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Connection Charging Policy:

Explanatory Document

18.12.2018

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Contents

1. Executive Summary ..................................................................................................................... 4

2. Introduction ................................................................................................................................ 6

2.1 Background ............................................................................................................................. 6

2.2 Policy Context ......................................................................................................................... 6

2.3 Legislation ............................................................................................................................... 7

2.4 Approach to development of the new policy ......................................................................... 7

2.5 Data Limitations ...................................................................................................................... 8

2.6 Structure of the paper ............................................................................................................ 8

3. Principles to guide the Connection Charging Policy ................................................................... 9

4. Overview of the existing Connections Charging Framework .................................................... 10

4.1 Connection Charging Structure ............................................................................................. 10

4.1.1 Connection/Works Fees .................................................................................................... 10

4.1.2 Development Contributions.............................................................................................. 10

4.2 Regional basis for charging ................................................................................................... 11

4.3 LA Customer classification .................................................................................................... 12

5. Connection Charging Policy Key Decision 1 – National ‘v’ Regional Charging .......................... 13

5.1 Option 1 National Connection Charging ............................................................................... 13

5.2 Option 2 Regional Connection Charging ............................................................................... 14

5.3 Irish Water evaluation and proposal .................................................................................... 15

6. Connection Charging Policy Key Decision 2 – Shallow ‘v’ Deep ............................................... 17

6.1 Policy options: Shallow ‘v’ Deep ........................................................................................... 17

6.1.1 Option 1: Shallow Connection Charging Policy ........................................................................ 18

6.1.2 Option 2: Partially Shallow Connection Charging Policy ................................................... 18

6.1.3 Option 3: Deep Connection Charging Policy ..................................................................... 19

6.1.4 Option 4: Partially Deep Connection Charging Policy ....................................................... 21

6.2 Regulatory Precedent on use of Shallow ‘v’ Deep ............................................................ 22

6.3 Irish Water evaluation and proposal ................................................................................ 24

6.4 Partially Deep Connection Charging Policy: application to each Customer Category .......... 26

6.4.1 Private Infrastructure: ....................................................................................................... 26

6.4.2 Service Connection Infrastructure: ................................................................................... 26

6.4.3 Local Infrastructure: .......................................................................................................... 27

6.4.4 Network Infrastructure: .................................................................................................... 27

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6.4.5 Treatment Infrastructure: ................................................................................................. 29

6.5 Irish Water evaluation and proposal .................................................................................... 31

7 Connection Charging Policy Key Decision 3 – Standard ‘v’ Quotable charges.......................... 32

7.1 Option 1: Quotable charging for all ...................................................................................... 32

7.2 Option 2: Limited standard charges ...................................................................................... 33

7.3 Option 3: Standard charges for standard connections and quotable charges for works

outside of standard parameters ....................................................................................................... 33

7.4 Option 4: ‘One Size Fits all’ Standard Charge ....................................................................... 34

7.5 Irish Water evaluation and proposal .................................................................................... 34

8 Connection Charging Policy Key Decision 4 – Connection Categorisation. .............................. 38

8.1 Setting of Customer Categories ............................................................................................ 38

8.1.1 Size of service pipe: ........................................................................................................... 38

8.1.2 Water/Wastewater Peak Flow: ......................................................................................... 39

8.1.3 Floor area: ......................................................................................................................... 39

8.2 Irish Water evaluation and proposal .................................................................................... 40

8.3 Application of the customer categories – Standard Connection Parameters ...................... 42

9 Standard Industry Practices ...................................................................................................... 45

9.1 Least Cost Design Solution .................................................................................................... 45

9.2 Upsizing of Connection Assets .............................................................................................. 45

9.3 Strategic Network Development .......................................................................................... 45

9.4 Payment Terms and Security Requirements......................................................................... 46

9.5 Self-Lay .................................................................................................................................. 46

10 Conclusion ................................................................................................................................. 48

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1. Executive Summary

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As part of the Government’s reform of Ireland’s water services system, Irish Water became

responsible on 1st January 2014 for charging customers for connecting to its network. Since

then, and in accordance with the Water Charges Plan approved by the Commission for

Regulation of Utilities (CRU)1, Irish Water has continued to apply the existing connection

charges which were in place on 31st December 2013.

The current connection charging regime is complex, inequitable, and inconsistent.

Customers are charged differently depending on the Local Authority area in which they are

seeking a connection. Charging is not cost reflective and is primarily based on floor area

rather than the level of water services required. There is a clear requirement for an Irish

Water Connection Charging Policy that provides a consistent connection service and a

uniform charging approach to all connecting customers.

The CRU requested Irish Water to submit a proposed Connection Charging Policy and

provided a suite of principles to guide its design. The CRU requested that Irish Water’s

submission set out policy options and the preferred policy approach, together with

supporting rationale.

Irish Water’s Connection Charging Policy proposals are set out in document IW-CCPP-002

and summarized below:

A Connection Charging Policy applied country-wide on a uniform basis;

A partially deep Connection Charging Policy that ensures that all connecting customers

contribute to the cost of providing network infrastructure required to facilitate

connections;

The categorisation of customers for the application of standard charges based on the

size of pipe required to facilitate the connection; and

Standard Connection Charges will apply to the majority of customer categories.

Quotable2 charges will apply for additional works, large non-domestic connections, and

those that fall outside of the standard connection parameters.

This paper provides supporting information and justification for these policy proposals. It

includes an explanation of the key design issues that Irish Water considered and the trade-

1 Prepared by Irish Water and approved by the CRU in accordance with the Water Services No.2 Act 2013. 2 Quotable charges will be included in the Connection Agreement as estimates. The customer will subsequently pay the outturn costs once these have been established. This will be set out in the Connection Agreement.

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offs that arise from certain policy options. Where relevant, it also outlines experience from

other jurisdictions.

The CRU will determine the appropriate Connection Charging Policy following a public

consultation process.

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2. Introduction

__________________________________________________________________________________

This paper seeks to explain the rationale for the proposals set out in Irish Water’

Connection Charging Policy submission to the CRU (IW-CCPP-0023) and should be read in

conjunction with that document.

2.1 Background

Prior to 1st January 2014, Water Services in Ireland were provided by the 34 Local

Authorities (LAs). Connection charging guidelines were set out by the Department of

Environment, Community and Local Government (DECLG) and individually implemented by

the LAs. The guidelines were communicated by the Department to the LAs in the form of

departmental circulars. The cost of connections was recovered through a combination of

development contributions (where developers paid a contribution towards the provision of

water services connections and other required public infrastructure), specific connection

charges, and grants from the Exchequer.

Both domestic and non-domestic customers paid directly for the local works needed to

connect them to the water and wastewater networks and made contributions towards the

wider water and wastewater network infrastructure. Each LA implemented these guidelines

for their own area and there were significant differences in interpretation and application.

There was no uniformity in the level of connection services provision across the LAs.

Customers faced different charges for different levels of service depending on their LA area.

2.2 Policy Context

With the establishment of Irish Water, there was an opportunity to set out a clear,

consistent and uniform approach to the recovery of connection costs for all customers

looking for a connection to the public water or wastewater network. New national technical

standards for the design and construction of water and wastewater services enable a

standard scope of works and standard costs to be put in place for different types of

customer connection.

As a regulated national utility, Irish Water will adopt a national utility model. This model of

network cost recovery is in place for electricity and gas utilities in Ireland and for water

utilities in the UK. It is designed to recover costs from the users of that network and to

deliver appropriate price signals to ensure that existing network capacity is utilised to

reduce the burden on all customers.

3 Includes a glossary of defined terms.

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The national utility model will ensure that connection costs are recovered on a consistent

basis in line with the policy principles set out by the CRU. The different charging

mechanisms will be cost reflective in that parties driving the need for new assets will pay

appropriately for those assets to ensure equity and efficient use of the network.

2.3 Legislation

The Water Services (No. 2) Act 2013 (the 2013 Act) provided for the transfer of water

services functions from the 34 LAs (the county and city councils) to Irish Water on 1st

January 2014. Charges levied by Irish Water4 are calculated in accordance with a Water

Charges Plan5, which is subject to the approval of the CRU.

Section 5 of the current version of the Water Charges Plan deals specifically with

connections. It provides that until a new Connection Charging Policy is in place, Irish Water

will continue to impose connection charges on customers who require a connection6, at the

rates applied by LAs as at 31st December 2013, including an amount equivalent to the water

and wastewater related development contributions which the LAs were formerly entitled to

charge.

2.4 Approach to development of the new policy

The CRU requested Irish Water to provide a submission setting out a proposed Connection

Charging Policy, including rationale for the preferred policy proposal against other possible

options. The CRU provided Irish Water with a suite of principles (outlined in Section 3 of this

document) to guide the design of the policy and, in developing its proposals, Irish Water has

sought to find an appropriate balance across these principles.

To inform its analysis, Irish Water reviewed the different connection charging approaches

utilised in the LAs (circa 57 charging regimes) and the connection charging policies of other

utilities. This information was used to identify key design questions, different approaches to

the recovery of connection costs, and existing practice that could assist in the development

of an enduring Connection Charging Policy.

From this review, Irish Water identified the following four policy decisions that should be

addressed in developing a Connection Charging Policy:

Key policy decision 1: national versus regional charging

Key policy decision 2: deep versus shallow charging

Key policy decision 3: connection categorisation

Key policy decision 4: standard versus quotable charges

4 Part 3, Section 21 provides that Irish Water shall charge each customer for the provision by it of water services. 5 Part 3, Section 22 of the Act specifically refers to Irish Water responsibilities with respect to its water charges plan. 6 Or re-connection, or amendment to a connection in the case of a redevelopment (or similar).

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For each of these required decisions, Irish Water evaluated alternative options against the

CRU guiding principles and relevant precedent, before determining a preferred policy

position.

