs Water Standing Charge Water €120.59 €43.76 Volumetric Charge Water/m3 €1.41 €1.87 Billable Usage m3 150 150 Total Water Charge €33221 €324

Wastewater Standing Charge Wastewater €139.41 €44.81 Volumetric Charge Wastewater/m3 €1.63 €1.92 Billable Usage m3 150 150

Total Wastewater Charge €384 €333

Total Bill (water plus wastewater charge) €716 €657

Overall Bill Change € -€59 Overall Bill Change % -8%

21 The Total Charge for water and wastewater has been rounded to the nearest euro in all case studies. 22

Case Study 2

Case Local Authority Annual Services Customer In Transition Study Usage Class receipt Path (m3) of a DA 3 Year 2 Dublin City 750 Water Band 1 Yes Transition

This case study outlines the impact of the final tariffs on a customer located in Dublin City. The customer is connected to only the water network and has recorded usage of 750m3 in 2019. As the usage is below 1,000m3, the customer will be classified into Band 1. This customer has a domestic allowance of 164.6m3 resulting in billable usage of 585m3 in 2019. The domestic allowance is increasing to 213m3 in 2020, resulting in billable usage of 537m3 from 2020.

Irish Water’s customer data suggests that a customer using approximately 750m3 could be any of the following customer types: agriculture, sports clubs, guesthouses, restaurants and garages.

Table 4.5 below demonstrates the impact of moving to the new tariffs for this customer. As can be seen, the volumetric charge for water is increasing. This leads to a higher volumetric charge overall. The standing charge is decreasing. As this customer is a relatively high user of water in Band 1 the reduction in the standing charge is outweighed by the increase in the volumetric charge resulting in a bill increase. As the bill increase is greater than €250 the customer will be entitled to a three year transition.

Table 4.5 – Case Study: 2 Bill Impact Current Tariffs Final Tariffs Water Standing Charge Water €88.02 €43.76 Volumetric Charge Water/m3 €1.16 €1.87 Billable Usage m3 585 537 Total Water Charge €767 €1,048

Overall Bill Change € €281 Overall Bill Change % 37%

A three year transition means that this customer’s bill will gradually rise over three years to reach the final tariffs. Table 4.6 demonstrates the customer’s bill for each year of the transition period. It will rise by no more than €127 in any one year to 2022. The volumetric charge, calculated using the formula outlined in section 4.3.1 of this paper, gradually rises from €1.16/m3 in 2019 to €1.87/m3 in 2022 which is in increments of €0.24 per annum. The standing charge is decreasing and as such customers will benefit from this decrease immediately in 2020. The charges for 2022 in Table 4.6 will continue until the transition period ends on 1st May 2023.

23

Table 4.6 – Case Study 2: Three Year Transition 2019 2020 2021 2022 Water Standing Charge Water €88.02 €43. 76 €43.76 €43. 76 Volumetric Charge Water/m3 €1.16 €1.40 €1.63 €1.87 Billable Usage 585 537 537 537 Total Water Charge €767 €794 €921 €1,048

Annual Change - € €27 €127 €127

24

Case Study 3

Case Local Authority Annual Services Customer In receipt Transition Path Study Usage Class of a DA (m3) Water + 3 Galway City 2,000 Band 2 No 10% Cap Wastewater

This case study outlines the impact of the final tariffs on a customer located in Galway City. The customer is connected to both the water and wastewater networks and has recorded usage of 2,000m3 in 2019. As the usage is between 1,000m3 and 20,000m3, the customer will be classified into Band 2.

Irish Water’s customer data suggests that a customer using approximately 2,000m3 is often one of the following customer types: large farms, car washes, small hotels, large pubs, and mid-size commercial/office buildings.

Table 4.7 shows the impact of moving to the new tariffs for this customer. As can be seen, the volumetric charge for water is increasing. This leads to a higher volumetric charge overall. All tariff components are increasing in this scenario resulting in a total bill increase. As the bill increase is greater than €750 and 10% per annum during the transition period, the customer will be entitled to a transition period and a 10% annual cap.

Table 4.7 – Case Study 3: Bill Impact Current Tariffs Final Tariffs Water Standing Charge Water €14.67 €113.31 Volumetric Charge Water/m3 €1.10 €1.30 Billable Usage m3 2,000 2,000 Total Water Charge €2,215 €2,713

Wastewater Standing Charge Wastewater €13.33 €135.79 Volumetric Charge Wastewater/m3 €1.00 €1.82 Billable Usage m3 2,000 2,000

Total Wastewater Charge €2,013 €3,776

Total Bill (water plus wastewater charge) €4,228 €6,489

Overall Bill Change € €2,261 Overall Bill Change % 53%

A 10% cap means that this customer’s bill will gradually rise by no more than 10% per annum (assuming unchanged base year usage) to reach the final tariffs. The CRU will hold a public 25

consultation on the transitional arrangements beyond the transition period for connections like this. Table 4.8 demonstrates what the customer’s bill will be for every year of the transition period. The bill increase will be spread over the transition period and the maximum annual increase will be €512 in any one year over the transition period to 2022. The charges for 2022 in Table 4.8 will continue until the transition period ends on 1st May 2023.

Table 4.8 – Case Study 3: 10% Cap 2019 2020 2021 2022 Water Standing Charge Water €14.67 €33.11 €53.40 €75.72 Volumetric Charge Water/m3 €1.10 €1.14 €1.18 €1.22 Billable Usage m3 2,000 2,000 2,000 2,000 Total Water Charge €2,215 €2,308 €2,410 €2,523

Wastewater Standing Charge Wastewater €13.33 €36.23 €61.42 €89.13 Volumetric Charge Wastewater/m3 €1.00 €1.15 €1.32 €1.51 Billable Usage m3 2,000 2,000 2,000 2,000 Total Wastewater Charge €2,013 €2,343 €2,705 €3,104

€4,228 €4,651 €5,116 €5,627 Total Bill (water plus wastewater charge)

Annual Bill Change € €423 €465 €512 Annual Bill Change % 10% 10% 10%

26

Case Study 4

Case Local Authority Annual Services Customer In receipt Transition Path Study Usage Class of a DA (m3) 3 Year 4 Limerick County 14,000 Water Band 2 No Transition

This case study outlines the impact of the final tariffs on a customer located in Limerick County. The customer is connected to only the water network and has recorded usage of 14,000m3 in 2019. As the usage is between 1,000m3 and 20,000m3, the customer will be classified into Band 2.

Irish Water’s customer data suggests that a customer using approximately 14,000m3 could be any one of the following customer types: factory/manufacturing, sport and leisure facilities, hotels, and nursing homes.

Table 4.9 shows the impact of moving to the new tariffs for this customer. As can be seen, the volumetric charge for water is increasing. This leads to a higher volumetric charge. Both the standing charge and volumetric charge are increasing resulting in an overall bill increase. As the bill increase is greater than €250 the customer will be entitled to a three year transition.

Table 4.9 – Case Study 4: Bill Impact Current Tariffs Final Tariffs Water Standing Charge Water €92.59 €113.31 Volumetric Charge Water/m3 €1.25 €1.30 Billable Usage m3 14,000 14,000 Total Water Charge €17,593 €18,313

Overall Bill Change € €721 Overall Bill Change % 4%

A three year transition means that this customer’s bill will gradually rise over three years to reach the final tariffs. Table 4.10 demonstrates the customer’s bill for each year of the transition period. It will increase by €240 every year to 2022 assuming usage remains constant. The volumetric charge, calculated using the formula outlined in section 4.3.1 of this paper, gradually rises from €1.25/m3 in 2019 to €1.30/m3 in 2022 which is in increments of approximately €0.02 per annum, while the standing charge increases by €6.90 per annum. The charges for 2022 in Table 4.10 will continue until the transition period ends on 1st May 2023.

27

Table 4.10 – Case Study 4: Three Year Transition

2019 2020 2021 2022 Water Standing Charge Water €92.59 €99. 50 €106.40 €113. 31 Volumetric charge Water/m3 €1.25 €1.27 €1.28 €1.30 Water in/Water Out m3 14,000 14,000 14,000 14,000 Total Water Charge €17,593 €17,833 €18,073 €18,313

Annual Change - € €240 €240 €240

28

Case Study 5

Case Local Authority Annual Services Customer In receipt Transition Path Study Usage Class of a DA (m3) 5 Longford County 40,000 Water Band 3 No No Transition

This case study outlines the impact of the final tariffs on a customer located in Co. Longford. The customer is connected to the water network and has recorded usage of 40,000m3 of per annum. As the usage is between 20,000m3 and 250,000m3, the customer will be classified into Band 3.

Irish Water’s customer data suggests that a customer using approximately 40,000m3 could be any one of the following customer types: manufacturing, university campus, prison, shopping, hospital.

Table 4.11 shows the impact of moving to the new tariffs for this customer. As can be seen, the volumetric charge for water is decreasing. This leads to a lower volumetric bill. The standing charge is increasing. The increase in the standing charge outweighs the decrease in the volumetric charge. Overall the increase is €221 which is below €250 and means the customer will move immediately onto the final tariffs.

Table 4.11 – Case Study 5 Bill Impact Current Tariffs Final Tariffs Water Standing Charge Water €52.08 €1,872.98 Volumetric Charge Water/m3 €1.25 €1.21 Billable Usage m3 40,000 40,000 Total Water Charge €50,052 €50,273

Overall Bill Change € €221 Overall Bill Change % 0.04%

29

Case Study 6

Case Local Authority Annual Services Customer In receipt Transition Path Study Usage Class of a DA (m3) Fingal County Water + 6 70,000 Band 3 No 10% Cap Council Wastewater

This case study outlines the impact of the final tariffs on a customer located in Fingal County Council. The customer is connected to both the water and wastewater networks and has recorded usage of 70,000m3 in 2019. As the usage is between 20,000m3 and 250,000m3, the customer will be classified into Band 3.

Irish Water’s customer data suggests that a customer using approximately 70,000m3 could be any of the following customer types: shopping centre, large hotel, manufacturing, hospital.

Table 4.12 shows the impact of moving to the new tariffs for this customer. As can be seen, the volumetric charge and standing charges for water and wastewater are increasing resulting in a total bill increase. As the bill increase is greater than €750, and the annual increase during the transition period is 10% or more, the customer will be entitled to a 10% cap.

Table 4.12 – Case Study 6: Bill Impact Current Tariffs Final Tariffs Water Standing Charge Water €59.08 €1,872.98 Volumetric Charge Water/m3 €1.02 €1.21 Billable Usage m3 70,000 70,000 Total Water Charge €71,459 €86,573

Wastewater Standing Charge Wastewater €68.92 €1,969.50 Volumetric Charge Wastewater/m3 €1.19 €1.81 Billable Usage m3 70,000 70,000

Total Wastewater Charge €83,369 €128,670

Total Bill (water plus wastewater charge) €154,828 €215,243

Overall Bill Change € €60,415 Overall Bill Change % 39%

A 10% cap means that this customer’s bill will gradually rise by no more than 10% per annum to reach the final tariffs. The CRU will hold a public consultation on the transitional arrangements beyond the transition period for connections like this. Table 4.13 demonstrates what the customer’s bill will be 30

for every year of the transition period. The biggest increase will be €18,374 in any one year over the transition period to 2022. The charges for 2022 in Table 4.13 will continue until the transition period ends on 1st May 2023.

