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The Water Regulatory Authority (WRA) has approved the new methodology which will be applied on an ongoing basis whenever applied by water supply and sewerage companies for tariff review.
Referring to the document made public by this institution which entered into force this month, companies will need to have clear business plans of several years. According to the new methodology, the cases when the tariff can be applied, the way it is determined and the costs that are taken into account are precisely defined.
Specifically, WRA has clarified that the UK companies so far in their application for tariffs near it have mainly aimed to cover up to 100% of the costs of maintenance operation.
“A very small number of companies have aimed to cover with tariffs a percentage of total costs, including the costs of depreciation, interest and the principal of loans or credits financed by foreign donors. The cases when the companies have applied to the WRA to cover in the future the planned needs for physical investments with the service tariffs are almost excluded. This is the main factor that WRA in setting tariffs has applied the method “Cost Plus” with a regulatory period of 1 year “said in the explanation of the Office for methodology.
The Office has acknowledged that the current situation and the need to improve the performance of the sector requires a more advanced conception of the tariff setting methodology by the WRA. But between the lines it is clear that the high need for investment in the sector will not be able to be covered only with the support of the budget, donors or current tariffs so their increase is inevitable.
The advanced Ceiling Award methodology as part of this methodology necessarily requires the company to have a 5 Year Business Plan that aims to meet the above requirements for the UK sector, as well as the conditions contained in the European Drinking Water Directives and for wastewater.
On the other hand, referring to the assessment of investment needs in the sector defined in the National Master Plan, the draft document of the National Strategy for Financing the Water Supply and Sewerage Sector provides that in addition to contributions from the state budget and foreign donors, a good part of them to be covered by the increase of service tariffs ”it is said in the document.
The same specifies that the application of the new revised method that takes into account the financing of the investment component through tariffs, will greatly contribute to the renewal of assets by including in the costs of the depreciation component by eliminating the risk of asset obsolescence in water supply and sewerage systems.
“The use of the revised methodology will also enable the partial or complete coverage of asset investment needs for the expansion of services in the service area.
Given the state and specifics of the sector and the UK companies operating in it, the revised tariff setting methodology still assumes the use of the previous “Cost Plus” methodology for companies that do not yet propose to cover over 100% of O&M costs. . For other companies, the new methodology of the “Ceiling Award” will be used, which is necessarily based on a 5-year Business Plan of the UK company “, estimates the Entity.
The methodology also defines the formula to be used for tariffs where WRA specifies that the company calculates and justifies the annual components of tariffs for the regulatory period in accordance with this methodology for each of the regulated services, including accepted operating costs, number of customers and volumes. of service.
“The company has the right to propose fixed and volumetric tariffs for water supply, sewerage and wastewater treatment services. If a fixed tariff is proposed, the accepted operating costs are divided between the fixed tariff (up to 30% *) and the volumetric tariff (not less than 70%).
Capital costs are calculated only for the regulated volumetric service fee when the company covers over 100% of the accepted operating costs but data on these costs will be reported in each application. The company can propose a lower level of revenues from volumetric tariffs than the necessary revenues calculated to cover 100% of costs when this is justified based on the criteria for setting tariffs used by WRA in this methodology. Monitor
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