“Harvey Ball” style7 graphics were used to evaluate alternative options against the principles

set out by the CRU. The extent to which each Harvey Ball is shaded reflects the closeness of

each design option to meeting the guiding principle. No shading means that a design option

does not meet a principle; partial shading means that a design option partially meets a

principle; and full shading means that a design option fully meets a principle.

2.5 Data Limitations

In developing the proposed Connection Charging Policy, Irish Water established a reference

historic dataset for the period Q3 2014 through Q4 2016. This dataset was created from

customer applications and enquiries to individual LAs. Irish Water completed a data

cleansing process on the historic dataset before using it for analysis of various policy options

on a ‘best available information’ basis.

2.6 Structure of the paper

This paper is structured as follows:

Section 3 describes the key principles provided by the CRU to guide the development of

the enduring Connection Charging Policy;

Section 4 provides an overview of the existing connection charging framework;

Section 5 looks at key policy decision 1 and considers the appropriate geographical basis

for the proposed Connection Charging Policy;

Section 6 looks at key policy decision 2 and considers various policy options, from

shallow to deep recovery;

Section 7 looks at key policy decision 3 and considers the appropriate approach to

charging, either using a standard charge or a quotable charging framework;

Section 8 looks at key policy decision 4 and considers the approach to classifying

connecting customers;

Section 9 outlines matters of industry standard practice such as Least Cost Design

Solution, payment terms and self-lay provisions;

Section 10 concludes and summarises the proposal.

7 Harvey Balls are round ideograms used for visual communication of qualitative information. Devised by Bool Allen Hamilton (1970’s), they are commonly used in comparison tables to indicate the degree to which a particular item meets a particular criterion.

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3. Principles to guide the Connection Charging Policy

__________________________________________________________________________________

On 29th January 2016, the CRU set out the principles to guide Irish Water in the

development of the Connection Charging Policy and charges.

1. Cost Reflectivity: Charges should be reflective of the costs associated with providing

a Connection service to a Customer.

2. Efficient Use of assets: The policy should promote efficient use of existing assets and

minimise the risk of stranding assets.

3. Equity and non-discrimination: Charges should be equitable and not unduly

discriminate between customers.

4. Stability: Charges should be designed to ensure charge level volatility is kept to a

minimum.

5. Simplicity: Connection charges and the charging policy should be clear, transparent

and easy to understand.

6. Cost recovery: The policy should ensure that the utility can recover the efficiently

incurred costs in providing new Connections.

The CRU did not set out a priority for any principle but it did acknowledge that ‘at times

conflict and trade-offs can exist between charging principles and it may be necessary for

Irish Water to strike an appropriate balance between the different principle objectives as

necessary’.

In developing its proposals, Irish Water has sought to strike this balance and this paper sets

out the associated rationale underlying each key policy position.

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4. Overview of the existing Connections Charging Framework

__________________________________________________________________________________

The approach to applying connection charges to customers who required a connection prior

to 1st January 2014 was on the basis of connection charging guidelines set out by the DECLG

and implemented by the LAs. The cost of connections was recovered via a combination of

development contributions, specific connection charges, and grants from the Exchequer.

The WCP8 provides that charges for the connection9 of a customer premises are retained on

the same basis as charged by the LAs on 31st December 2013, including an amount

equivalent to the water and wastewater related development contributions which the LAs

were formerly entitled to charge10. This arrangement will continue until an enduring

Connection Charging Policy is in place.

The purpose of this section is to summarise the connection charging framework currently in

place and to provide context for Irish Water’s enduring charging policy proposals.

4.1 Connection Charging Structure

Under the connection charging framework in place on 31st December 2013, the LAs were

permitted to apply charges for connection as follows.

4.1.1 Connection/Works Fees

The LAs typically applied connection/works fees to customers seeking a connection to the

network to cover the cost of providing the physical service connection. The approach to the

application of connection/works fees varied between the LAs; many applied a

connection/works fee for a particular pipe size, while others calculated connection/works

fees on an assessed basis. The level of connection/works fees (and the service provided for

the charge) also varied across the LAs. This variation was often linked to differing levels of

connection works carried out; some LAs carried out a connection service (including civil

works and the laying of the service connection) while others required the customer to carry

out the connection works, either fully or in part.

4.1.2 Development Contributions

Prior to the 1st January 2014, the development contributions applied by the LAs included a

contribution to water and wastewater infrastructure. After this date, Irish Water continued

to apply the portion of each LA’s development contribution levy that relates to water and

8 Irish Water Charges Plan: Refer to CRU website for latest version. 9 Or re-connection, or amendment to a connection in the case of a redevelopment (or similar). 10 Section 26(2) of the Local Government (Planning and Development) Act 1962 introduced development contributions, which empowered local authorities to recover development contributions on condition of a planning permission.

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wastewater.11 Development contributions have typically been applied on the basis of floor

area (m2). These contributions were applied to new connections through the planning

permission process, pursuant to Sections 48 and 49 of the Planning and Development Act

200012, as set out below.

General Development Contribution Schemes: Under Section 48 of the Planning and

Development Act 2000, planning authorities must draw up a Development Contribution

Scheme in respect of certain public infrastructure and facilities provided by, or on behalf of,

the LA that generally benefit development in the area.

Special Development Contributions: A Special Development Contribution may be imposed

under Section 48(2) (c) of the Planning and Development Act 2000 where specific

exceptional costs, which are not covered by the General Contribution Scheme, are incurred

by a LA in the provision of public infrastructure or facilities which benefit very specific

requirements for the proposed development, such as a new road junction or the relocation

of piped services.

Supplementary Development Contribution Scheme: Section 49 of the Planning and

Development Act 2000 provides for the drawing up of a Supplementary Development

Contribution Scheme to facilitate a particular public infrastructure service or project which

is provided by a LA or a private developer on behalf of and pursuant to an agreement with a

LA (e.g. through Public Private Partnership), and which will directly benefit the development

on which the development contribution is imposed.

Each LA applied a general Development Contribution Scheme, while Special and

Supplemental Development Contribution Schemes were applied as required.

4.2 Regional basis for charging

Prior to 1st January 2014, the LAs provided water services independently of each other.

Charges for connection to the water and wastewater networks were applied at the LA level,

with 57 different charging methodologies across the country13. Charges for connection

varied across the LAs – neighbouring counties had differing charges for provision of the

same connection works.

11 The LAs have continued to apply the development contribution levies in respect of the services they continue to provide such as roads, open spaces, recreational and community facilities etc. 12 For further detail see Development Contributions, Guidelines for Planning Authorities, Department of the Environment, Community and Local Government, January 2013. 13 34 LAs - some LAs had more than one charging regime within their jurisdiction, including for town or borough councils.

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4.3 LA Customer classification

Irish Water compiled a technical assessment of the connection charges and development

contributions which were in place in the 34 LAs on 31 December 2013. This technical

assessment was based on a review of the published charges of the LAs and a data gathering

survey completed by each LA. Analysis of this data identified that there was no single

uniform classification of connection customers being used by the LAs for the purposes of

charging. The charges in many LAs included significant charging exemptions for various

customer categories. In addition, there was no uniformity either in terms of the services

provided or the basis for the charges.

The lack of uniformity in customer classification and charging has resulted in inconsistent

treatment of customers. Since assuming responsibility for the provision of water services,

Irish Water has had significant difficulty in explaining the variance in connection charges to

customers applying for connection.

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5. Connection Charging Policy Key Decision 1 – National ‘v’ Regional Charging __________________________________________________________________________________

In developing proposals for a Connection Charging Policy, Irish Water addressed the key

policy decision of whether a national charging basis for connections is preferable to other

geographical bases for charging.

Connection charging policy and charges for connection to the water and/or wastewater

network can be set at a variety of levels. These include national; regional (province, water

supply zone/wastewater agglomeration14 or river basin district); or local (LAs). Current

connection charges are set at the LA level, reflecting LA area boundaries prior to 1st January

2014, with a number of separate charging regimes for town councils and boroughs applying

within these areas.

5.1 Option 1 National Connection Charging

As a national utility, Irish Water must meet the requirements of the EU’s Water Framework

Directive and the Environmental Protection Agency with respect to drinking water quality

and wastewater treatment15.

Irish Water is required to provide a uniform level of minimum standards across the whole

country. A national Connection Charging Policy, applied consistently to all connection

categories, with no regional or local variations, is appropriate.

Advantages

The introduction of a national Connection Charging Policy is an opportunity to

standardise and harmonise the highly fragmented and inconsistent arrangements

currently in place;

There is significant precedent for this approach in other utilities. Gas and electricity

utilities in Ireland and the water utilities in Scotland and Wales, apply connection

charging policy on a national basis;

National charges are easier to understand than regional charges - there would be

significant complexity associated with a national utility progressing a regional

charging policy for a standardised level of service offering;

The costs of administering national charges would be lower than a variety of

connection charges at regional levels; and

Regional charging would increase the challenge associated with the communication

and implementation of a new Connection Charging Policy.

14 Water Supply Zone is a geographically defined area within which drinking water comes from one or more sources and water quality is uniform. Wastewater agglomeration means an area where the population or economic activities or both are sufficiently concentrated for a waste water works to have been put in place. 15 EPA - Enforcement of drinking water quality and drinking water audits and EPA National Inspection Plan - Domestic Wastewater Treatment Systems.

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Disadvantages

A national Connection Charging Policy may not reflect regional cost differences in

the provision of connection works.

5.2 Option 2 Regional Connection Charging

Regional connection charging could reflect geographical county boundaries or river basin

district boundaries. Alternatively, regional connection charges could reflect water supply

zones or wastewater agglomerations. While the cost of providing water supplies on an

ongoing basis could vary across water supply zones and wastewater agglomerations, it is

unlikely that the capital cost of providing a connection would vary greatly.