Table 4.13 – Case Study 6: 10% Cap 2019 2020 2021 2022 Water Standing Charge Water €59.08 €523.94 €1,035.28 €1,597.76 Volumetric Charge Water/m3 €1.02 €1.07 €1.12 €1.18 Billable Usage m3 70,000 70,000 70,000 70,000 Total Water Charge €71,459 €75,332 €79,593 €84,280

Wastewater Standing Charge Wastewater €68.92 €556.00 €1,091.78 €1,681.13 Volumetric Charge Wastewater/m3 €1.19 €1.35 €1.52 €1.72 Billable Usage m3 70,000 70,000 70,000 70,000 Total Wastewater Charge €83,369 €94,978 €107,749 €121,796

Total Bill (water plus wastewater €154,828 €170,311 €187,342 €206,076 charge)

Annual Bill Change € €15,483 €17,031 €18,734 Annual Bill Change % 10% 10% 10%

Table 4.14 demonstrates how this customer’s bill will change every year if usage increases by 2% per annum. The customer is charged the same standing and volumetric charges as under the scenario where usage remains constant. However the bill increases by more than 10% per annum over the transition due to the additional usage recorded above the base year usage.

31

Table 4.14 – Case Study 6: 10% Cap (with usage increase scenario)

2019 2020 2021 2022 Water Standing Charge Water €59.08 €523.94 €1,035.28 €1,597.76 Volumetric Charge Water/m3 €1.02 €1.07 €1.12 €1.18 Billable Usage m3 70,000 71,400 72,828 74,285 Total Water Charge €71,459 €76,829 €82,767 €89,341

Wastewater Standing Charge Wastewater €68.92 €556.00 €1,091.78 €1,681.13 Volumetric Charge Wastewater/m3 €1.19 €1.35 €1.52 €1.72 Billable Usage m3 70,000 71,400 72,828 74,285 Total Wastewater Charge €83,369 €96,867 €112,058 €129,148

Total Bill (water plus wastewater €154,828 €173,695 €194,825 €218,489 charge)

Annual Bill Change € €18,867 €21,129 €23,664 Annual Bill Change % 12% 12% 12%

32

Case Study 7

Case Local Authority Annual Services Customer In receipt Transition Path Study Usage Class of a DA (m3) 3 Year 7 Cork County 300,000 Water Band 4 No Transition

This case study outlines the impact of the final tariffs on a customer located in Cork County. The customer is connected to only the water network and has recorded usage of 300,000m3 in 2019. As the usage is above 250,000m3, the customer will be classified into Band 4.

Irish Water’s customer data suggests that a customer using approximately 300,000m3 could be one of the following customer types: manufacturing, brewery, pharmaceutical, and medical devices.

Table 4.15 below demonstrates the impact of moving to the new tariffs for this customer. As can be seen, the volumetric charge for water is increasing. This leads to a higher volumetric charge overall. Both the standing charge and volumetric charges are increasing resulting in an overall bill increase. The bill increase is greater than €750, however the annual increase does not exceed 10% per annum over the transition period – consequently this customer will be on a three year transition.

Table 4.15 – Case Study 7: Bill Impact Current Tariffs Final Tariffs Water Standing Charge Water €41.92 €21,771.46 Volumetric charge Water/m3 €0.94 €1.05 Billable Usage m3 300,000 300,000 Total Water Charge €282,042 €336,771

Overall Bill Change € €54,730 Overall Bill Change % 19%

A three year transition means that this customer’s bill will gradually rise over three years to reach the final tariffs. Table 4.16 demonstrates what the customer’s bill will be for each year of the transition period. It will increase by €18,249 every year to 2022 assuming usage remains constant. The volumetric charge, calculated using the formula outlined in section 4.3.1 of this paper, gradually rises from €0.94/m3 in 2019 to €1.05/m3 in 2022 which is in increments of approximately €0.04 per annum while the standing charge increases by €7,243 per annum. The charges for 2022 in Table 4.16 will continue until the transition period ends on 1st May 2023.

33

Table 4.16 – Case Study 7: Three Year Transition

2019 2020 2021 2022

Water

Standing Charge Water €41.92 €7,285.10 €14,528.28 €21,771.46

Volumetric Charge Water/m3 €0.94 €0.98 €1.01 €1.05 Water in/Water Out m3 300,000 300,000 300,000 300,000 Total Water Charge €282,042 €300,285 €318,528 €336,771

Annual Change - € €18,243 €18,243 €18,243

34

Case Study 8

Case Local Authority Annual Services Customer In receipt Transition Path Study Usage Class of a DA (m3) South County Water + 8 600,000 Band 4 No 10% Cap Dublin Wastewater

This case study outlines the impact of the final tariffs on a customer located in South Dublin County Council. The customer is connected to both the water and wastewater networks and has recorded usage of 600,000m3 in 2019. As the usage is above 250,000m3, the customer will be classified into Band 4.

Irish Water’s customer data suggests that a customer using approximately 600,000m3 could be one of the following customer types: manufacturing, brewery, pharmaceutical, transport.

Table 4.17 shows the impact of moving to the new tariffs for this customer. As can be seen, the volumetric charge and standing charges for water and wastewater are increasing. As all tariff components are increasing in this scenario the result is a total bill increase. As the overall bill increase is greater than €750 and 10% per annum over the transition period the customer will be entitled to a 10% cap.

Table 4.17 – Case Study 8: Bill Impact Current Tariffs Final Tariffs Water Standing Charge Water €48.91 €21,771.46 Volumetric Charge Water/m3 €0.80 €1.05 Billable Usage m3 600,000 600,000 Total Water Charge €480,049 €651,771

Wastewater €69.09 €25,266.78 Standing Charge Wastewater €1.13 €1.75 Volumetric Charge Wastewater/m3 Billable Usage m3 600,000 600,000

€678,069 €1,075,266 Total Wastewater Charge

Total Bill (water plus wastewater charge) €1,158,118 €1,727,038

Overall Bill Change € €568,920 Overall Bill Change % 49%

35

A 10% cap means that this customer’s bill will gradually rise by no more than 10% per annum to reach the final tariffs. Table 4.18 demonstrates what the customer’s bill will be for every year of the transition period. The bill increase will be spread over the transition period and the maximum annual increase will be €140,132 in any one year over the transition period to 2022. The charges for 2022 in Table 4.18 will continue until the transition period ends on 1st May 2023.

Table 4.18 – Case Study 8: 10% Cap 2019 2020 2021 2022 Water

Standing Charge Water €49 €4,470.85 €9,334.97 €14,685.51 Volumetric Charge €0.80 €0.85 €0.91 €0.97 Water/m3 Billable Usage m3 600,000 600,000 600,000 600,000 Total Water Charge €480,049 €515,005 €553,458 €595,755

Wastewater Standing Charge €69.09 €5,198.44 €10,840.72 €17,047.23 Wastewater Volumetric Charge €1.13 €1.26 €1.40 €1.55 Wastewater/m3 Billable Usage m3 600,000 600,000 600,000 600,000 Total Wastewater Charge €678,069 €758,924 €847,865 €945,700

Total Bill (water plus €1,158,118 €1,273,930 €1,401,323 €1,541,455 wastewater charge)

Annual Bill Change € €115,812 €127,393 €140,132 Annual Bill Change % 10% 10% 10%

36

Case Study 9

Case Local Authority Annual Services Customer In receipt Transition Path Study Usage Class of a DA (m3) Water + 3 Year 9 Mayo County Unmetered Band 1 No Wastewater Transition

This case study outlines the impact of the final tariffs on a customer located in Mayo County. The customer is connected to both the water and wastewater networks. The customer is an unmetered Band 1 customer.

Irish Water’s customer data suggests that an unmetered customer could be any one of the following business types: agriculture, public house and retail unit.

Table 4.19 shows the impact of moving to the new tariffs for this customer. As can be seen, the unmetered charge is increasing. As the bill increase is greater than €250 the customer will be entitled to a three year transition.

Table 4.19 – Case Study 9: Bill Impact Current Tariffs Final Tariffs Water + Wastewater Flat unmetered charge €125.00 €503.49

Annual Bill Change € €379 Annual Bill Change % 302%

A three year transition means that this customer’s bill will gradually rise over three years to reach the final tariffs. Table 4.20 demonstrates what the customer’s bill will be for each year of the transition period. The flat charge, calculated using the formula outlined in section 4.3.1 of this paper, gradually rises from €125 in 2019 to €503.49 in 2022 which is in increments of €126.16 per annum. The charges for 2022 in Table 4.20 will continue until the transition period ends on 1st May 2023.

Table 4.20 – Case Study 2: Three Year Transition 2019 2020 2021 2022 Water + Wastewater Flat unmetered charge €125.00 €251. 16 €377.32 €503. 49

Annual Change - € €126.16 €126.16 €126.16

37

4.5 On-Line Business Tariff Calculator

To assist customers in understanding what impact the final tariffs will have on their bill, Irish Water’s website contains an online Business Tariff Calculator. This calculator will show how a bill will change for individual connections using the final tariffs. For customers with multiple connections/meters separate calculations will need to be completed to determine the impact of the new tariffs on each.

The calculator can be found here. Alternatively navigate to www.water.ie, select “For Business” along the banner at the top of the webpage and chose “Business Tariff Calculator” in the drop-down menu which appears.

To use the calculator the following information needs to be inputted:

 Select your service type – this is a drop down list of service types provided by Irish Water. Non-domestic customers can select the service that Irish Water provides to them in this dropdown.  Select your local authority – this is a drop down list of local authorities. Non-domestic customers can select the local authority whose rates currently apply to them.  Annual water usage in m3 – non-domestic customers can type their annual quantity of usage here. Customers can find their usage on their Irish Water bill. If bill frequency is quarterly annual usage can be estimated by multiplying the usage on one bill by 4.  Are you currently in receipt of a domestic allowance? – this is a drop down list with “Yes” or “No” options. Mixed use non-domestic customers in receipt of a domestic allowance should select “Yes” under this option, all other customers should select “No”.  Is water out measured separately, from water in, for charging purposes? – this is a drop down list with “Yes” or “No” options. This drop down menu will only apply for customers who have selected “Metered Water and Wastewater”. Customers who have a “water in not equal to water out” agreement with Irish Water under section 22 (9) of the Water Services (No. 2) Act 2013, stating the volume of water used does not equal their volume of wastewater, should select “Yes”. All other customers should select “No”.  Annual wastewater usage in m3 - non-domestic customers can type their annual quantity of wastewater collected here. This option will only apply for customers who have selected “Yes” to the previous drop down. The volume inserted should equate to any “water in not equal to water out agreement”.

