First mover disadvantage: creating equity and clarity for new water connections

In May 2023, the Commission for Regulation of Utilities (CRU), published its decision on future water connection charging policy under the first mover disadvantage.

 This scenario was where a developer, either domestic or non-domestic, is required to pay Uisce Éireann for a connection extension to the water network for their development project and, subsequently, other developers make use of this connection extension to separate development projects without contributing to the cost that the original developer incurred.

This meant the connection extension charge was not proportionally distributed between developers and one developer pays more than others for the same asset that they are sharing, effectively meaning the first mover developer bears the cost of an asset that others can then benefit from.

During the public consultation that set out proposed approaches for addressing first mover disadvantage, the CRU received a high response rate from stakeholders, which were both informative and constructive in developing the CRU finals policy decision.

Having considered all responses, the CRU decided to proceed with an approach called the Shared Quotable Rebate (SQR).

The key features of this approach were:

• • it would be funded by subsequent developers connecting to the first mover developer’s asset;
• • funding would be provided only if any subsequent developers connect to the first mover developer’s asset;
• • a time limit would be applied between the first mover developer’s connection (and the subsequent connection(s); and
• • funding would be provided to the first mover developer after any subsequent developer(s) connect.

The SQR approach meets the objectives of the Government Housing for All plan and addresses first mover disadvantage by redistributing the cost of the connection to ensure that everyone pays for a portion of the asset that they are using.

As it currently stands, the first mover developer bears the cost of an asset that others can then benefit from. The approach will also encourage more developers to share the funding of water and wastewater network infrastructure in areas where it does not already exist, aligning with the Government’s aim for accelerated housing delivery over the coming years.

The SQR differs from other approaches, as a rebate will be funded by subsequent developers and will not be speculatively subsidised by Uisce Éireann. This imposed additional costs on the utility, which in turn would impact taxpayers, non-domestic customers with increased connection charges.

The SQR approach is based on actual costs when they actually arise, rather than on estimated costs for a scenario that might never arise and is broadly consistent with the connection charging treatment of first mover developers in the electricity sector.

The CRU considers that this strikes the right balance between ensuring that developers are compensated for other developers making use of the asset that it funded, ensuring that the water utility continues to operate efficiently and that taxpayers do not carry the burden of funding the rebates.

“The SQR differs from other approaches, as a rebate will be funded by subsequent developers and will not be speculatively subsidised by Uisce Éireann.”

As a result of submissions received during the consultation, the CRU decided to make several improvements to this overall approach. These changes had a positive impact on the proposed approach, which may contribute to further accelerated housing delivery.

The proposals are outlined below.

• Timeframe: The timeframe for this approach is now 10 years (extended from five years).
• Self-lay: Self-lay developers, which are those who construct their own connections are now eligible to be covered by the first mover developer policy.
• Asset upsizing: Where Uisce Éireann decides to upsize an asset that has capacity for others to connect and was funded by the first mover developer (prior to UÉ upsizing), the first mover developer will receive a rebate in the first instance.
• Engagement: Uisce Éireann will proactively engage with the developers to help them understand how their rebate was calculated and will publish examples of how the rebate can be calculated under different scenarios.

In addition, the government recently announced the introduction of a refund for Uisce Éireann’s new housing standard connection charges for 12 months.

The CRU believes this is a positive development which, in combination with the new first mover developer policy and will have a positive impact on reducing the cost of housing construction. It is important to note that while the refund is a temporary government measure, the first mover disadvantage policy is an enduring policy that will continue to apply after the temporary refund elapses.

To accelerate access to the new policy for future developments, Uisce Éireann will support the implementation of the policy by offering developers who apply for connection on or after the 1 August 2023 to have an option to avail of first mover disadvantage. In addition, Uisce Éireann will target a manual implementation, or go live, of the scheme by November 2023, with full implementation by May 2024.

Overall, the CRU considers the new policy a fair and equitable approach that will benefit all end water users.

W: www.cru.ie