Advantages

Regional charging may set a price signal to all customers about the relevant localised

cost of connecting to the water and wastewater network in different locations,

encouraging the efficient use of local assets.

Disadvantages

Customers would not be charged on a consistent basis for the same type of

connection - this option would not support the provision of a standard connection

service to customers on a national basis;

There is little regulatory precedent for the application of connection charges on a

regional basis. In England, connection charges vary by utility area, with connection

policy applied consistently across the geographical remit of the utility; and

There would be higher costs of administration, relative to a national Connection

Charging Policy. A connection charging regime based on water supply zones or

wastewater agglomerations would be very complex.

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5.3 Irish Water evaluation and proposal

Irish Water has evaluated and compared the options against the CRU principles, as

summarised in Figure 5.3 below.

Figure 5.3 National or Regional Connection Charging – evaluation against principles

Cost Reflectivity:

Regional connection charging may be marginally more cost reflective as it would take into

account regional variation in the cost of providing connections. This does not mean that a

national policy is not cost reflective. A national policy can achieve high levels of cost

reflectivity through standard services and charges and specific connection costs charged on

an actual cost basis, when necessary.

Efficient Use of Assets:

Both options perform reasonably well on this principle. A national Connection Charging

Policy would facilitate the most efficient use of existing assets as customers can identify

where capacity exists on the network and compare different connection options on a like

for like basis. Regional connection charging may send a price signal as to where connections

can be provided regionally at lowest cost however this may have limited effectiveness, as

domestic and small non-domestic customers are unlikely to relocate simply to avail of a

lower cost water or wastewater connection.

Charging principles National Regional

Cost Reflectivity

Efficient use

Equity

Stability

Simplicity

Cost Recovery

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Equity and non-discrimination: A national Connection Charging Policy performs better on

the principle of equity and non-discrimination as all customers would be charged for

connection on a consistent basis, subject to connection need. Regional variation in charges

would result in Irish Water customers paying differently for the same connection service.

Stability: National connection charges are more stable than regional charges. A national

charge is made up of a wider cost base and will be subject to less variation from any regional

price changes.

Simplicity: The introduction of a national Connection Charging Policy is an opportunity to

simplify, standardise and harmonise the highly fragmented connection charging

arrangements currently in place. In addition, national charges are likely to be easier for

customers to understand than regional charges. A policy with regional variations would

present more complex implementation and communication challenges.

Cost Recovery: Regional connection charging may perform better against this principle as

charges would closely reflect regional variation in the cost of connection works. National

connection charging would be more likely to require ex-post review of charges with the CRU

to ensure that costs are fully recovered.

Irish Water proposes a national Connection Charging Policy.

On balance, this option performs best against the CRU principles. While regionally varying

charges may be more cost reflective than national charges, this benefit is offset by the

limitations in terms of equity and non-discrimination, simplicity and stability.

Irish Water’s proposal is also influenced by the significant precedent for national

connection charging policies in all other Irish utilities.

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6. Connection Charging Policy Key Decision 2 – Shallow ‘v’ Deep

___________________________________________________________________________________

This section reviews the appropriate depth of Connection Charging Policy to apply on a

national basis. Irish Water assessed four options ranging from a shallow Connection

Charging Policy to a deep Connection Charging Policy. These options were evaluated against

the CRU principles, as well as against regulatory precedent in other utilities, before a

preferred option was determined.

6.1 Policy options: Shallow ‘v’ Deep

While cost recovery mechanisms vary, in general the depth of the Connection Charging

Policy determines that portion of the cost of providing a connection that is paid directly by

the connecting party and the portion that is recovered from other sources.

There are two alternative approaches to charging for connection to the utility network:

• Shallow connection charging policies: These are usually based on only recovering the

costs related to the physical connection assets between the connecting party and the

nearest network connection point.

• Deep connection charging policies: These are based on a combination of shallow charges

plus the costs related to any additional “downstream” network or infrastructure required to

support the required capacity of the connecting party.

“Shallow” and “Deep” are two ends of the cost recovery spectrum – many connection

charging policies lie in between these two points (sometimes referred to as ‘hybrid

connection policies). Irish Water has included two additional points on this spectrum for

consideration:

• Partially shallow connection charging policies: This option would require the connecting

customer to pay for some connection assets beyond the immediate connection point.

• Partially deep connection charging policies: A partially deep Connection Charging Policy

would include some mitigation for the connecting customer from the full network or

infrastructure costs of facilitating the connection.

In developing the policy proposals, Irish Water has selected these four points on the

spectrum as potential policy options and assessed the advantages and disadvantages of

each.

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6.1.1 Option 1: Shallow Connection Charging Policy

Sometimes referred to as ‘super shallow’, this option generally requires the connecting

customer to pay only for connection to the nearest connection point on the network. As the

upfront connection charge is relatively low, shallow connection charging policies can

encourage new connections to the network. This can have the benefit of increasing

utilisation and widening the customer base. It does, however, require alternate investment

to be utilised to fund the provision of network assets required to facilitate new connections.

A shallow Connection Charging Policy may involve the connecting customer paying only for

their Service Connection Infrastructure.16

Advantages

Shallow connection charging policies are simple for customers to understand and for

the utility to administer.

The charge for connection is generally stable and predictable, relative to that under

a deep Connection Charging Policy.

A shallow Connection Charging Policy, through relatively low upfront capital

investment, may encourage more connections to the network than a deep policy.

This would allow cost to be spread over a wider customer base.

A shallow charging regime is more likely to result in consistent treatment of all

connecting customers than a deep charging regime. All customers will be charged for

connection on a similar basis, regardless of where they connect on the network.

Disadvantages

Shallow connection charging policies are not cost reflective. If the connecting

customer pays only to the nearest connection point in the network, there will be

costs associated with providing the connection that are not reflected in the

connection charge.

Requires a cost transfer from connecting customers to existing customers.

Shallow connection charging policies do not provide locational signals to connecting

customers. They provide no incentive for customers to connect in areas with existing

infrastructure and capacity and do not encourage efficient use of existing assets.

6.1.2 Option 2: Partially Shallow Connection Charging Policy

This option would require the connecting customer to pay for some connection assets

beyond the immediate connection point. This may reflect the fact that the nearest

connection point on the network cannot accommodate the customer and so they pay for a

16 Note that this example is indicative – there are a number of ways in which a shallow Connection Charging Policy could be designed.

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connection to the nearest connection point that can facilitate their required capacity. Policy

design, and the extent to which connection assets are charged, can vary between utilities.

A partially shallow Connection Charging Policy may involve, for example, the connecting

customer paying for their Service Connection Infrastructure and possibly a contribution to

Network Infrastructure costs.17

Advantages

A Connection Charging Policy that is partially shallow can overcome some of the

limitations of a purely shallow model, for example it can be more cost reflective.

It is also possible to build in some limited locational signals to the charge – perhaps if

the nearest connection point cannot accommodate the customer capacity, the

connection charge will include an upgrade of the connection assets, or the customer

may be charged for connection to the nearest connection point with available

capacity.

Disadvantages

Charging for assets beyond the immediate connection point may require detailed

charging rules to set the connection charge, particularly where the assets are utilised

by more than one connecting party. This may not be simple or predictable for the

connecting customer which may limit their ability to respond to the locational signal.

Like shallow connection charging policies, partially shallow will involve some cost

transfer from connecting customers to existing customers.

6.1.3 Option 3: Deep Connection Charging Policy

Under a deep Connection Charging Policy, customers would pay the full cost of connection

to the network, including the costs of downstream infrastructure (both planned and

recently delivered), remote from the point of connection. Customers would pay towards all

assets that have been planned/recently delivered for general growth, if these assets are

used to facilitate the connection. This would ensure that the costs of providing connections

are fully borne by the party that requires the works and that charges to existing customers

will not increase as a result of connections to the network (i.e. additions to the regulatory

asset base18 (RAB) would be covered by the additional tariff revenue from the new

customers). The wider customer pays only for maintaining the existing network.

17 Note that this example is indicative – there are a number of ways in which a partially shallow Connection Charging Policy could be designed. 18 At any point in time, the RAB is a measure of the net value (Gross spend minus depreciation) of a utility’s allowed assets used in the operation of its regulated activities. Only efficient capital spend on assets is allowed to accrue in the RAB as the CRU reserves the right not to include capital spend on inefficient assets in the RAB.

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Advantages

A deep Connection Charging Policy should result in a lower end-user tariff, relative to

a shallow Connection Charging Policy.

Deep connection charging policies are highly cost reflective. The full cost of providing

a connection is recovered from the connecting customer. As a result there is no

socialisation of connection costs – existing customers face no increase in tariffs as a

result of new connections to the network.

Deep connection charging policies can facilitate efficient use of assets as customers

receive locational signals at the time of connection. As the connecting customer pays

for the assets that they require for connection, there is no risk that the wider

customer will fund stranded assets.

Disadvantages

Deep connection charging polices can be complex and difficult to administer. It can

be very difficult to separate those assets required only by the connecting party from

assets required for general growth. For example, deep connection policies do not

recognise that Treatment Infrastructure is most commonly required for general

growth, rather than driven by individual connections.

Implementing a deep Connection Charging Policy could require significant analysis

on a case by case basis to derive the impact of existing users on new plant. This may

result in complex charging methodologies that are difficult for customers to

understand.

Deep connection policies may not be entirely equitable as customer funded assets

may have wider network benefits. This could create a first mover disadvantage, as

subsequent connections may benefit from the connection assets. The concept of a

‘Least Cost Design Solution’ connection method can mitigate this risk somewhat. This

policy means that customers are charged the lowest cost method of connection

which meets the planning and technical standards of the utility. If the utility wishes

to upsize the connection to facilitate future connections, this upsizing cost is borne

by the utility.