Figure 4.2 outlines the results for a customer in Cork City, using 130m3 of water and wastewater. It will calculate for a given level of usage an annual bill using both the current local authority tariffs and the final tariffs. The calculator will also inform customers of the expected impact on their annual bill, demonstrating the change in bill in both euro and percentage terms. In addition, the calculator will advise customers whether or not it is likely that they will move to final tariffs in 2020 or whether a transitional arrangement will be necessary to move customers to the final tariffs more gradually.

38

Figure 4.2 Irish Water online Business Tariff Calculator

39

5. Customer Communication

Non-domestic customers will see changes to their bills (decreases and increases) as a result of moving to the new tariff Framework, and Irish Water must communicate this effectively to customers. Understanding the qualification criteria for transition, and the bill impact of CRU’s decisions on tariff design and transitional arrangements, will be challenging for customers. This will also pose challenges for Irish Water’s contact centre in dealing with non-domestic customer queries regarding the overall impact of the new tariffs on customers’ bills.

Irish Water intends issuing the following three separate communications to customers in advance of the implementation of the enduring tariff Framework on 1st May 2020.

Irish Water will initially write to all of its non-domestic customers in Q3 2019 and include a booklet informing them of the CRU decision and providing general information on the tariff changes including:

 Background – why charges for water services are changing;  Summary of the key elements of the CRU’s decision;  The key changes for customers;  The enduring tariffs for each customer classification;  The transitional arrangements that will apply to move customers from current to enduring tariffs;  Ways in which non-domestic customers can conserve water and reduce their bills; and  Contact Details.

Irish Water intends issuing a second letter in Q4 2019 outlining the bill changes and transition arrangements, if applicable, for each non-domestic connection. It is intended that this letter will include:

 Confirmation of the assigned Annual Quantity (AQ) and customer classification22;  The process and deadline for querying the AQ calculation;  Confirmation of the bill frequency;  Confirmation of whether the connection will move immediately to the enduring tariffs, transition over 3 years, or transition with a cap; and  Confirmation of the enduring tariffs and transitional tariffs (either three year transition tariffs or bespoke tariffs for capped connections) if applicable.

Irish Water may issue a third letter prior to new tariffs commencing, on 1st May 2020, if there is a substantial period between the receipt of the second letter and the implementation date, reminding non-domestic customers that their tariff change will be reflected in their next bill.

22 For more information on the AQ process see section 8. 40

Irish Water’s contact centre will be available to assist customers who may wish to speak with someone directly regarding the new tariff Framework. Customers who have Key Account Management (KAM) support will be contacted directly and supported by their Key Account Manager.

Irish Water has engaged with non-domestic customer representative groups and other stakeholders throughout the CRU’s consultation process. This engagement will continue and Irish Water will provide further information on its tariff implementation plan as it becomes available to business representative groups for dissemination to their members. A range of communications through national, regional and online media is also planned to inform customers of the upcoming tariff changes. Irish Water’s website will continue to be updated as required and used as a source of information for customers; the Business Tariff Calculator has been updated to reflect feedback received from non-domestic stakeholders during the CRU consultation process.

41

6. Water Conservation

Irish Water places a strong emphasis on water conservation. There are initiatives both planned and in place to support customers in conserving water as they move onto the enduring tariff framework.

Irish Water has developed a range of water conservation materials which is available on its website (www.water.ie). In future communications following CRU’s decision (see section 5), Irish Water will outline to customers ways in which they can conserve water and reduce their bills.

Irish Water is also developing sector specific water conservation advice and campaigns. To date we have provided general advice for all business on www.water.ie where practical tips to conserve water can be viewed. These tips are especially useful for smaller companies and offices. Irish Water has also worked with farming organisations and the hospitality sector to create sector specific water conservation material and short campaigns. We hope to deliver advice to more sectors in 2019 with a campaign for the pharmaceutical sector planned next.

In addition Irish Water in partnership with a number of stakeholders is delivering a water stewardship training programme23. The aim is to offer our business customers innovative support, education and customer care to facilitate water conservation24. The Certified Water Steward Pilot Programme is accredited by International Water Stewardship Standards (EWS/AWS) and provides the following benefits for business customers:

 Save Water and Money – the programme provides businesses with the knowledge and skills to identify and deliver verified water and related resource efficiency savings;  Protect the environment – businesses will learn the key principles of water stewardship and what actions are required to improve their environmental performance; and  Achieve Certification – businesses will boost their reputation and meet their corporate sustainability commitments, including for Origin Green25 and other reporting initiatives.

Irish Water is currently reviewing the pilot with a view to extending it to the end of 2019, and then launching a national programme from 2020 to 2025.

23 Lean and Green Skillnet and Central Solutions (see https://www.leanskillnet.com/news/certified-water-steward-programme/). 24 See more information on the Water Stewardship Training Programme here. 25 Origin Green is Ireland’s food and drink sustainability programme. Farms and food manufacturing businesses sign up to making measurable commitments to producing in a sustainable manner, with progress independently assessed and verified. 42

7. International Price Comparison Analysis This section considers the impact of the CRU’s tariff design decision on non-domestic customers and compares the annual charges to those faced by non-domestic customers in 21 international regions. A geographically diverse range of regions has been included, with the National Competitiveness Council’s (NCC) analysis26 of water services costs influencing the selection of the regions. It should be noted that water charges in some regions are not directly comparable to those in Ireland due to differing regulatory regimes resulting in, for example, the presence of indirect taxes or other charges in addition to the published water charges.

The sample of regions within the analysis is constrained by some data limitations. Source data has been collated from high-quality, internationally respected sources, and where necessary, caveats on data are set out. Reference sources for all information in this section are provided in Table 7.10 at the end.

The comparison is based on the total charges payable by customers for a given level of annual usage in each region. The Irish Water annual charges are based on tariff rates in the CRU’s Decision Paper. The analysis is conducted for nine different levels of annual usage ranging from 500m3 to 500,000m3.

26 Costs of doing business in Ireland 2018, The National Competitiveness Council, June 2018.

43

Figure 7.1 Irish Water’s annual charges compared to the average of other regions

The charges compare quite favourably internationally. As can be seen in figure 7.1, combined charges for water and wastewater generally compare favourably for most levels of usage.

The remainder of this section sets out the comparisons of annual charges at different levels of usage as follows:

 section 7.1 compares the annual charges for a customer using 500m3 per annum;  section 7.2 compares the annual charges for a customer using 1,000m3 per annum;  section 7.3 compares the annual charges for a customer using 5,000m3 per annum;  section 7.4 compares the annual charges for a customer using 10,000m3 per annum;  section 7.5 compares the annual charges for a customer using 20,000m3 per annum;  section 7.6 compares the annual charges for a customer using 50,000m3 per annum;  section 7.7 compares the annual charges for a customer using 100,000m3 per annum;  section 7.8 compares the annual charges for a customer using 250,000m3 per annum; and  section 7.9 compares the annual charges for a customer using 500,000m3 per annum.

7.1 Comparison of the annual charges faced by non-domestic customers using 500m3 per annum

This section compares the annual charges faced by an Irish Water non-domestic customer using 500m3 annually to customers in other regions. Figure 7.2 illustrates the annual charge relative to other regions and Table 7.1 ranks each region’s annual charge relative to each other for water, wastewater and combined services.

44

This ranking demonstrates the relative position of the charges to the other regions. Each region is ranked from 1 – 22, with a score of 1 being the lowest charge, and 22 being the highest charge.

Figure 7.2 Annual charges for a 500m3 combined service customer

€3,000 €2,500 €2,000 €1,500 €1,000

€500 Annual Bill AnnualBill €

€0

Geneva,…

Singapore

HongKong

IrishWater

Calgary, Calgary, AB,…

SevernTrent

WelshWater

Auckland,NZ

Copenhagen,…

Sydney,NSW,…

AnglianWater

ThamesWater…

ScottishWater

UnitedUtilities

Tallinn,Estonia

Krakow,Poland

Lisbon,Portugal

Malmo,Sweden YorkshireWater

NorthernIreland…

Brussels,Belgium Cologne,Germany

Combined Charge Average

Table 7.1 Rank of tariffs at 500m3 of usage

Region Water Wastewater Combined Hong Kong 1 1 1 Singapore 4 2 2 Krakow, Poland 3 5 3 Thames Water (Castle Water) 9 3 4 Calgary, AB, Canada 7 8 5 Sydney, NSW, Australia 5 9 6 Severn Trent 14 4 7 Cologne, Germany 12 7 8 Anglian Water 10 11 9 Yorkshire Water 8 12 10 Northern Ireland Water 6 16 11 United Utilities 17 6 12 Malmo, Sweden 13 13 13 Welsh Water 11 17 14 Irish Water 15 14 15 Brussels, Belgium 19 10 16 Auckland, NZ 2 22 17 Scottish Water 16 21 18 Tallinn, Estonia 22 15 19 Geneva, Switzerland 18 18 20 Lisbon, Portugal 20 19 21 Copenhagen, Denmark 21 20 22

45

7.2 Comparison of annual charges faced by non-domestic customers using 1,000m3 pa

This section compares the annual charges faced by an Irish Water non-domestic customer using 1,000m3 annually to customers in other regions. Figure 7.3 illustrates the annual charge relative to other regions, and Table 7.2 ranks each region’s annual charge relative to each other for water, wastewater and combined services.

Figure 7.3 Annual charges for a 1,000m3 combined service customer

€6,000 €5,000 €4,000 €3,000 €2,000 €1,000

Annual Bill AnnualBill € €0

Geneva,…

Singapore

HongKong

IrishWater

Calgary, Calgary, AB,…

SevernTrent

WelshWater

Auckland,NZ

Copenhagen,…

Sydney,NSW,…

AnglianWater

ThamesWater…

ScottishWater

UnitedUtilities

Tallinn,Estonia

Krakow,Poland

Lisbon,Portugal

Malmo,Sweden YorkshireWater

NorthernIreland…

Brussels,Belgium Cologne,Germany

Combined Charge Average

46

Table 7.2 Rank of tariffs at 1,000m3 of usage

Region Water Wastewater Combined Hong Kong 1 1 1 Singapore 5 2 2 Krakow, Poland 3 7 3 Calgary, AB, Canada 4 6 4 Sydney, NSW, Australia 6 5 5 Thames Water (Castle Water) 10 4 6 Severn Trent 13 3 7 Irish Water 8 13 8 Anglian Water 9 11 9 Yorkshire Water 11 12 10 Northern Ireland Water 7 15 11 Cologne, Germany 15 9 12 United Utilities 16 8 13 Brussels, Belgium 17 10 14 Auckland, NZ 2 21 15 Welsh Water 12 17 16 Geneva, Switzerland 14 16 17 Tallinn, Estonia 22 14 18 Lisbon, Portugal 19 19 19 Malmo, Sweden 20 18 20 Copenhagen, Denmark 21 20 21 Scottish Water 18 22 22

7.3 Comparison of annual charges faced by non-domestic customers using 5,000m3 pa

This section compares the annual charges faced by an Irish Water non-domestic customer using 5,000m3 annually to customers in other regions. Figure 7.4 illustrates the annual charge relative to other regions, and Table 7.3 ranks each region’s annual charge relative to each other for water, wastewater and combined services.