Deep connection charging policies may discourage connection to the network.

Customers may seek alternative water services options such as private wells or

treatment systems. If the level of new connections declines, the cost of network

maintenance and development will be spread over a smaller customer base.

21

6.1.4 Option 4: Partially Deep Connection Charging Policy

Under a partially deep Connection Charging Policy, customers would pay the cost of

connection to the network, including the costs of certain downstream infrastructure,

remote from the point of connection. A partially deep Connection Charging Policy would

include some mitigation for the connecting customer from the full network costs of

facilitating the connection. For example, the connecting customer might not be charged for

network infrastructure that is required to facilitate the connection, if this is already built or

planned to be built by the utility. The customer would only be charged for new assets that

have not previously been identified as requirements for growth by the utility. The utility

would, therefore, not seek to determine the impact of individual connections on planned

assets.

A partially deep Connection Charging Policy may involve the connecting customer paying a

contribution towards the cost of network infrastructure and/or treatment infrastructure.19

Advantages

Like deep connection charging policies, a partially deep Connection Charging Policy

may facilitate efficient use of assets as customers receive price signals related to the

actual cost of connection at the time of connection. Customers can avoid high

connection charges by locating in areas where capacity is available, or due to be

available when planned infrastructure is completed.

Partially deep connection charging policies will be more cost reflective than shallow

or partially shallow connection charging policies.

Partially deep connection charging policies recognise the difficulty in separating

those assets required only by the connecting party from assets required for general

growth. It also recognises that Treatment Infrastructure is most commonly required

for general growth, rather than driven by individual connections.

Disadvantages

Partially deep connection charging policies can share some of the disadvantages of

deep connection charging policies, including the risk that some assets funded by

customers may have wider network benefits. As outlined above, the concept of the

‘Least Cost Design Solution’ connection method can mitigate this risk somewhat.

19 Note that this example is indicative – there are a number of ways in which a partially deep Connection Charging Policy could be designed.

22

6.2 Regulatory Precedent on use of Shallow ‘v’ Deep

The degree to which a policy is shallow or deep varies across utilities in Ireland and the UK.

The four categories outlined above are not prescriptive but indicate the range of connection

policy options available for consideration.

UK National Grid20 operates a shallow connection charging policy for connection to the

electricity transmission system. Connection assets are “non-sharable assets installed for and

only capable of use by an Individual user and hence represent a shallow charging regime

(known as PLUGs). All sharable assets are classed as Infrastructure assets and the costs

associated with them are recovered through TNUoS21 charges”22.

The CRU has previously noted that the ESB (Distribution System Operator) administers a

semi-shallow connection charging policy for Demand Customers and a deep connection

charging policy for generator Customers.23 For domestic customers, ESB Networks’ (ESBN)24

standard MIC25 charge includes MV26 network costs within defined distance criteria. Outside

these criteria additional MV network charges apply based on standard MV network

charges.27 Business customers are charged a ‘Capacity Charge’ as a part of the standard ‘MIC

Charge’ which is an average charge per kVA28 for reinforcement of the existing system.

The policy operated by EirGrid29, in respect of the electricity transmission system could be

considered a partially shallow connection charging policy. This policy requires the customer

to pay for the connection assets required to facilitate their demand30, disregarding all other

flows on the network.31 This avoids the limitations of a purely shallow policy, in that it

recognises that costs will be driven past the nearest connection point. Customers bear some

of the costs of the network reinforcements that they drive.

Gas Networks Ireland (GNI32), applies connection charges to domestic connections on a

shallow basis33. There is a deep element to the GNI Connections policy in respect of ‘Large

Industrial & Commercial Customers’. These customers are ‘required to make payments

20 National Grid Electricity Transmission plc owns and operates the National Grid high voltage electricity transmission network in England and Wales. 21 Transmission Network Use of System. 22 See ‘Guide to Connection Charging’, National Grid, 2 October 2013. 23

See ‘Existing Structure of Tariffs in Ireland: Transmission, Distribution, Supply’ CER 03/298. 24 ESB Networks Ltd. own and operate the electricity distributions system in Ireland. 25 Maximum Import Capacity. 26 Medium voltage. 27 See ‘ESBN Networks Ltd, Basis of Charges for Connection to the Distribution System, effective 08/02/2010. 28 Kilovolt-amps. 29 EirGrid plc. operates the national high voltage electricity grid in Ireland. 30 Maximum Import Capacity or Maximum Export Capacity, as appropriate. 31 See ‘Transmission Connection Charging Methodology Statement’, EirGrid plc, 8th March 2008. 32 Gas Networks Ireland own, operate, build and maintain the natural gas network in Ireland and connect all customers to the network. 33 Housing developments may have to pay a supplemental charge if the present value of the connection costs (‘the full pipeline capital and operating costs directly attributable to the housing development, less the total of standard contributions’) exceeds a defined percentage of the expected tariff revenue attributable to the development over a 20 year period. For further detail see Gas Networks Ireland, Connections Policy Document, Revision 4.1; effective 1 October 2015.

23

equal to the full pipeline and Above Ground Installation (AGI) capital costs attributable to

meeting the load and pressure requirements of the facility in question. Such costs will

include the present value of any attributable upstream (deep) reinforcement costs’.

Scottish Water’s34 connection charging policy could be considered partially shallow. As well

as a connection charge, Scottish Water applies a standard infrastructure charge to domestic

connections as a contribution toward network infrastructure. They also offer a ‘reasonable

cost contribution’ to developers to offset the cost of providing part 235 and part 336

infrastructure, taking account of the future income that will be received via tariffs from the

new connections.

In terms of the Ofwat37 connection charging policy, Oxera38 suggests39 that the case specific

‘requisition charge’ has deep elements, although there is an offset for future revenues that

will be received from the connecting customer. Ofwat permits water companies to charge

infrastructure charges which “are intended to provide a contribution towards the costs of

developing or enhancing local networks to serve new customers40”.

The connection charging policy applied by the LAs prior to 1 January 2014 was at the deeper

end of the charging spectrum. The LAs applied an average infrastructure charge on

connecting parties based on a forecast of new infrastructure required within the LA area

over the period of the county development plan.

An analysis of the charging regimes of Irish and UK utilities points to no consensus

connection charging policy. Irish Water notes that shallow connection charging policies are

more common in electricity than in water. One possible explanation is that shallow

connection charging models reduce barriers to entry in competitive markets through low

upfront capital charges for network access. While this is not relevant in the context of the

Irish Water network, it may explain why shallow charging policies are popular in formerly

vertically integrated monopoly activities such as electricity transmission and distribution.

There is important precedent in the water industry for a deeper element to connection

charging policy, particularly in the application of infrastructure fees (UK water utilities) and

development contributions (Local Authority charging, pre 1 January 2014).

34 Scottish Water is the utility that provides water and sewerage services in Scotland. 35 Part 2 infrastructure is defined in the Scottish Water ‘guide for obtaining new water and waste water services’ document as ‘The water mains and sewers that connect developments e.g. a street of houses to trunk mains and trunk sewers and some sustainable urban drainage systems (SUDS).’ 36 Part 3 infrastructure is defined in the Scottish Water ‘guide for obtaining new water and waste water services’ document as ‘The local bulk infrastructure, such as trunk mains and trunk sewers, water service reservoirs, waste water pumping systems and some SUDS.’ 37 Ofwat is the economic regulator of the water sector in England and Wales. 38 Oxera provides economic consultancy services. 39 Options for access pricing methodology, June 2015. 40 http://www.ofwat.gov.uk/regulated-companies/company-obligations/new-connections/.

24

6.3 Irish Water evaluation and proposal

Irish Water has evaluated the four options identified against the key CRU principles, as

summarised in Figure 6.3.

Figure 6.3 Connection Methodology Options – evaluation against principles

Cost Reflectivity: A deep or partially deep Connection Charging Policy will recover the costs

of providing connection infrastructure from the parties that are driving the need for this

infrastructure, requiring little or no subsidisation from the existing customer base. These are

highly cost reflective charging models. Shallow and partially shallow connection policies are

less cost reflective as these do not recover the full cost of facilitating the connection from

the connecting customer.

Efficient Use of Assets: Deep connection charging policies encourage efficient use of assets

as customers will pay the full cost of their connection. Customers will be encouraged to

locate in areas with existing capacity, resulting in more efficient use of the network. Partially

deep connection charging policies can similarly encourage efficient use of assets if

customers incur some charges for use of the network. These ‘locational signals’ reduce as

the policy options become more shallow and customers pay reducing contributions to the

cost of their connection.

Charging principles ShallowPartially

ShallowPartially Deep Deep

Cost Reflectivity

Efficient use

Equity

Stability

Simplicity

Cost Recovery

25

Equity and non-discrimination: A deep charging regime is more likely to result in equitable

treatment of all connecting customers than a shallow charging regime. All customers will be

charged for connection on the basis of their connection need, regardless of where they

connect on the network.

Stability: Shallow connection charging policies can be the most stable of the four options as

these are often based on charging for a service connection only. These costs are often

standardised, based on standard connection works (such as a service connection) and may

not be as variable as the network costs charged as part of deep policies.

Simplicity: Shallow connection policies tend to be simple to implement as the connection

charge is based on works to the nearest connection point. Deep connection charging

policies can require complex models to determine the impact of the connection on the

network. Partially shallow and partially deep policies tend to lie between these two

extremes in terms of simplicity; however this is dependent on how they are designed.

Cost Recovery: Each of the policy options considered could be designed to recover the

efficiently incurred costs of providing connections; however a deep policy is the only option

that will fully recover these costs from connecting parties. Each of the other options would

require partial cost recovery via tariffs or government funding.

Irish Water proposes a partially deep connection charging mechanism.

A partially deep Connection Charging Policy delivers the best balance across all of the CRU

principles. The benefits, in terms of reduced overall cost for network development

through efficient locational signals and a reduced risk of stranded assets, outweigh the

limitations identified in terms of simplicity and stability.

A partially deep Connection Charging Policy will recover the cost of providing connections

from connecting customers rather than from existing customers and will encourage the

efficient use of existing assets through appropriate locational signals.

26

6.4 Partially Deep Connection Charging Policy: application to each Customer

Category

This section outlines the practical application of the proposal for a partially deep Connection

Charging Policy. The Connection Charging Policy proposed by Irish Water outlines five

categories of connection assets in order to illustrate how the different customer categories

will be charged for connection. Each of these asset categories may be required for

connection, although not all types of connection will require each asset category.

How Irish Water proposes to charge connecting customers for each category of network

asset is summarised in Table 6.4 below, followed by explanatory text with reference to

relevant national and international precedent.

Table 6.4 Summary: Charging of Connection Assets by Customer Category

Customer Category

Charge for Private Infrastructure?*

Charge for Service Connection Infrastructure?

Charge for Local Infrastructure?*

Charge for Network Infrastructure?

Charge for Treatment Infrastructure?

Single Domestic Connection

No Yes No Yes No

Domestic Development

No Yes No Yes Potentially

Small Non-Domestic Connection

No Yes No Yes No

Medium Non-Domestic Connection

No Yes No Yes Potentially

Large Non-Domestic Connection

No Yes No Yes Potentially

*Responsibility of the customer to provide, where applicable

6.4.1 Private Infrastructure:

This is infrastructure installed on the customer side of the boundary which will be provided

by the customer, at the customer’s cost. Irish Water will not, therefore, apply charges for

Private Infrastructure.

6.4.2 Service Connection Infrastructure:

Every connection will require Service Connection Infrastructure to connect their Private

Infrastructure (or Local Infrastructure in a development) to the Irish Water Network. The

Service Connection Infrastructure will be constructed after the customer has signed a

Connection Agreement with Irish Water. An Irish Water charge will apply in respect of these

27

assets. For the majority of customers, this will be a standard charge. Customers will be

charged for additional works on a quotable41 basis.

Charging for the service connection is common utility practice – GNI and ESBN apply charges

for the service connection, as do the water utilities in the UK. These charges are commonly

applied on a standard basis.

6.4.3 Local Infrastructure:

Local Infrastructure is constructed within the boundary of a development (e.g. a domestic

housing development) and will be provided by the customer. This is the default assumption

upon which the Connection Charging Policy and the standard charges have been developed.

The customer may request that Irish Water construct the Local Infrastructure. If this request

is facilitated by Irish Water, the customer will be charged at cost (in addition to the standard

connection charge). It is appropriate that the cost of providing Local Infrastructure is borne

by the customer as it will be installed for the use of that customer.

In Scotland, new water mains and sewers in housing developments are funded by the

customer. In accordance with its legislative requirements, Scottish Water provides a

‘Reasonable Cost Contribution’ to these customers which takes into account the future

income from water and wastewater tariffs that will be received.

Such a contribution is designed to recognise that new connections will contribute to the cost

of maintaining or upgrading the connection assets of existing customers through their tariff

payments. Consistent with the proposal to apply a partially deep Connection Charging

Policy, Irish Water does not propose a ‘Reasonable Cost Contribution’ similar to that applied

by Scottish Water.

6.4.4 Network Infrastructure:

The Standard Connection Charges proposed by Irish Water includes a contribution to the

cost of providing downstream network assets that are put in place to facilitate new and

modified connections to the network. This Network Infrastructure contribution will cover

planned network assets and/or upgrades that facilitate growth in the Irish Water network.

It is not practical to extend the network in response to each connection offer being signed.

Network Infrastructure may be constructed in anticipation of development in a particular

area as part of Irish Water’s network planning. Consistent with the principle of cost

41

Quotable charges will be included in the Connection Agreement as estimates. The customer will subsequently pay the outturn costs

once these have been established. This will be set out in the Connection Agreement.

28

recovery, as this infrastructure is installed to facilitate connections, it is appropriate that

connecting customers fund its construction.

It is proposed that the Standard Connection Charges will recover the cost of providing

planned network infrastructure as this will facilitate future connections. The Standard

Connection Charges will not recover the cost of addressing existing capacity shortfalls; this

will be delivered via the Irish Water Capital Investment Plan and funded via the Irish Water

RAB.

Irish Water’s proposed application of a contribution to Network Infrastructure through the

Standard Connection Charges will deliver on the principles of cost recovery and simplicity.

This charge will be calculated and applied on a standard basis, consistent with the proposals

on standard charging set out in Section 7. Where a customer specifically drives unplanned

network infrastructure or upgrades to facilitate their connection, they will be charged the

additional cost of these works.

6.4.4.1 Regulatory Precedent on the application of charges for network infrastructure

Water utilities in the UK apply an infrastructure charge. These charges are applied to new

connecting customers to cover the cost of improving the distribution network to meet the

demand created by the new connection over time.

6.4.4.1.1 Scottish Water

New connections are subject to an ‘infrastructure charge’. This charge takes account of the

cost to Scottish Water of carrying out studies and network investment that cannot be

attributed to particular developments, but instead are related to general background

growth in demand. For domestic connections the infrastructure charge is a standard charge,

applied on a per unit basis. For non-domestic connections the infrastructure charge is

applied by the ‘Licensed Provider’ of water services.

6.4.4.1.2 Ofwat (Applies to Water utilities in England and Wales regulated by Ofwat):

Domestic Connections: Customers must pay infrastructure charges to connect a new

property. This covers the cost of improving the distribution network to meet the demand

created by the new connection over time. Water companies are entitled to raise an

infrastructure charge (under section 146 of the Water Industry Act 1991) when a property is

connected for a domestic water supply for the first time.42

The infrastructure charge has typically been applied on a standard basis with most of the

utilities applying a multiplier to the standard infrastructure charge where the connection

requires a pipe size above the standard parameter.

42 http://www.ofwat.gov.uk/households/supply-and-standards/getting-a-connection/

29

Customers that request a main or main extension in order for the connection to be made

must pay a requisition charge. The water company is entitled to make a charge for providing

the main and any necessary network reinforcement, but must43 make an allowance for

future income that it will receive from the newly connecting property or properties.

As both the infrastructure charge and the requisition charge were to recover the cost of

‘offsite infrastructure’ this led to concerns amongst stakeholders about the potential for

double charging44.

In December 2016, Ofwat published its Decision Document on ‘Charging rules for new

connections’45. This decision specified that only the infrastructure charge should be used to

cover all network reinforcement work away from the development site. Previously a

requisition charge could also be applied to recover the cost of off-site infrastructure. The

cap on the level of infrastructure charge is also to be removed. Water UK46 is currently

undertaking a public consultation process on the implementation of the new Ofwat charging

rules for new connections.

Non-Domestic Connections: To get a new water connection for non-domestic purposes, a

non-domestic customer needs to agree terms and conditions, including the charge, with the

water company. The company is entitled to recover the reasonable costs of making the

connection and a financial return on any investment (‘rate of return on any capital

expenses’) it incurs47.

6.4.4.2 Historical application of Network charges in the Irish Water and Wastewater Networks:

The concept of an infrastructure fee is well established in the Irish Water and Wastewater

context – the LAs previously applied a fee for the provision of water and wastewater

services as part of the development levy applied to customers seeking a new water and/or

wastewater connection. This charge was typically calculated based on the floor area of the

connecting property and was not related to the impact of the new connection on the

water/wastewater network.

6.4.5 Treatment Infrastructure:

The Standard Connection Charges proposed by Irish Water will not include a contribution

for the provision of Treatment Infrastructure. Treatment Infrastructure is provided for

general growth in the system and it is difficult to apportion costs to individual connecting

43 Under rules published by ofwat in August 2017, the water company may (but is not required to) provide for an income offset in setting Requisition Charges. These rules apply to water and wastewater companies in England and come into force from April 2018. 44 See New connections charging – consultation, Ofwat, 27 July 2016 available at www.ofwat.gov.uk for a review of this issue. 45 8 December 2016. 46 Water UK is a membership organisation which represents and works with the major water and wastewater service providers in England, Scotland, Wales and Northern Ireland. 47 http://www.ofwat.gov.uk/households/supply-and-standards/getting-a-connection/#_What_can_a

30

customers. In general, the provision of Treatment Infrastructure will be funded via Irish

Water’s regulated allowed revenue (i.e. by wider water users).

Customers with significant connections that drive new treatment plant or significant

upgrades will be charged for the provision of this infrastructure at cost.

A key element of Irish Water’s strategy for meeting demand is the maintenance of an

acceptable level of headroom (available capacity over current demand) in the treatment

infrastructure to allow for growth potential and capacity risks. This is a key parameter in

managing risks to service and takes account of the likelihood and consequences of failure

from scheme to scheme. Once Available Headroom less Target Headroom falls below a

specified certain level, this acts as a trigger to provide a further increment of capacity. The

application of a headroom replenishment charge to individual connections that have a

material impact on plant capacity reflects that the connection will necessitate a future

capacity upgrade at the plant to maintain appropriate headroom limits. Irish Water will

assess the impact of the Connection Policy on headroom and available capacity and may, at

a point in the future make a submission to the CRU to consider charges for headroom

replenishment that would apply to Medium and Large Non-Domestic connections.

6.4.5.1 Regulatory Precedent on the application of charges for Treatment Infrastructure

Scottish Water does not apply charges for Treatment Infrastructure as part of the water and

wastewater connection charge. In accordance with the Water Industry (Scotland) Act 2002,

Scottish Water is required to meet the costs of providing strategic capacity required for new

development. This applies to what Scottish Water deems ‘part 4 infrastructure’, which

includes water and wastewater treatment works48. There is no specific timeframe in which

this capacity must be provided.