47

Figure 7.4 Annual charges for a 5,000m3 combined service customer

€35,000 €30,000 €25,000 €20,000 €15,000 €10,000 €5,000

Annual Bill AnnualBill € €0

Geneva,…

Singapore

HongKong

Irish WaterIrish

Calgary,AB,…

SevernTrent

Welsh Water Welsh

Auckland,NZ

Copenhagen,…

Sydney,NSW,…

AnglianWater

ThamesWater…

ScottishWater

UnitedUtilities

Tallinn, Estonia Tallinn,

Krakow,Poland

Lisbon,Portugal

Malmo, SwedenMalmo, YorkshireWater

NorthernIreland…

Brussels, Belgium Brussels, Cologne,Germany

Combined Charge Average

Table 7.3 Rank of tariffs at 5,000m3 of usage

Region Water Wastewater Combined Hong Kong 1 1 1 Singapore 5 2 2 Calgary, AB, Canada 4 6 3 Sydney, NSW, Australia 8 3 4 Krakow, Poland 3 8 5 Thames Water (Castle Water) 12 4 6 Malmo, Sweden 9 7 7 Severn Trent 16 5 8 Irish Water 7 14 9 Anglian Water 10 12 10 Cologne, Germany 15 10 11 Northern Ireland Water 6 16 12 Yorkshire Water 13 13 13 Geneva, Switzerland 11 15 14 United Utilities 17 9 15 Auckland, NZ 2 21 16 Welsh Water 14 17 17 Brussels, Belgium 19 11 18 Lisbon, Portugal 18 18 19 Copenhagen, Denmark 20 20 20 Tallinn, Estonia 22 19 21 Scottish Water 21 22 22

48

7.4 Comparison of annual charges faced by non-domestic customers using 10,000m3 pa

This section compares the annual charges faced by an Irish Water non-domestic customer using 10,000m3 annually to customers in other regions. Figure 7.5 illustrates the annual charge relative to other regions, and Table 7.4 ranks each region’s annual charge relative to each other for water, wastewater and combined services.

Figure 7.5 Annual charges for a 10,000m3 combined service customer

€60,000 €50,000 €40,000 €30,000 €20,000 €10,000

Annual Bill AnnualBill € €0

Geneva,…

Cologne,…

Northern…

Singapore

HongKong

Irish WaterIrish

Calgary,AB,…

SevernTrent

Welsh Water Welsh

Auckland,NZ

Copenhagen,…

Sydney,NSW,…

AnglianWater

ThamesWater…

ScottishWater

UnitedUtilities

Tallinn, Estonia Tallinn,

Krakow,Poland

Lisbon,Portugal

Malmo, SwedenMalmo, YorkshireWater Brussels, Belgium Brussels,

Combined Charge Average

49

Table 7.4 Rank of tariffs at 10,000m3 of usage

Region Water Wastewater Combined Hong Kong 1 1 1 Singapore 6 2 2 Calgary, AB, Canada 4 5 3 Sydney, NSW, Australia 8 3 4 Krakow, Poland 3 8 5 Malmo, Sweden 5 7 6 Thames Water (Castle Water) 11 4 7 Anglian Water 10 11 8 Irish Water 7 14 9 Severn Trent 18 6 10 Northern Ireland Water 9 16 11 Yorkshire Water 12 13 12 Geneva, Switzerland 13 15 13 Cologne, Germany 16 10 14 United Utilities 19 9 15 Brussels, Belgium 17 12 16 Auckland, NZ 2 22 17 Welsh Water 14 17 18 Scottish Water 15 19 19 Lisbon, Portugal 20 18 20 Copenhagen, Denmark 21 20 21 Tallinn, Estonia 22 21 22

7.5 Comparison of annual charges faced by non-domestic customers using 20,000m3 pa

This section compares the annual charges faced by an Irish Water non-domestic customer using 20,000m3 annually to customers in other regions. Figure 7.6 illustrates the annual charge relative to other regions, and Table 7.5 ranks each region’s annual charge relative to each other for water, wastewater and combined services.

50

Figure 7.6 Annual charges for a 20,000m3 combined service customer

€140,000 €120,000 €100,000 €80,000 €60,000 €40,000 €20,000

Annual Bill AnnualBill € €0

Geneva,…

Singapore

HongKong

IrishWater

Calgary,AB,…

SevernTrent

WelshWater

Auckland,NZ

Copenhagen,…

Sydney,NSW,…

AnglianWater

ThamesWater…

ScottishWater

UnitedUtilities

Tallinn,Estonia

Krakow,Poland

Lisbon,Portugal

Malmo,Sweden YorkshireWater

NorthernIreland…

Brussels,Belgium Cologne,Germany

Combined Charge Average

Table 7.5 Rank of tariffs at 20,000m3 of usage

Region Water Wastewater Combined Hong Kong 2 1 1 Singapore 1 2 2 Calgary, AB, Canada 4 5 3 Sydney, NSW, Australia 9 3 4 Krakow, Poland 5 8 5 Thames Water (Castle Water) 12 4 6 Severn Trent 15 6 7 Anglian Water 7 13 8 Malmo, Sweden 10 10 9 Irish Water 6 16 10 Geneva, Switzerland 11 14 11 Northern Ireland Water 8 17 12 Yorkshire Water 13 15 13 Cologne, Germany 17 11 14 Brussels, Belgium 16 12 15 United Utilities 19 9 16 Auckland, NZ 3 21 17 Copenhagen, Denmark 21 7 18 Welsh Water 14 18 19 Lisbon, Portugal 20 19 20 Scottish Water 18 20 21 Tallinn, Estonia 22 22 22

51

7.6 Comparison of annual charges faced by non-domestic customers using 50,000m3 pa

This section compares the annual charges faced by an Irish Water non-domestic customer using 50,000m3 annually to customers in other regions. Figure 7.7 illustrates the annual charge relative to other regions, and Table 7.6 ranks each region’s annual charge relative to each other for water, wastewater and combined services.

Figure 7.7 Annual charges for a 50,000m3 combined service customer

€400,000 €350,000 €300,000 €250,000 €200,000 €150,000

€100,000 Annual Bill AnnualBill € €50,000

€0

Singapore

HongKong

IrishWater

SevernTrent

WelshWater

Auckland,NZ

Copenhagen,…

Sydney,NSW,…

AnglianWater

ThamesWater…

ScottishWater

UnitedUtilities

Tallinn,Estonia

Krakow,Poland

Lisbon,Portugal

YorkshireWater

Malmo,Sweden

NorthernIreland…

Brussels,Belgium

Cologne,Germany

Calgary,AB, Canada Geneva,Switzerland

Combined Charge Average

52

Table 7.6 Rank of tariffs at 50,000m3 of usage

Region Water Wastewater Combined Hong Kong 2 1 1 Singapore 1 2 2 Calgary, AB, Canada 3 7 3 Malmo, Sweden 6 5 4 Sydney, NSW, Australia 10 3 5 Krakow, Poland 5 10 6 Thames Water (Castle Water) 12 4 7 Anglian Water 7 12 8 Severn Trent 14 6 9 Geneva, Switzerland 11 13 10 Irish Water 8 16 11 Cologne, Germany 15 11 12 Northern Ireland Water 9 17 13 Yorkshire Water 13 15 14 Brussels, Belgium 16 14 15 Auckland, NZ 4 21 16 United Utilities 19 8 17 Copenhagen, Denmark 21 9 18 Welsh Water 17 19 19 Scottish Water 18 18 20 Lisbon, Portugal 20 20 21 Tallinn, Estonia 22 22 22

7.7 Comparison of annual charges faced by non-domestic customers using 100,000m3 pa

This section compares the annual charges faced by an Irish Water non-domestic customer using 100,000m3 annually to customers in other regions. Figure 7.8 illustrates the annual charge relative to other regions, and Table 7.7 ranks each region’s annual charge relative to each other for water, wastewater and combined services.

53

Figure 7.8 Annual charges for a 100,000m3 combined service customer

€800,000 €700,000 €600,000 €500,000 €400,000 €300,000

€200,000 Annual Bill AnnualBill € €100,000

€0

Singapore

HongKong

IrishWater

SevernTrent

WelshWater

Auckland,NZ

Copenhagen,…

Sydney,NSW,…

AnglianWater

ThamesWater…

ScottishWater

UnitedUtilities

Tallinn,Estonia

Krakow,Poland

Lisbon,Portugal

Malmo,Sweden YorkshireWater

NorthernIreland…

Brussels,Belgium

Cologne,Germany

Calgary,AB, Canada Geneva,Switzerland

Combined Charge Average

Table 7.7 Rank of tariffs at 100,000m3 of usage

Region Water Wastewater Combined Hong Kong 2 1 1 Singapore 1 2 2 Malmo, Sweden 3 3 3 Calgary, AB, Canada 4 7 4 Thames Water (Castle Water) 13 4 5 Sydney, NSW, Australia 12 5 6 Krakow, Poland 6 10 7 Severn Trent 11 6 8 Anglian Water 7 11 9 Yorkshire Water 10 15 10 Geneva, Switzerland 14 14 11 Welsh Water 15 12 12 Irish Water 8 17 13 United Utilities 18 8 14 Cologne, Germany 16 13 15 Northern Ireland Water 9 18 16 Brussels, Belgium 17 16 17 Auckland, NZ 5 21 18 Copenhagen, Denmark 21 9 19 Scottish Water 20 19 20 Lisbon, Portugal 19 20 21 Tallinn, Estonia 22 22 22

54

7.8 Comparison of annual charges faced by non-domestic customers using 250,000m3 pa

This section compares the annual charges faced by an Irish Water non-domestic customer using 250,000m3 annually to customers in other regions. Figure 7.8 illustrates the annual charge relative to other regions, and Table 7.7 ranks each region’s annual charge relative to each other for water, wastewater and combined services.

Figure 7.9 Annual charges for a 250,000m3 combined service customer

€2,000,000 €1,800,000 €1,600,000 €1,400,000 €1,200,000 €1,000,000 €800,000 €600,000

Annual Bill AnnualBill € €400,000 €200,000

€0

Singapore

HongKong

IrishWater

SevernTrent

WelshWater

Auckland, NZAuckland,

Copenhagen,…

Sydney,NSW,…

AnglianWater

ThamesWater…

ScottishWater

UnitedUtilities

Tallinn,Estonia

Krakow,Poland

Lisbon,Portugal

YorkshireWater

Malmo,Sweden

NorthernIreland…

Brussels,Belgium

Cologne,Germany

Calgary,AB, Canada Geneva,Switzerland

Combined Charge Average

55

Table 7.8 Rank of tariffs at 250,000m3 of usage

Region Water Wastewater Combined Hong Kong 2 1 1 Singapore 1 3 2 Malmo, Sweden 3 2 3 Calgary, AB, Canada 4 7 4 Thames Water (Castle Water) 12 4 5 Severn Trent 9 6 6 Sydney, NSW, Australia 15 5 7 Krakow, Poland 6 10 8 Anglian Water 8 11 9 Yorkshire Water 11 14 10 Welsh Water 13 12 11 Cologne, Germany 14 13 12 Geneva, Switzerland 16 15 13 Northern Ireland Water 7 19 14 Irish Water 10 17 15 United Utilities 17 8 16 Auckland, NZ 5 20 17 Brussels, Belgium 18 16 18 Scottish Water 19 18 19 Copenhagen, Denmark 21 9 20 Lisbon, Portugal 20 21 21 Tallinn, Estonia 22 22 22

7.9 Comparison of annual charges faced by non-domestic customers using 500,000m3 pa

This section compares the annual charges faced by an Irish Water non-domestic customer using 500,000m3 annually to customers in other regions. Figure 7.9 illustrates the annual charge relative to other regions, and Table 7.10 ranks each region’s annual charge relative to each other for water, wastewater and combined services.