Ofwat does not specifically reference Treatment Infrastructure in its documentation on

connection charging but focuses on the application of charges – infrastructure charge and

requisition charge.

In terms of the requisition charge, sections 43 and 100 of the UK Water Industry Act (WIA

91) detail what can legally be included as part of the ‘costs reasonably incurred’ for the

purposes of calculating the requisition charge. Sections 43(2) and 100(2) state that these

costs should not include costs incurred in the provision of additional capacity beyond the

requirement of the requisition.

48 See ‘Guide for obtaining new water and wastewater services’, available at www.scottishwater.co.uk

31

6.5 Irish Water evaluation and proposal

Irish Water proposes that connecting customers will fund the entire infrastructure

required for their connection aside from Treatment Infrastructure which will, in general,

be planned via the CIP process and recovered from the wider customer base. This will

send appropriate locational signals to connecting customers, encouraging the use of

existing assets where spare capacity exists. This will meet the principle of efficient use of

assets.

Similar to the Ofwat approach, Irish Water will apply a charge for the provision of

Network Infrastructure. This will be designed to recover the cost of providing Network

Infrastructure to connections and will not seek to recover the cost of addressing pre-

existing shortfalls in capacity or capability.

Customers49 will be charged for Treatment Infrastructure where an individual connection

drives the requirement for new Treatment Infrastructure, or a significant upgrade to

Treatment Infrastructure. As these customers are individually impacting Treatment

Infrastructure requirements, Irish Water proposes that these customers will fund the

Treatment Infrastructure that their connection necessitates.

49 Not applicable to domestic or small non-domestic customers.

32

7 Connection Charging Policy Key Decision 3 – Standard ‘v’ Quotable

charges. __________________________________________________________________________________

The next key Connection Charging Policy decision is to determine the basis for charging

customers for connection to the water/wastewater networks – standardised charging,

quotable charging or a combination of both.

For each option an overview of the charging basis is provided, together with evidence in

relation to precedent in other jurisdictions, and an assessment of the issues and trade-offs

that have influenced Irish Water’s proposals.

7.1 Option 1: Quotable charging for all

Quotable connection charges for all customers’ means that all customers seeking a

connection to the water and/or wastewater networks are charged the outturn cost of

providing their connection.

Quotable connection charging would reflect the site specific costs or ground conditions of

individual connections. Connection conditions will vary from site to site and the full costs of

each specific connection would be reflected in the charges determined by the utility.

This would not be a common approach among utilities; in general, standard charges are

developed for connections that fit within standard defined categories. This allows for the

timely processing of large numbers of standard connections and provides cost certainty.

Advantages

Quotable charges for all connecting customers would be highly cost reflective.

Quotable charges for all connecting customers would encourage efficient use of

assets as it would provide price signals as to the actual cost of providing each

connection.

Disadvantages

As all connection charges would apply on a case by case basis, this would not be a

simple method of applying charges to customers.

As this option would involve a large range of charges, it would be very difficult to

administer on a national basis. This would result in lengthy connection processing

lead times for customers.

This would be unlikely to result in stable charges - customers would not benefit from

the cost certainty provided by standard charges.

33

Lack of regulatory precedent – utilities typically apply some form of standard charges

to customers.

7.2 Option 2: Limited standard charges

It is possible to develop standard charges for certain elements of the connection works such

as boundary box, metering apparatus, quality assurance, physical connection to the existing

Irish Water network etc. Charges for all other connection works would be applied on a

quotable basis.

Advantages

This would be a reasonably cost reflective approach and it would provide some cost

certainty to the customer.

Correctly designed, this approach could encourage efficient use of assets as it would

provide some price signals on the actual cost of providing connections.

Disadvantages

Only limited connection works would be standardised, making this option difficult to

administer and complex for customers to understand.

7.3 Option 3: Standard charges for standard connections and quotable charges

for works outside of standard parameters

Under this option, customers connecting to the water and/or wastewater networks are

charged for a connection based on standard charges which are set to reflect the average

cost of providing a standard connection. In general, these standard charges are regulatory

approved and remain in place for a given time period. Customers with connection

requirements that fall outside the parameters of a ‘standard connection’ will be charged the

additional cost of providing their specific connection.

Standard charges apply irrespective of the site specific costs or ground conditions of

individual connections. Connection conditions will vary from site to site, meaning that there

will be some variance in the actual costs faced by the utility on a case by case basis.

However, a correctly designed standard charge will ensure that the full cost of all standard

connections in a given period will be covered by the charges received. Where any variance

occurs in cost recovery versus efficient costs incurred, this is corrected through a revision of

the standard charges and/or ex-post adjustment to the Regulated Asset Base (RAB) of the

utility.

Not all connection categories are suitable for standardisation. Large connections are likely

to require bespoke connection works and are generally charged for on a quotable basis.

34

Advantages

From a customer perspective, the benefit of standardised charging is that it brings a

level of certainty. A standard charge is subject to regulatory validation and approval

as representing a fair average charge.

Standard charges are transparent, stable, and simple to explain to customers.

Standard charges facilitate the timely administration of a large number of

connection applications.

Disadvantages

Standard charges are less cost reflective than quotable charging on a case by case

basis.

7.4 Option 4: ‘One Size Fits all’ Standard Charge

A ‘one size fits all’ connection charge means that all customers connecting to the water

and/or wastewater network would face a single fixed charge.

Developing such a charge would involve determining the estimated full cost of providing

connection assets over the course of a given time period and dividing by the estimated

number of connections.

It could be the case that the majority of customers fall within a single standard category, in

which case a single charge would be appropriate. However, putting a single charge in place

when the data points to significant variance in the cost would not be fair or appropriate.

Advantages

This type of charging would be simple to administer.

Disadvantages

It is likely that there would be too much variance between connections for this

charge to be fair and cost reflective. Some large customers may drive significant

network or treatment infrastructure which would be subsidised by customers

requiring smaller connections, or customers that had made efficient locational

decisions.

7.5 Irish Water evaluation and proposal

Irish Water has evaluated the four options identified against the key CRU principles, as

summarised in Figure 7.5.

35

Figure 7.5 Charging Mechanisms – evaluation against principles

Cost Reflectivity: Quotable charges for all would be the most cost reflective option, as

customers would pay the full project specific cost of their connection. A one size fits all

standard charge would have the opposite effect, as projects with very different cost bases

would pay the same connection charge. The remaining options would not fully meet the

principle of cost reflectivity as standardisation requires the use of average costs for

customers that meet the same connection parameters.

Efficient Use of Assets: Quotable charges for all would best meet this principle as customers

would be charged the full cost of facilitating their specific connection, encouraging the use

of existing assets and capacity. A one size fits all standard charge would not meet this

principle as it would not provide any price signals to encourage efficient asset use. The other

two options both score reasonably highly as specific connection requirements are included

in the costing approach.

Equity and non-discrimination: Quotable charges for all would best meet this principle as

customers would be charged the full cost of facilitating their specific connection. A one size

fits all standard charge would not score well against this principle due to the likelihood of

large variances in connection requirements and the probability of cross-subsidisation.

Limited standard charges and standard charges within standard parameters both score

reasonably highly. Standard charges within standard parameters achieves a high score as

Charging principles Quotable for

all

Limited

standard

charges

Standard

charges within

standard

parameters

A 'One Size

Fits All'

standard

charge

Cost Reflectivity

Efficient use

Equity

Stability

Simplicity

Cost Recovery

36

this approach would ensure that customers with the same connection requirements and the

same impact on the network are charged on the same basis. This is particularly relevant for

domestic and small non-domestic connections, as these tend to require the same

connection works.

Stability: Standard charges within standard parameters provide a high level of stability in

the charge level as, once approved by the regulator, they are only reviewed periodically.50 A

one size fits all standard charge would be the most stable option as it would not be cost

reflective and therefore not require regular cost review. Limited standard charges and

quotable charges for all are less stable as greater account is taken of the specific connection

requirements in each case.

Simplicity: While the standardisation of charges inevitably reduces cost reflectivity for

connections deemed to be standard, this will be balanced by simplicity and ease of

administration, facilitating predictable charges for customers and timely issuance of

connection offers. Quotable charges for all would be extremely difficult to implement for a

national utility.

Cost Recovery: While charging quotable costs to all would be the most effective means of

achieving full cost recovery, each option could be designed to ensure cost recovery for the

utility. Standard charging will require periodic review of the charges to ensure that costs are

being recovered from connections.

Irish Water believes that it is appropriate to introduce standard charges for standard

connections, which cover the cost of providing infrastructure to facilitate the connection.

Irish Water proposes that customers who fall within defined standard parameters will pay

on the basis of standard charges.

All connections that fall outside of the standard parameters will incur a quotable51 charge,

as will any additional works required. Quotable charges will also apply for large

connections, where bespoke connection works are required.

Irish Water has proposed parameters for the definition of standard connections in IW-

CCPP-002 and proposed standard charges in IW-CCPP-004.

Irish Water has utilised a contractor framework to ensure efficient and consistent costs in

the development of the proposed standard charges. Applying standard connection

charges for water and wastewater connections is consistent with the charging regimes of

other utilities in Ireland and water utilities in the UK. It is also the closest model to that

50 Review of the standard charges may take place at the time of the utility price control submission, for example.

37

operated by the LAs prior to 1st January 2014, potentially leading to an easier transition to

a new charging regime.

Irish Water proposes that where standard charges apply, this will be in the form of a

single charge which will include a contribution to Network Infrastructure. This approach

differs slightly from the UK practice where the infrastructure charge is applied as a

standalone charge. It will, however, have the benefit of clarity and simplicity for

customers who will pay a single fee for connection.