56

Figure 7.10 Annual charges for a 500,000m3 combined service customer

€4,000,000 €3,500,000 €3,000,000 €2,500,000 €2,000,000 €1,500,000

€1,000,000 Annual Bill AnnualBill € €500,000

€0

Singapore

HongKong

IrishWater

SevernTrent

WelshWater

Auckland, NZAuckland,

Copenhagen,…

Sydney,NSW,…

AnglianWater

ThamesWater…

ScottishWater

UnitedUtilities

Tallinn,Estonia

Krakow,Poland

Lisbon,Portugal

Malmo,Sweden YorkshireWater

NorthernIreland…

Brussels,Belgium

Cologne,Germany

Calgary,AB, Canada Geneva,Switzerland

Combined Charge Average

Table 7.9 Rank of tariffs at 500,000m3 of usage

Region Water Wastewater Combined Hong Kong 2 1 1 Singapore 1 2 2 Malmo, Sweden 3 15 3 Thames Water (Castle Water) 14 4 4 Severn Trent 7 5 5 Calgary, AB, Canada 5 6 6 Sydney, NSW, Australia 17 3 7 Anglian Water 4 11 8 Krakow, Poland 9 7 9 Welsh Water 13 17 10 Yorkshire Water 11 13 11 Cologne, Germany 12 9 12 United Utilities 18 8 13 Geneva, Switzerland 16 12 14 Northern Ireland Water 8 16 15 Irish Water 10 14 16 Auckland, NZ 6 22 17 Scottish Water 15 21 18 Brussels, Belgium 19 10 19 Copenhagen, Denmark 21 20 20 Lisbon, Portugal 20 19 21 Tallinn, Estonia 22 18 22

57

Sources

Table 7.10 below provides a list and links to the published schedule or scheme of tariffs for each region. The annual charges for each region included in Figures 7.1 to 7.10 are based on the tariff rates in the schedule or scheme of tariffs.

Table 7.10 Reference Sources

Region Link Anglian Water Anglia (Anglian Water Business) 2018/2019 Auckland, NZ Auckland (Water Care) 2019 Brussels Brussels (Hydrobru Brussels Belgium) 2019 Calgary, Canada Calgary 2019 Cologne, Germany Cologne, Germany Water 2018 Cologne, Germany Cologne, Germany Wastewater 2018 Copenhagen, Denmark Copenhagen, Denmark 2018 Geneva, Switzerland Geneva, Switzerland (SIG) 2018 Hong Kong Hong Kong SAR 2019 Krakow, Poland Krakow, Poland 2018 Lisbon, Portugal Lisbon, Portugal (EPAL) Wastewater 2019 Lisbon, Portugal Lisbon, Portugal (EPAL) Water 2019 Malmo Malmo, Sweden 2019 Northern Ireland Water NI Water 2018/2019 Scottish Water Scotland (Business Stream) 2018/2019 Severn Trent Severn Trent (Water Plus) 2018/2019 Singapore Singapore 2018 Syndey Water Sydney 2018 Tallinn, Estonia Tallinn and Saue 2018 Thames Water Thames Water (Castle Water) 2018/2019 United Utilities United Utilities (Water Plus) 2018/2019 Welsh Water Welsh Water 2018 Yorkshire Water Yorkshire (Yorkshire Water Business Services) 2018/2019

Caveats, Assumptions and Regional Differences

The comparison is based on the total, annual bill faced by non-domestic customers in each region.

It is important to note that tariff design for non-domestic customers differs from region to region. These differences are reflected in Irish Water’s international comparison analysis and the most notable are acknowledged below.

 Tariff structure varies across the regions included in the international comparison analysis. Some regions apply a uniform volumetric charge while others apply a falling block volumetric charge structure. Differences in rate structure are reflected in the analysis.

58

 A non-return to sewer adjustment is a common feature in international regions where wastewater costs are allocated to wastewater customers in accordance with the percentage of water delivered to them. The international analysis correctly reflects any region which applies this adjustment by applying a volumetric charge to the volume of water delivered less a non-return to sewer allowance (usually 5% or 10%) for any volume not discharged to the sewer.  Similar to Irish Water, customers in other regions are classified in groups by reference to the annual volume of water used. Different standing charges, volumetric charges or both are applied to different groups of customers. Customers are classified by reference to their pipe size or meter size in some international regions. Irish Water has applied consistent assumptions regarding the meter size or pipe size in its comparison at different levels of annual usage aligned with a measure of water which could be expected to be used.  2019 tariff rates are used where possible in the analysis. In certain cases the charging scheme was published before 2019 but the tariff rates remained relevant at the time of Irish Water’s analysis. 2018/19 charging rates were used for the UK regions which came into effect in April of 2018. Regions included in this analysis which are outside of the Euro area have their rates converted to EUR at the conversion rate applicable on 15 March 2019.  It should be noted that charges in Hong Kong have not been changed since 1995. Annual charges may not reflect current costs of providing water and wastewater services.  It is important to note that factors such as demographics, costs and regulatory models which impact on tariff design and levels differ from location to location.  Portugal’s wastewater charges are based on urban wastewater management tariffs and sewage tariffs. It is assumed that these services combine to form the equivalent of Irish Water’s wastewater services.  It is assumed for all regions that the sum of water services and wastewater services result in a combined services charge.  Only relevant standing and volumetric charges are considered in the analysis. Other charges (or rebates) such as connection charges, leakage discounts, fire hydrant charges, recycled water allowance, or any other special pricing which can be applied in other regions are ignored for the purposes of the international comparison analysis.  Potable water charges are only considered in the international comparison analysis. Non- potable water charges (where relevant) are not included in the analysis.

59

8. Next Steps Irish Water will develop operational rules to give effect to the CRU’s Decision on the tariff design and transitional arrangements. Irish Water has already commenced building the IT and customer support systems to implement the new tariff Framework on the basis of the CRU Proposed Decision. Publication of the CRU Decision will allow the detailed development work to support the new Framework to be completed. This in turn will allow Irish Water to inform all non-domestic customers of the changes to their bills in advance of the new Framework being implemented on 1st May 2020.

The sections below detail a number of items which Irish Water will be working on over the coming months in preparation for the introduction of the Framework in 2020. More detailed information on these items will be provided to customers in the communications described in Section 5, as well as in the updated Water Charges Plan to be published in advance of the new Framework commencing.

a. Annual Quantity Process

Irish Water will determine an Annual Quantity (AQ) for each connection based on their usage during a recent 12 month period (‘Review Period’). Irish Water’s AQ process will be similar to the approach utilised by Gas Networks Ireland27 in the gas sector and we will include:

 The dates that the AQ shall take effect from and conclude (i.e. the tariff year);  The ‘Review Period’ meaning the 12 month period in advance of the tariff year that Irish Water shall calculate the AQ annually for each non-domestic connection;  How Irish Water will calculate the AQ for non-domestic connection, including how the AQ will be set for a customer if 12 months usage information does not exist;  When Irish Water will notify customers of their proposed AQ and customer classification for the following tariff year;  The process and deadline for non-domestic customers to contact Irish Water with any queries on their AQ calculation;  The process and deadline for Irish Water to respond to customer queries on their AQ calculation; and  The deadline for Irish Water to finalise and communicate a connection’s AQ and the customer classification they belong to for the following tariff year.

Irish Water will write to each non-domestic customer in Q4 2019 informing them of the AQ process, including AQ confirmation, customer classification and the process and deadline for querying the AQ calculation.

27 See Gas Network Ireland’s Supply Point Annual Quantity Calculation procedure here.

60

b. Non-Domestic Customer Definition

Certain users of water services are difficult to classify definitively as domestic or non-domestic, which has led to a situation at the moment where there are inconsistent approaches to determining liability for non-domestic charges. The inconsistent approach was highlighted in some responses to the CRU’s public consultation on Irish Water’s proposals in 2018. This inconsistency is a legacy of water services in Ireland previously being provided by 34 (now 31) independent Water Services Authorities, with the underlying potential for different interpretations as to whether customers are using water services for domestic or non-domestic purposes. This inconsistent approach has led to inequities in how customers are treated in different parts of the country.

As a national utility, Irish Water must employ a standardised, consistent approach to determining liability for non-domestic water charges. Furthermore, the introduction of new non-domestic charges requires a clear distinction between situations where domestic and non-domestic use applies and therefore where non-domestic tariffs are chargeable.

Irish Water is working to provide a clear definition of a non-domestic customer. This work will enable Irish Water to clearly outline the customer types liable for non-domestic tariffs in the enduring tariff Framework.

c. Billing Frequency

Irish Water is likely to propose a standardised billing frequency for each customer classification. This represents a change from current arrangements where bills are issued on a monthly, quarterly, triannual, biannual and annual basis depending on the Local Authority. To support the change the current meter read schedules and system estimation capability will be reviewed. Billing frequency will be confirmed as part of the communications issued to customers in Q4 2019 (see section 5).

d. Water In and Wastewater Out

To support the new tariff Framework Irish Water is developing an interim application process to facilitate requests from customers for an agreement with Irish Water that the volume of wastewater removed is different to the volume of water supplied28. The interim ‘Water In / Water Out’ application process will be available and advertised on Irish Water’s website later this year.

Irish Water considers that in future a standardised ‘Water In / Water Out’ process should be considered simultaneously with Irish Water’s enduring trade effluent charging arrangements. This is because in many cases where the volume of wastewater out is different to the volume of water in, a portion of wastewater removed will be domestic type wastewater and the balance will be trade effluent. Irish Water is developing its trade effluent capability and we envisage that this function will eventually provide a standardised solution to assessing ‘Water In / Water Out’ consistent with the enduring trade effluent policy.

28 As provided for under Section 22 (9) of the Water Services (No. 2) Act 2013.

61

e. Water Charges Plan

A new Water Charges Plan containing final tariffs and tariff application rules will be published in advance of the new Tariff Framework being implemented. The Water Charges Plan is likely to be subject to a consultation by the CRU. Tariff application rules may include:

 Transition arrangements

Irish Water will set out its proposals on the remaining aspects of transition arrangements. For example, the approach to connections with significant changes in usage during the transition period.

 Payment options

Once a bill has been received there are a number of payment options for Irish Water’s non-domestic customers to choose from and these will be included in the Water Charges Plan to support the enduring tariff framework.

 Payment terms

Current non-domestic payment terms are as applied by a non-domestic customer’s relevant LA on 31st December 2013. As part of the Water Charges Plan consultation, Irish Water may review and consider if standardised payment terms are required to support the enduring tariff framework.

The new enduring tariffs and transition arrangements will be implemented on 1st May 2020.

62

Appendix 1 – The cost allocation methodology

A. Irish Water’s Allowed Revenues for 2019 The CRU’s decision on Irish Water’s 2019 allowed revenues is used in the cost allocation analysis. 2019 allowed revenues form part of Interim Revenue Control 2 (IRC2). IRC2 originally covered the period 2017 to 2018 but a decision to extend IRC2 to the end of 2019 was taken by the CRU30. Irish Water has allocated functionalised costs to water supply and wastewater collection services, and to customer groups, in accordance with the approved Revenue Control process. Within the cost allocation model, Irish Water has corrected the revenue to be recovered from non-domestic customers by the revenue expected from Trade Effluent charges over the period.

A1.1 Split of Allowed Revenue between Opex and Capex

Table A1.1 Split of Allowed Revenue Allowed Revenue component Percentage of total Allowed Revenue

Operational expenditure 66%

Depreciation and Return on Assets 34%

Total 100%

Depreciation and return on assets are part of the regulatory framework model and relate to the capital expenditure component of allowed revenue.

Cost Component 1 – Opex

Table A1.2 sets out the categories of opex and the proportion of total opex allocated to each element under the Revenue Control process. The table also sets out the cost driver (as per the CRU’s Decision) used by Irish Water in allocating indirect costs identified under each element to customer and product groups.

30 Irish Water Revenue Control 2019 Revenue Control 2 (2017/18) one-year extension CRU/18/211 24th September 2018.

63

Table A1.2 Opex cost components31 Efficient Operational Expenditure

No. Opex Category % of total Indirect Cost Allocation approach

1 Operations & Maintenance 78% Cost Driver – consumption

2 Work and Asset Management 1.5% Cost Driver – consumption

3 Customer Operations 4.5% Cost Driver – connections

4 Support Services 6% Cost Driver – 10% consumption:90% connections

5 Group & Shared Services 6% Cost Driver – 10% consumption:90% connections

6 Non-controllable costs 4% Cost Driver – 10% consumption:90% connections

1) Operations and Maintenance relates to water and wastewater operations and maintenance activities delivered by Irish Water. Irish Water’s cost accounting systems have allocated operations and maintenance costs to individual water and wastewater activity or service. Water and wastewater costs are allocated to customer groups in accordance with their share of water supplied or wastewater collected. Operational and maintenance spend associated with the water distribution network, allocated by the volume of water supplied, is adjusted by the assumed impact of network location.

2) Irish Water’s Work and Asset Management (WAM) function is responsible for the delivery and management of work orders and operational instructions to maintain safe, responsive, reliable and sustainable water and wastewater services. Water and wastewater costs of Irish Water’s WAM functions are allocated to customer groups in accordance with their share of water supplied or wastewater collected.

3) The Customer Operations function can be allocated for recovery from particular customer groups. Costs associated with Key Account Management (KAM)32 are directly allocated for recovery from Bands 3 and 4 customer classes (serving those customers with annual usage greater than 20,000m3). Consistent with the CRU’s Decision, 75% of KAM costs are allocated to Band 3 customers and 25% of KAM costs are allocated to Band 4 customers. The remaining Customer Operations costs are allocated to services and customer groups in accordance with the number of connections.

31 Opex components are taken from the CRU’s decision on Irish Water Revenue for 2019, 24th September 2018. 32 Irish Water KAM team provides dedicated account management services to key, typically industrial, customer accounts.

64

4) Other Operating Function Costs are made up of Support Services and Group Centre costs. This includes Finance, Commercial and Procurement, Regulation, IT, Legal, HR, Business Change, HSQE, Marketing, Secretariat and Corporate Services. These areas support core activities of the Irish Water business. Costs are allocated to services and customer groups following a 10% consumption and 90% connections ‘blended’ split representing a combination of the cost driver methodologies used to allocate core activities as per the CRU’s Decision.

5) Non-Controllable costs, such as CRU levy and EPA licence fees are identified as pass- through costs incurred in carrying out core activities of Irish Water. Costs are allocated to services and customer groups following a 10% consumption and 90% connections ‘blended’ split, representing a combination of the cost driver methodologies used to allocate core activities as per the CRU’s Decision.

Cost Component 2 - Capex

Depreciation and return on assets are part of the regulatory framework model and relate to Capital expenditure. Table A1.3 sets out the categories of capex and the proportion of total capex allocated to each element under the Revenue Control process. The table also sets out the cost driver (as per the CRU’s Decision) used by Irish Water in allocating indirect costs identified under each element to customer and product groups.

65

Table A1.3 Capex cost components Capital Expenditure & Cost Allocation

No. Cost Category % of total Service Function Cost Allocation approach

18% Resource & Treatment Cost Driver - consumption 1 Water Projects 6% Distribution Cost Driver – connections

23% Resource & Treatment Cost Driver - consumption 2 Wastewater projects 11% Collection Cost Driver - consumption

2% Resource & Treatment Cost Driver - consumption Capital Maintenance 3 – Wastewater 2% Collection Cost Driver - consumption

2% Resource & Treatment Cost Driver - consumption Capital Maintenance 4 – Water 9.5% Distribution Cost Driver – connections

12% Resource & Treatment Cost Driver - consumption National Water 5 programme 6% Distribution Cost Driver – connections

5% Resource & Treatment Cost Driver - consumption National Wastewater 6 programme 3.5% Collection Cost Driver - consumption

1) Water Projects are targeted at water supply assets to achieve a quality, enhanced level of service or supply/demand balance objective. Irish Water’s capital investment programme distinguishes between investment in Resource and Treatment and investment in Distribution assets. Irish Water has allocated these costs to the water supply product. Resource and Treatment costs are allocated to customer groups in accordance with their usage and water Distribution costs in accordance with relative share of standardised connections. 2) Wastewater Projects are targeted at wastewater assets to achieve quality, enhanced level of service or supply/demand balance objective. Irish Water’s capital investment programme distinguishes between investment in Resource and Treatment and Collection assets. Irish Water has allocated these costs to the wastewater product and to customer groups in accordance with their wastewater volume. 3) Capital Maintenance is focused on replacement or refurbishment of worn out water supply and wastewater assets. Irish Water’s capital maintenance programme distinguishes between spend on water supply Resource and Treatment assets, and water supply Distribution assets; and similarly spend on wastewater assets is divided into Resource and Treatment and Collection assets. Consistent with the CRU’s Decision, Irish Water has allocated costs to the water supply

66

and wastewater collection products. Wastewater Resource and Treatment, and Collection costs are allocated to customer groups in accordance with their share of wastewater volume. Water Resource and Treatment costs are allocated in accordance with share of water supplied. Water Distribution costs are allocated in accordance with relative share of standardised connections. 4) National Programmes refers to water and wastewater programmes to bring asset performance to acceptable levels of compliance and capacity at a national level e.g. Disinfection Programme, Impounding Reservoirs Programme etc. Irish Water has allocated costs to the water supply and wastewater collection products. Water Resource and Treatment costs are allocated to customer groups in accordance with their water usage (or volume). Water Distribution costs are allocated in accordance with relative share of standardised connections. Wastewater Resource and Treatment costs and Wastewater Collection costs are allocated to customer groups in accordance with their wastewater usage (or volume).

A1.2 Cost Allocation between water and wastewater services

Table A1.4 sets out the percentage allocation of total Irish Water operational and capital expenditure attributable to water supply and wastewater services. It also provides the blended allocation of costs between water supply and wastewater services based on the proportion of total allowed revenue attributable to opex and capex respectively.

Table A1.4 Opex and capex allocation – water and wastewater Opex and capex – water and wastewater services % allocation

Cost category Water Supply % Wastewater services %

Opex 53% 47%

Capex 54% 46%

Blended 53%33 46%34

B. Water Services Cost Drivers

B1.1 Share of water delivered

As set out in part A, allocation of indirect opex and capex costs to customer groups is predominantly on the basis of share of water supplied or wastewater collected. Tables B1.1 and B1.2 sets out each customer class’s share of water supplied or wastewater collected. In both tables the volume of water delivered associated with the domestic allowance for mixed use customers has been reallocated from the non-domestic to the domestic sector. This reallocation impacts on customers in Band 1

33 Represented by equation (53%*64%)+(54%*34%). 53% of IW opex spend and 54% of IW capex spend is on the provision of water supply. 64% of IW allowed revenue is opex related and 34% is capex related. 34 Represented by equation (47%*64%)+(46%*34%). 47% of IW opex spend and 46% of IW capex spend is on the provision of wastewater services. 64% of IW allowed revenue is opex related and 34% is capex related.

67

disproportionately relative to the other customer classes as the majority of domestic allowances (94%) are in this customer class.

Table B1.1 2017 customer shares in water delivered to water supply connections. Customer Class Volume of water % Share of water delivered ML per day delivered

Domestic 603 70%

Non-domestic 262 30%

Band 1 <1,000m3 45 5%

Band 2 1,000 – 20,000m3 84 10%

Band 3 20,000 – 250,000m3 57 7%

Band 4 > 250,000m3 45 5%

Unmetered (Band 1) 2 0%

Unmetered (Band 2) 0 0%

Public Group Water Schemes 6 1%

Individual Water Agreements 22 3%

Total consumption ML = Megalitre 865 100% (1,000m3)

68

Table B1.2 2017 customer shares in wastewater collected from wastewater connections Customer Class Volume of wastewater % Share of collected ML per day wastewater collected

Domestic 513 79%

Non-domestic 136 21%

Band 1 <1,000m3 27 4%

Band 2 1,000 – 20,000m3 61 9%

Band 3 20,000 – 250,000m3 37 6%

Band 4 > 250,000m3 10 2%

Unmetered (Band 1) 2 0%

Unmetered (Band 2) 0 0%

Total consumption ML = Megalitre 649 100% (1,000m3)

B1.2 Relative share of connections As set out in part A, the following efficient costs will be allocated to customer groups on the basis of relative share of connections; operational expenditure associated with the Customer Operations function; 90% of operational expenditure on support, shared and group services and non-controllable costs and capital expenditure on the distribution network. Tables B1.3 and B1.4 set out each customer class’s share of connections to the public water main or public sewer for water supply and wastewater services.