As demonstrated in Figure 7.5, standard charges within standard parameters achieves the

best balance across the principles set out by the CRU. This proposal will ensure that cost

recovery will be achieved for new connections. While there will be some trade-off on cost

reflectivity at the individual connection level, connecting customers will have a simple,

equitable, and relatively stable charging mechanism which will facilitate the timely

administration of connections. Quotable charges for additional works, large connections

and those that fall outside of the standard connection parameters will deliver appropriate

price signals to encourage the efficient use of assets.

51 Quotable charges will be included in the Connection Agreement as estimates. The customer will subsequently pay the outturn costs once these have been established. This will be set out in the Connection Agreement.

38

8 Connection Charging Policy Key Decision 4 – Connection Categorisation. __________________________________________________________________________________

The next key Connection Charging Policy decision is the categorisation of connections for

the application of standard charges. This section outlines the options that Irish Water

considered in setting categories and evaluates these options against the CRU principles.

8.1 Setting of Customer Categories

The first step in categorising customers is to distinguish between domestic and non-

domestic connections. This is a standard approach in the classification of connections and is

consistent with the connection charging policies of the UK water utilities, ESB Networks and

GNI.

Irish Water proposes that all connections are further categorised based on the size of

service pipe required to make the connection. In developing this proposal, Irish Water

considered three approaches to categorising connections and evaluated each against the

principles set out by the CRU. The three approaches are:

1. Size of service pipe.

2. Water/wastewater peak flow.

3. Floor area.

8.1.1 Size of service pipe:

This option involves categorising connections by the size of the service pipe required to

provide water services to the premises, based on average flow. Standard charges can then

be developed based on the costs of delivering standard pipe sizes.

Advantages

This is a cost reflective means of categorising connections. The cost of providing the

service connection will be determined by the size of the pipe required and the

accessories. The size of the service pipe is also an indicator of connection costs

beyond the connection point – a large pipe size will mean that the customer is likely

to require additional network reinforcements in order to obtain a connection.

This is an equitable and non-discriminatory method of categorisation – the charging

of customers will be based on the pipe size required to meet their water services

demand.

This is a simple and intuitive categorisation method.

Categorising the works element of connections on the basis of pipe size is the

approach used by UK water utilities including Welsh Water, Scottish Water and

Northern Ireland Water.

39

Disadvantages

A limited number of industry standard pipe sizes exist, limiting the range of potential

connection categories.

8.1.2 Water/Wastewater Peak Flow:

This option refers to the categorisation of customers by their water or wastewater peak

flow rates. This is similar to segmenting by pipe size – both capture the demands that the

connection places on the network. In effect, this is a variation of categorising by pipe size –

using peak flow rather than average flow as the determinant.

Advantages

This is a cost reflective, equitable and non-discriminatory means of categorisation –

the charging of customers would be based on the connection assets required to

meet their water services demand.

This is a simple and intuitive categorisation method.

Disadvantages

There is no available data to support peak flow analysis.

There is scope for perverse incentives – charging based on peak flow may incentivise

customers to over/under specify requirements.

8.1.3 Floor area:

The third option is to classify customers and apply connection charges based on the floor

area of the property or development to be connected. This approach has been applied

previously by the LAs in the charging of development contributions for the provision of

water and wastewater infrastructure.

Advantages

As part of the existing connection charging model for the application of

connection charges, this option would have the benefit of customer familiarity.

This would be a simple method of administering charges.

Disadvantages

This option is not a cost reflective or equitable means of classifying connections.

Floor area is not a reliable indicator of the cost of providing a connection to the

water and wastewater network.

This option does not meet the principle of equity and non-discrimination. A

customer with a demand that requires a large service pipe size (with an

40

associated high cost) could face a low connection charge if they operate from a

plant with a small footprint. Similarly a customer with a large property (such an

office space) but a relatively modest water or wastewater demand would face a

high connection charge, relative to the actual cost to Irish Water of providing the

connection.

8.2 Irish Water evaluation and proposal

Irish Water has evaluated the three options against the key CRU principles, as summarised

in Figure 8.2

Figure 8.2 Connection Customer Categorisation – evaluation against principles

Cost Reflectivity: Categorising on either pipe size or peak flow would be cost reflective as

these are determinants of the cost of providing a connection. Floor area has no correlation

to the cost of providing a connection and is therefore not a cost reflective option.

Efficient Use of Assets: Categorising on either pipe size or peak flow would encourage

efficient use of existing assets as the connection is categorised based on criteria that

impacts the cost of providing the connection. Categorising based on floor area would not

Charging principles Pipe size Peak Flow Floor Area

Cost Reflectivity

Efficient use

Equity

Stability

Simplicity

Cost Recovery

41

encourage efficient use of assets as there is no link between the floor area of a property and

the cost of providing a connection to that property.

Equity and non-discrimination: Categorising on either pipe size or peak flow would meet

this principle as these options are clearly linked to the cost of providing the connection to

the customer. As noted earlier, the option of categorising connections based on floor area

would not meet this principle.

Stability: categorising by pipe size is a stable means of categorisation as pipe size standards

used on the network will only change following technical review. Customer peak flow levels

will vary and are therefore less stable for charging purposes. Floor area can also be

considered as a less stable means of categorisation due to potential variations in the floor

size of connecting customers over time – e.g. a trend toward smaller units may result in a

shortfall of cost recovery and subsequently an increase in standard charges.

Simplicity: Categorising based on pipe size is a simple and intuitive method. Categorising by

floor area would be simple to implement yet not simple to justify or explain to connecting

customers as it not linked to the actual cost of providing the connection. Categorising by

peak flow would be very difficult to implement as the data does not exist to support the

necessary analysis.

Cost Recovery: Categorising based on pipe size or peak flow would support efficient cost

recovery as these categorisation methods are linked to the cost of providing a connection.

Categorising based on floor area would not be a good option for cost recovery as there is no

link to the actual cost of providing a connection to that property. This could lead to an

over/under recovery of costs requiring ex-post adjustment to the RAB.

Irish Water proposes to use pipe size as the method of customer classification for the

Connection Charging Policy. It is the option that performs best in relation to the principles

set out by the CRU. While categorising by peak flow also performs well against the CRU

principles, the lack of data available to support peak flow analysis would make this a very

difficult option to implement. Categorisation based on floor area does not compare well

to the other two options when analysed against the CRU principles.

Irish Water’s proposal was also influenced by the significant precedent in Ireland and the

UK for proposing pipe size as the means of connection classification.

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8.3 Application of the customer categories – Standard Connection Parameters

Irish Water is proposing to categorise customers on the basis of the size of the service pipe

needed to serve each customer. The approach to determining connection categories and

parameters was as follows:

1. Irish Water determined initial Customer Categories and Customer Parameters

I. Identified connection categories (domestic and non-domestic)

II. Domestic connections were segmented into

o Domestic Single

o Domestic Development

III. Non-Domestic connections were segmented into

o Small Non-Domestic

o Medium Non-Domestic

o Large Non-Domestic

IV. Connection parameters were then established for each category:

i. As per technical review of Standard Details and based on the average

flow per pipe size.

2. Irish Water compared initial Irish Water connection categories/parameters to

available information from other water utilities.

3. Irish Water reviewed information obtained from a Public Procurement Process for a

Regional Connection Framework Contractor.

4. Irish Water proposed Customer Categories and Connection Parameters as set out in

Tables 8.1 & 8.2.

All of the pipe sizes and technical requirements specified in the Connection Charging Policy

document were developed in line with Irish Water’s Technical Documentation relating to

Connections and Developer Services. The applicable documents, available at www.water.ie,

are as follows:

Water Infrastructure Standard Details (Document Number: IW-CDS-5020-01);

Wastewater Infrastructure Standard Details (Document Number: IW-CDS-5030-01);

Code of Practice for Water Infrastructure (Document Number: IW-CDS-5020-03 );

and

Code of Practice for Wastewater Infrastructure (Document Number IW-CDS-5030-

03).

The Technical Documents provide guidance to developers in the provision of Local

Infrastructure. They also provide the basis for developers’ detailed design proposals for

water or wastewater infrastructure, leading to the provision of infrastructure that is suitable

for connection to Irish Water’s networks and easy operation and maintenance.

43

The Technical Documents are based on best practice within the water industry. They take

account of the experience of Local Authorities in the provision of these services to new

developments.

The Standard Connection Parameters for water and wastewater connections, based on pipe

size, are set out in the tables below. The tables also include a summary of works covered

under the standard charge. A detailed description of these works is set out in IW-CPDD-004,

together with the proposed standard charges.

In accordance with the Connection Charging Policy, Large Non-Domestic connections and

customers with additional and/or specific connection requirements outside of the Standard

Connection Parameters will incur a quotable charge.

Standard Connection Parameters – Water

Category

Service Pipe Size

(mm)

Service Connection

Infrastructure

Network Infrastructure

Single Domestic (1 unit) 25 To max. of 10m Included

Domestic Development (Multiple units)

Dependent on number

of units To max. of 10m Included

Non Domestic Small 1 25 To max. of 10m Included

Non Domestic Small 2 32 To max. of 10m Included

Non Domestic Medium 1 50 To max. of 10m Included

Non Domestic Medium 2 80 To max. of 10m Included

Non Domestic Medium 3 100 To max. of 10m Included

Non Domestic Medium 4 150 To max. of 10m Included

Non Domestic Medium 5 200 To max. of 10m Included

Non Domestic Large >200 Quotable Quotable

Table 8.1: Works Coverage of Proposed Standard Connection Parameters for Water connections

Standard Connection Parameters - Wastewater

Category

Service Pipe Size

(mm)

Service Connection

Infrastructure

Network Infrastructure

Domestic (1 Unit ) 100 To max. of 10m Included

Domestic Development (Multiple units)

Dependent on number

of units To max. of 10m Included

Non Domestic Small 100 To max. of 10m Included

Non Domestic Medium 1 150 To max. of 10m Included

Non Domestic Medium 2 225 To max. of 10m Included

Non Domestic Large >225 Quotable Quotable

Table 8.2: Works Coverage of Proposed Standard Connection Parameters for Wastewater connections

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Service Connection Infrastructure:

10m of service pipe has been allowed in the standard charge. This represents the width of a

road and should capture connections where the property boundary is at either the near or

far side of the road relative to the public main or sewer. As per the NRA52 Design Manual for

Roads & Bridges this represents a Standard Carriage Way width (3.75m x 2) plus a 2.5m

verge.