69

Table B1.3 2017 customer shares in water supply connections Connections to the public water main Customer Class Number of connections Proportion of total connections Domestic 1,589,537 89.39% All Non-Domestic 183,901 10.61% Band 1 (< 1,000m3) 157,430 8.88% Band 2 (1,000-20,000m3) 10,531 0.59% Band 3 (20,000 – 250,000m3) 419 0.02% Band 4 (>250,000m3) 22 0.00% Unmetered (Band 1) 7,833 0.44% Unmetered (Band 2) 30 0.00% Public Group Water 7,636 0.43% Schemes35 Total 1,773,483 100%

Table B1.4 2017 customer shares in wastewater connections Connections to the public sewer Customer Class Number of connections Proportion of total connections Domestic 1,395,816 93.76% All Non-Domestic 92,911 6.24% Band 1 (< 1,000m3) 79,254 5.32% Band 2 (1,000-20,000m3) 6,843 0.46% Band 3 (20,000 – 250,000m3) 315 0.02% Band 4 (>250,000m3) 7 0.00% Unmetered (Band 1) 6,462 0.43% Unmetered (Band 2) 30 0.00% Total 1,488,727 100%

C Distribution of costs to customer groups Cost Allocation methodologies based on Fully Allocated Costs provide the most commonly applied approach within multi product regulated utilities. In this cost allocation analysis, Irish Water has allocated costs identified in Appendix 1, Section A directly to customers where applicable. Where costs identified are indirectly applicable, they have been applied to customer classes in accordance with the cost drivers identified in Section B.

The CRU’s Decision provides for cost driver adjustments which Irish Water has accounted for in the cost allocation analysis.

C1.1 Cost Driver adjustments

The CRU’s Decision considered the following cost driver uncertainties and determined how to adjust for them in the cost allocation analysis:

i. The appropriate cost driver for allocating support, shared and group services costs and non- controllable costs between customer classes and products

35 Data relating to Public Group Water Schemes are a combination of known GWS schemes identified within Irish Water’s data and a best estimate of unidentified schemes using survey data collated by the Department of Housing, Planning and Local Government.

70

The CRU’s Decision allocates support, shared and group service costs and non-controllable costs using a ‘blended’ 10% volume and 90% connections split.

The ‘blended’ split approach allocates 10% of support, shared and group service costs and non- controllable costs between customer groups and products on a volume cost driver basis and the remaining 90% on a connections cost driver basis.

ii. Adjusting the volume or share of water delivered cost driver used to allocate R&T opex to reflect the potential effect of network leakage

The CRU’s Decision allows for a cost allocation adjustment to account for leakage in the water network. The CRU Decision allocates R&T opex by relative output share adjusted by the assumed effect of network leakage. This is on the basis that leakage may cause the R&T costs of providing a unit of treated water to differ for different classes of customer:

 5% (metered Band 2 and unmetered Band 2 customer classification), 10% (metered Band 3) and 20% (metered Band 4).

iii. Adjusting the volume or share of water delivered cost driver used to allocate distribution opex to reflect average network location for each customer group

The CRU’s Decision allocates distribution opex and capex by relative output share, adjusted by the assumed effect of average network location for customers in Bands 3 and 4:

 5% (Band 3 customer classification) and 30% (Band 4 customer classification) adjustments to distribution opex and distribution capex allocated by relative output share.

iv. Adjusting the volume or share of the wastewater collected cost driver used to allocate wastewater collection opex to reflect average network location for each customer group

The CRU’s Decision allocates wastewater collection opex and capex by relative output share, adjusted by the assumed effect of average network location for customers in Band 4:

 10% (Band 4 customer classification) adjustments to collection opex and collection capex allocated by relative output share.

v. Adjusting the volume or share of water delivered cost driver used to allocate R&T capex to reflect the potential effect of peak demand

The CRU’s Decision allocates R&T capex by relative output share adjusted by the assumed effect of peak demand:

71

 10% (metered Band 1 and unmetered Band 1 customer classifications), 15% (metered Band 2 and unmetered Band 2 customer classifications) and 20% (band 3 and 4 customer classification) adjustments to R&T capex allocated by relative output share.

Tables C1.1 and C1.2 summarises the CRU’s Decision for adjusting water and wastewater cost drivers.

72

Table C1.1 – CRU Decision on water supply cost driver adjustments

Non- Non- Non- Non- Domestic Domestic Domestic Domestic Cost Driver for Adjustment Metered Metered Unmetered Unmetered Allowed Revenue Cost Domestic Metered Metered Allocation Type Band 2 Band 3 Band 1 Band 2 Component36 Band 1 Band 4 (1,000- (20,000- (0-999m3) (>250,000m3) Opex cost line items 19,999m3) 249,999m3) Operations & Maintenance Volume Leakage (Resource & Treatment) 1.00 1.00 0.95 0.90 0.80 1.00 0.95 Operations & Maintenance Network Volume (Distribution) Adjustment 1.00 1.00 1.00 0.95 0.70 1.00 1.00 Customer Operations (non Key Account Manager Connections No Adjustment costs) 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Customer Operations (Key Industrial 1:75% No Adjustment Account Manager costs) Industrial 2:25% ------10% Volume : Support and Shared 90% No Adjustment Services Connections 1.00 1.00 1.00 1.00 1.00 1.00 1.00 10% Volume : Group Services and Non- 90% No Adjustment controllable costs Connections 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Capex cost line items

Water Resource and Volume Peak Demand Treatment cost 1.00 0.90 0.85 0.80 0.80 0.90 0.85 Network Water Distribution costs Connections Adjustment 1.00 1.00 1.00 0.95 0.70 1.00 1.00

36 The values in table C1.1 reflect any adjustments made to cost drivers used to allocate costs to customer classes. For example, Operations & Maintenance (Resource & Treatment) 1.00 allocation means 0% leakage adjustment to account for leakage in the water network is made to the cost driver. A 0.95 allocation means a 5% adjustment is made to the cost driver.

73

Table C1.2 - CRU Decision on wastewater collection cost adjustments

Non- Non- Non- Non- Domestic Domestic Domestic Domestic Cost Driver for Adjustment Metered Metered Unmetered Unmetered Allowed Revenue Cost Domestic Metered Metered Allocation Type Band 2 Band 3 Band 1 Band 2 Component37 Band 1 Band 4 3 (1,000- (20,000- 3 (0-999m ) 3 3 (>250,000m ) Opex cost line items 19,999m ) 249,999m )

Operations & Maintenance No Volume (Treatment) adjustment 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Operations & Maintenance Network Volume (Collection) Adjustment 1.00 1.00 1.00 1.00 0.90 1.00 1.00 Customer Operations (non No Key Account Manager Connections Adjustment costs) 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Industrial Customer Operations (Key 1:75% No Account Manager costs) Industrial Adjustment 2:25% ------90% Support and Shared No Connections : Services Adjustment 10% Volume 1.00 1.00 1.00 1.00 1.00 1.00 1.00 90% Group Services and Non- No Connections : controllable costs Adjustment 10% Volume 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Capex cost line items

Network Wastewater collection costs Volume Adjustment 1.00 1.00 1.00 1.00 0.90 1.00 1.00 No Wastewater Treatment cost Volume adjustment 1.00 1.00 1.00 1.00 1.00 1.00 1.00

37 The values in table C1.2 reflect adjustments made to cost drivers used to allocate costs to customer classes. For example, Capex (Wastewater costs) 1.00 allocation means a 0% adjustment to account for the assumed effect of average network location is made to the cost driver. A 0.90 allocation means a 10% adjustment is made to the cost driver.

74

C1.2 Non-domestic cost allocation

The CRU’s Decision will result in Irish Water recovering 22.98% of its allowed revenues from non- domestic customers. Table C1.1 summarises the assessment of the balance of cost allocation between the domestic and non-domestic customer groups.

Table C1.1 The balance between domestic and non-domestic costs38 Customer Group Cost Allocation Domestic % share Non-domestic % share Share of total allocated costs 77.02% 22.98%

The balance of cost allocation within the non-domestic customer group for each service is set out in Table C1.2 below.

Table C1.2 Non-domestic % cost allocation by service to customer groups

Service Overall Category Water Wastewater TE Other39 Total Supply

Total non-domestic 11.25% 8.76% 1.54% 1.43% 22.98%

38 The balance is adjusted to reflect Trade Effluent (TE) revenues received from non-domestic customers and to reflect that the domestic component of a mixed use customer’s consumption should not be recovered through non-domestic charges. 39 Other includes annual revenue from individual water agreements (for example there are some legacy arrangements in place where non-potable water is supplied to non-domestic customers at reduced rates), public Group Water Schemes, and additional services provided to non-domestic customers.

75

Appendix 2 - Comparing the percentage split between fixed and variable charge components

This appendix compares the enduring split in the CRU Decision between standing (fixed) and volumetric (variable) charges at different levels of usage to:

 current arrangements for non-domestic customers; and  a range of international utilities.

This appendix reviews the standing and volumetric charge balance for eight levels of annual usage between 100m3 and 500,000m3 as follows:

 section A2.1 compares the annual charges for a customer using 100m3 per annum  section A2.2 compares the annual charges for a customer using 1,000m3 per annum  section A2.3 compares the annual charges for a customer using 5,000m3 per annum  section A2.4 compares the annual charges for a customer using 20,000m3 per annum  section A2.5 compares the annual charges for a customer using 50,000m3 per annum  section A2.6 compares the annual charges for a customer using 100,000m3 per annum  section A2.7 compares the annual charges for a customer using 250,000m3 per annum  section A2.8 compares the annual charges for a customer using 500,000m3 per annum

The balance of cost recovery between the standing and volumetric charging components is determined by the cost allocation exercise for each class of metered customer; Band 1, Band 2, Band 3 and Band 4. The relative split of standing and volumetric charges in the enduring tariff Framework is titled ‘Irish Water’ in each bar graph. The relative split for current tariff arrangements is titled “current average” in each bar graph. The average line is calculated by averaging standing charges across all utilities included in the sample. Current charges and the final charges form part of this average.

In certain utilities the structure of tariffs may comprise of only one part, either a variable (volumetric) or a fixed (standing) charge component only. This tariff structure may apply for just one service and not the other, or may apply to different levels of usage. To ensure a fair comparison, only Two Part tariffs comprising of a volumetric and standing charge are included in the analysis. For example, Auckland’s wastewater charges are included in the wastewater analysis as they apply a Two Part tariff structure comprising fixed (standing) and variable (volumetric) charging components. Their water charges are excluded from the analysis on the basis that One Part (comprising a variable or volumetric charge component only) tariff is applied.

A2.1 Comparing the balance for a 100m3 non-domestic customer

This section compares the balance between the standing and volumetric charge for water services for non-domestic customers using 100m3 per annum Figure A2.1 compares the balance for water supply customers. Figure A2.2 compares the balance for wastewater service customers.

76

Figure A2.1 Water supply standing and volumetric charges for 100m3 per annum

Current average 34% 66% Irish Water 19% 81% Welsh Water 18% 82% United Utilities 19% 81% Thames Water (Castle… 13% 87% Sydney, NSW, Australia 28% 72% Severn Trent 25% 75% Scottish Water 56% 44% Northern Ireland Water 39% 61% Malmo, Sweden 93% 7% Lisbon, Portugal 43% 57% Geneva, Switzerland 96% 4% Copenhagen, Denmark 11% 89% Cologne, Germany 66% 34% Calgary, AB, Canada 72% 28% Anglian Water 26% 74%

0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

Figure A2.2 Wastewater standing and volumetric charges for 100m3 per annum

Current average 66% Irish Water 19% 81% Welsh Water 30% 70% Thames Water (Castle… 30% 70% Severn Trent 20% 80% Scottish Water 45% 55% Northern Ireland Water 33% 67% Malmo, Sweden 93% 7% Lisbon, Portugal 44% 56% Copenhagen, Denmark 11% 89% Calgary, AB, Canada 65% 35% Auckland, NZ 31% 69% Anglian Water 28% 72%

0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

77

A2.2 Comparing the balance for a 1,000m3 non-domestic customer

This section compares the balance between the standing and volumetric charge for water services for non-domestic customers using 1,000m3 per annum. Figure A2.3 compares the balance for water supply customers. Figure A2.4 compares the balance for wastewater service customers.

Figure A2.3 Water supply standing and volumetric charges for 1,000m3 per annum

Current average 5% 95% Irish Water 8% 92% Welsh Water 7% 93% United Utilities 3% 97% Thames Water (Castle… 4% 96% Sydney, NSW, Australia 6% 94% Severn Trent 3% 97% Scottish Water 60% 40% Northern Ireland Water 10% 90% Malmo, Sweden 80% 20% Lisbon, Portugal 16% 84% Geneva, Switzerland 55% 45% Copenhagen, Denmark 3% 97% Cologne, Germany 51% 49% Calgary, AB, Canada 24% 76% Anglian Water 10% 90%

0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

Figure A2.4 Wastewater standing and volumetric charges for 1,000m3 per annum

Current average 5% 95% Irish Water 7% 93% Welsh Water 13% 87% Thames Water (Castle… 18% 82% Sydney, NSW, Australia 44% 56% Severn Trent 2% 98% Scottish Water 47% 53% Northern Ireland Water 7% 93% Malmo, Sweden 79% 21% Lisbon, Portugal 8% 92% Copenhagen, Denmark 3% 97% Calgary, AB, Canada 15% 85% Auckland, NZ 4% 96% Anglian Water 7% 93% 0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

78

A2.3 Comparing the balance for a 5,000m3 non-domestic customer

This section compares the balance between the standing and volumetric charge for water services for non-domestic customers using 5,000m3 per annum. Figure A2.5 compares the balance for water supply customers. Figure A2.6 compares the balance for wastewater service customers.

Figure A2.5 Water supply standing and volumetric charges for 5,000m3 per annum

Current average 1% 99% Irish Water 2% 98% Welsh Water 5% 95% United Utilities 1% 99% Thames Water (Castle… 2% 98% Sydney, NSW, Australia 3% 97% Severn Trent 1% 99% Scottish Water 63% 37% Northern Ireland Water 4% 96% Malmo, Sweden 63% 37% Lisbon, Portugal 8% 92% Geneva, Switzerland 12% 88% Copenhagen, Denmark 1% 99% Cologne, Germany 44% 56% Calgary, AB, Canada 10% 90% Anglian Water 10% 90% 0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

Figure A2.6 Wastewater standing and volumetric charges for 5,000m3 per annum

Current average 1% 99% Irish Water 1% 99% Welsh Water 6% 94% Thames Water (Castle… 7% 93% Sydney, NSW, Australia 29% 71% Severn Trent 100% Scottish Water 49% 51% Northern Ireland Water 3% 97% Malmo, Sweden 62% 38% Lisbon, Portugal 2% 98% Copenhagen, Denmark 1% 99% Calgary, AB, Canada 4% 96% Auckland, NZ 2% 98% Anglian Water 5% 95% 0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

79

A2.4 Comparing the balance for a 20,000m3 non-domestic customer

This section compares the balance between the standing and volumetric charge for water services for non-domestic customers using 20,000m3 per annum. Figure A2.7 compares the balance for water supply customers. Figure A2.8 compares the relative split for wastewater service customers.

Figure A2.7 Water supply standing and volumetric charges for 20,000m3 per annum

Current average 100% Irish Water 7% 93% Welsh Water 3% 97% United Utilities 100% Thames Water (Castle… 9% 91% Sydney, NSW, Australia 3% 97% Severn Trent 13% 87% Scottish Water 51% 49% Northern Ireland Water 5% 95% Malmo, Sweden 67% 33% Lisbon, Portugal 8% 92% Geneva, Switzerland 27% 73% Copenhagen, Denmark 1% 99% Cologne, Germany 47% 53% Calgary, AB, Canada 7% 93% Anglian Water 33% 67%

0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

Figure A2.8 Wastewater standing and volumetric charges for 20,000m3 per annum

Current average 100% Irish Water 5% 95% Welsh Water 6% 94% Thames Water (Castle… 6% 94% Sydney, NSW, Australia 29% 71% Severn Trent 2% 98% Scottish Water 37% 63% Northern Ireland Water 4% 96% Malmo, Sweden 65% 35% Lisbon, Portugal 100% Copenhagen, Denmark 2% 98% Calgary, AB, Canada 1% 99% Auckland, NZ 8% 92% Anglian Water 12% 88%

0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

80

A2.5 Comparing the balance for a 50,000m3 non-domestic customer

This section compares the balance between the standing and volumetric charge for water services for non-domestic customers using 50,000m3 per annum. Figure A2.9 compares the balance for water supply customers. Figure A2.10 compares the relative split for wastewater service customers.

Figure A2.9 Water supply standing and volumetric charges for 50,000m3 per annum

Current average 100% Irish Water 3% 97% Welsh Water 25% 75% United Utilities 23% 77% Thames Water (Castle… 21% 79% Sydney, NSW, Australia 2% 98% Severn Trent 33% 67% Scottish Water 54% 46% Northern Ireland Water 2% 98% Malmo, Sweden 54% 46% Lisbon, Portugal 5% 95% Geneva, Switzerland 41% 59% Copenhagen, Denmark 1% 99% Cologne, Germany 41% 59% Calgary, AB, Canada 96% Anglian Water 56% 44% 0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

Figure A2.10 Wastewater standing and volumetric charges for 50,000m3 per annum

Current average 100% Irish Water 2% 98% Thames Water (Castle… 4% 96% Sydney, NSW, Australia 20% 80% Severn Trent 1% 99% Scottish Water 19% 81% Northern Ireland Water 2% 98% Malmo, Sweden 53% 47% Lisbon, Portugal 100% Copenhagen, Denmark 1% 99% Calgary, AB, Canada 100% Auckland, NZ 4% 96% Anglian Water 5% 95%

0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

81

A2.6 Comparing the balance for a 100,000m3 non-domestic customer

This section compares the balance between the standing and volumetric charge for water services for non-domestic customers using 100,000m3 per annum. Figure A2.11 compares the balance for water supply customers. Figure A2.12 compares the balance for wastewater service customers.

Figure A2.11 Water supply standing and volumetric charges for 100,000m3 per annum

Current average 100% Irish Water 2% 98% Welsh Water 19% 81% United Utilities 13% 87% Thames Water (Castle… 11% 89% Sydney, NSW, Australia 2% 98% Severn Trent 21% 79% Scottish Water 56% 44% Northern Ireland Water 2% 98% Malmo, Sweden 37% 63% Lisbon, Portugal 6% 94% Geneva, Switzerland 21% 79% Copenhagen, Denmark 1% 99% Cologne, Germany 41% 59% Calgary, AB, Canada 4% 96% Anglian Water 55% 45%

0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

Figure A2.12 Wastewater standing and volumetric charges for 100,000m3 per annum

Current average 100% Irish Water 1% 99% Welsh Water 7% 93% Thames Water (Castle… 5% 95% Sydney, NSW, Australia 22% 78% Severn Trent 100% Scottish Water 78% Northern Ireland Water 1% 99% Malmo, Sweden 36% 64% Lisbon, Portugal 100% Copenhagen, Denmark 1% 99% Calgary, AB, Canada 100% Auckland, NZ 19% 81% Anglian Water 3% 97% 0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

82

A2.7 Comparing the balance for a 250,000m3 non-domestic customer

This section compares the balance between standing and volumetric charge for water services for non-domestic customers using 250,000m3 per annum. Figure A2.13 compares the balance for water supply customers. Figure A2.14 compares the balance for wastewater service customers.

Figure A2.13 Water supply standing and volumetric charges for 250,000m3 per annum

Current average 100% Irish Water 8% 92% Welsh Water 9% 91% United Utilities 19% 81% Thames Water (Castle… 5% 95% Sydney, NSW, Australia 2% 98% Severn Trent 11% 89% Scottish Water 52% 48% Northern Ireland Water 1% 99% Malmo, Sweden 19% 81% Lisbon, Portugal 4% 96% Geneva, Switzerland 9% 91% Copenhagen, Denmark 100% Cologne, Germany 22% 78% Calgary, AB, Canada 2% 98% Anglian Water 49% 51% 0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

Figure A2.14 Wastewater standing and volumetric charges for 250,000m3 per annum

Current average 100% Irish Water 5% 95% Welsh Water 5% 95% Thames Water (Castle… 2% 98% Sydney, NSW, Australia 17% 83% Severn Trent 100% Scottish Water 10% 90% Northern Ireland Water 100% Malmo, Sweden 18% 82% Lisbon, Portugal 100% Copenhagen, Denmark 1% 99% Calgary, AB, Canada 100% Auckland, NZ 9% 91% Anglian Water 1% 99% 0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

83

A2.8 Comparing the balance for a 500,000m3 non-domestic customer

This section compares the balance between standing and volumetric charge for water services for non-domestic customers using 500,000m3 per annum. Figure A2.15 compares the balance for water supply customers. Figure A2.16 compares the balance for wastewater service customers.

Figure A2.15 Water supply standing and volumetric charges for 500,000m3 per annum

Current average 100% Irish Water 4% 96% Welsh Water 5% 95% United Utilities 10% 90% Thames Water (Castle… 3% 97% Sydney, NSW, Australia 1% 99% Severn Trent 6% 94% Scottish Water 35% 65% Northern Ireland Water 100% Malmo, Sweden 11% 89% Lisbon, Portugal 2% 98% Geneva, Switzerland 4% 96% Copenhagen, Denmark 100% Cologne, Germany 12% 88% Calgary, AB, Canada 1% 99% Anglian Water 33% 67%

0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

Figure A2.16 Wastewater standing and volumetric charges for 500,000m3 per annum

Current average 100% Irish Water 3% 97% Welsh Water 3% 97% Thames Water (Castle… 1% 99% Sydney, NSW, Australia 9% 91% Severn Trent 100% Scottish Water 5% 95% Northern Ireland Water 100% Malmo, Sweden 10% 90% Lisbon, Portugal 100% Copenhagen, Denmark 100% Calgary, AB, Canada 100% Auckland, NZ 5% 95% Anglian Water 1% 99% 0% 20% 40% 60% 80% 100% Standing Charge Volumetric Charge Average

84