Mains Extension Infrastructure:

Any extension required to a mains/sewer in the public road to facilitate a connection will

incur a quotable charge.

For Single Domestic (1 unit) and Small Non-Domestic customers (i.e. those with a service

pipe size of 25mm/32mm for water and 100mm for wastewater) a mains/sewer extension is

typically not required. Such connections are typically located within the ‘infill distance’ i.e.

the sewer/mains is running outside the property.

Network Infrastructure:

All standard connection charges include a contribution to the cost of Network Infrastructure

required to provide potable water and collect wastewater. This is based on planned

network infrastructure or upgrades to facilitate growth.

Uniform Charging for 25mm pipe size (water) and 100mm pipe size (wastewater):

Irish Water is proposing uniformity in charges on a per unit basis. All customers seeking a

water connection that can be accommodated on a service pipe size of 25mm will be charged

the same standard charge. Similarly all customers seeking a wastewater connection that can

be accommodated on service pipe size of 100mm will be charged the same standard charge.

These customers will have the same demand on the network and will impact the network in

the same way. Charging these customers on a uniform basis per unit is consistent with the

principle of equity and non-discrimination.

52 National Roads Authority.

45

9 Standard Industry Practices __________________________________________________________________________________

This section describes a number of additional policy areas, based on standard industry

practices, which Irish Water proposes to adopt. These proposals are outlined below,

together with the supporting rationale.

9.1 Least Cost Design Solution

This policy, which is applied by GNI, ESBN and EirGrid, means that customers are charged

the lowest cost method of connection which meets the planning and technical standards of

the utility. This principle ensures that customers only face connection charges for the assets

that are required to connect them to the network and do not pay for the cost of wider

network development which should be recovered from all customers.

9.2 Upsizing of Connection Assets

If Irish Water elects to upsize a connection asset in the interest of future planning, the

charge to the customer will be capped at the Least Cost Design Solution charge. This is

considered fair and appropriate as the oversizing is not being carried out to the benefit of

the connecting customer and therefore the costs should be covered by the RAB.

The upsizing of connection assets is commonly undertaken by utilities, particularly in areas

where future growth in connections is anticipated. This can be a very efficient network

planning activity as additional capacity can be provided to facilitate future connections

without the requirement to replace mains or sewers. Capping the charge to the connecting

customer where the asset is upsized is common utility practice which delivers on the

principles of Efficient Use of Assets and Equity and Non-discrimination. Both ESBN and GNI

apply a similar policy which ensures that connecting customers do not bear the cost of

network development unrelated to their own connection requirements.

9.3 Strategic Network Development

In certain scenarios Irish Water may be required to provide Network Infrastructure and/or

Treatment Infrastructure in advance of customers entering into Connection Agreements.

These situations may include Strategic Development Zones or other development initiatives

(such as the Government’s ‘Rebuilding Ireland’ plan) where certain areas are identified for

strategic infrastructure investment. Expenditure by Irish Water on water services

infrastructure required under such initiatives will be agreed with the CRU.

Customers locating in such affected areas that require a connection will be charged in

accordance with the Connection Charging Policy.

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9.4 Payment Terms and Security Requirements

Irish Water proposes that connection charges are paid in advance of works being carried

out. The Connection Charging Policy document (IW-CCPP-002) also sets out proposed

circumstances in which financial security will be required. Where financial risks exist in the

provision of connections, it is common practice for the utility to request financial security as

a condition of connection. These risks may include the (1) the non-payment of connection

charges where works are phased and (2) potential costs associated with the failure to

complete self-lay works in line with Irish Water technical standards. Costs would arise from

a failure on the part of the connecting customer to comply with the terms of the connection

agreement. Various levels of risk could be transferred from the connecting customer to the

wider water user. While there may be legitimate public policy reasons to transfer such risks,

such as to encourage new development, Irish Water considers that for a new utility it is not

appropriate to assume risk on the behalf of the wider water user. We invite input on this

from stakeholders via the CRU’s consultation process.

9.5 Self-Lay

Irish Water understands that developers of new housing developments have historically

been allowed by LAs to construct service connections and infrastructure within the

boundary of their own site. This infrastructure is ultimately taken in charge by the Local

Authority (Irish Water proposes to vest the infrastructure through the Connection

Agreement) and becomes part of the public water infrastructure.

The Connection Charging Policy proposes that developers of new housing developments

will continue to have the option to self-lay Local Infrastructure within the boundary of

their own site, subject to the works being carried out in accordance with Irish Water’s

Standard Details and Codes of Practice. Irish Water will make the connection from the

developer’s site to the existing network.

The issue of self-lay is one that Irish Water has considered at length. On the one hand, Irish

Water would like to give as many options as possible to connecting parties. On the other

hand, there are significant issues with the quality of large portions of the water and waste

water infrastructure previously laid by developers. This is highlighted by the “Big Freeze” of

2010 where many customers experienced significant water interruptions due to the water

infrastructure being laid too near the surface. In addition, there are many housing estates

where LAs are refusing to take in charge53 until the developer carries out works to bring the

public infrastructure into line with the required standards. Irish Water understands that the

water and wastewater infrastructure is the most significant issue in the majority of these

53 The requirements for Local Authorities to take in charge housing estates are set out in Section 180 of the Planning and Development Act 2000.

47

cases. To protect the wider water user from the risks associated with substandard

construction works, the connection agreement will contractually oblige developers to

comply with Irish Water’s Standard Details and Codes of Practice. Additionally, Irish Water

proposes that developers will be required to put in place a Self-lay Surety which Irish

Water would draw down in the event of non-compliance with these Standard Details and

Codes of Practice.

Irish Water does not propose to allow self-lay of water or wastewater infrastructure

constructed outside the boundary of the developer’s site in normal circumstances. Irish

Water must ensure that its entire network infrastructure is constructed to the same quality

standards. Without adequate safeguards, customers face the risk of substandard connection

infrastructure which would lead to a substandard service, risks to public health and

remediation costs. In the gas and electricity utilities in Ireland, for domestic connections,

both GNI and ESBN lay their entire infrastructure themselves, albeit the developer does the

trenching work. Developer laying of utility infrastructure that will become part of public

infrastructure is not the normal approach for domestic connections in Ireland.

There may be circumstances where Irish Water will allow Developers to complete works on

behalf of Irish Water. Irish Water will need to supervise all such works to ensure there is full

compliance with all safety and quality assurance standards. Irish Water reserves

responsibility to complete the connection from the Service Connection Infrastructure to the

public water main or sewer. Irish Water will incur engineering, safety and supervision costs

where Developers are permitted to complete works on its behalf. Irish Water will agree the

applicable reduction (based on works completed and assets provided by the Developer) to

the Quotable Charge to reflect the self-lay with the Developer in advance of the works.

If self-lay provision is to be extended, it will require a statutorily backed registration scheme,

similar to that administered by the CRU for electricity and gas installers. Irish Water will

review a mechanism by which competent and certified third party contractors may be

accredited to carry out these works at a future date. Irish Water will engage with the CRU on

this matter.

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10 Conclusion __________________________________________________________________________________

The current connection charging regime is complex, inequitable, and inconsistent.

Customers are charged differently depending on the Local Authority area in which they are

seeking a connection. Charging is not cost reflective and is primarily based on square area

rather than the level of water services required.

There is a clear requirement for an Irish Water Connection Charging Policy that provides a

consistent connection service and a uniform charging approach to all connecting customers.

Irish Water is proposing a Connection Charging Policy with a charging regime that is

transparent and simple for connecting customers.

The key features of the Irish Water proposal are as follows:

1. A Connection Charging Policy applied country-wide on a uniform basis;

Equitable and non-discriminatory;

Simple and cost effective to administer;

Significant precedent in other utilities; and

No exemptions for any customer group.

2. A partially deep Connection Charging Policy that ensures that all connecting customers

contribute to the cost of providing Network Infrastructure required to facilitate

connections;

All connecting customers contribute to Network Infrastructure investment to

facilitate connections;

In general, customers will not pay towards Treatment Infrastructure;

Cost reflective but not excessive;

Provides price signals to encourage efficient use of assets;

Costs will be recovered from connecting customers not existing customers; and

In line with current charging precedent.

3. Categorisation of customers for the application of standard charges based on the size of

pipe required to facilitate the connection;

o Uniform charge to apply per unit for standard domestic and small54 non-

domestic connections (including banded charges for developments of more than

10 units per application);

54 25mm pipe size for water connections.

49

4. Standard Connection Charges will apply to the majority of customer categories.

Quotable55 charges will apply for additional works, large non-domestic connections, and

those that fall outside of the standard connection parameters.

o Simple and cost effective to administer;

o Supports an end to end standard connection service offering;

o Equitable and non-discriminatory.

The Connection Charging Policy proposals set out in IW-CCPP-002 and explained in this

document represent a utility model of connection charging that will recover the cost of

providing water and wastewater connections from connecting customers in a fair and

efficient manner. The proposals provide a reasonable balance across the principles set out

by the CRU and will support the ongoing development of Ireland’s water services.

55 Quotable charges will be included in the Connection Agreement as estimates. The customer will subsequently pay the outturn costs once these have been established. This will be set out in the Connection Agreement.