What is a revenue control?
In its role as economic regulator, the CRU must act with regard to the need to ensure that Irish Water operates in an efficient manner in delivering its services to customers. A revenue control is a method of setting the amount of money (‘allowed revenue’) that can be recovered by Irish Water over a period of time (the ‘revenue control period’). The CRU sets Irish Water’s allowed revenue at a level which allows Irish Water to recover its efficiently incurred costs.
The revenue control process involves the CRU engaging with and reviewing Irish Water’s submissions, benchmarking Irish Water’s proposed costs against comparator companies, completing a public consultation process, and thereafter setting appropriate revenue allowances for operating costs, capital costs and other items. Essentially the CRU balances the level of operating and capital cost efficiency required from Irish Water while at the same time ensuring Irish Water has sufficient revenue to deliver necessary services. The CRU also sets ‘efficiency targets’ for Irish Water, challenging Irish Water to reduce its spending while maintaining and improving services to customers.
At the end of a revenue control period, the CRU evaluates Irish Water’s spending to determine whether it was within the pre-determined allowance and whether it delivered its defined outputs and outcomes for the revenue allowed by the CRU.
IRC1 and IRC2
The CRU has carried out two revenue controls to date (IRC1 and IRC2). Both of these revenue controls have been ‘interim’ or short term revenue controls due to the fact that the CRU was mindful that Irish Water, as a newly-formed utility, may not have been able to provide relevant data to facilitate a longer revenue control period (typically 5-6 years).
The CRU set the initial review period ‘IRC1’ to cover 1st October 2014 to 31st December 2016. Subsequently, the CRU put in place a second revenue control period ‘IRC2’ to cover the period from 1st January 2017 to 31st December 2018.
The Water Services Act 2017 was enacted on 17 November 2017. Under this legislation, additional steps need to be completed in advance of the CRU’s decision on the revenue that Irish Water can receive through Government subvention and charges. These steps include the development of a Water Services Policy Statement (by the Minister) and a Strategic Funding Plan (by Irish Water), and will provide some certainty regarding the level of Government funding that will be available to Irish Water over a multi-year period. Due to this fact, and in order to allow the CRU complete its normal regulatory process, the CRU has decided to extend the current revenue control (IRC2) by one year, so that it will cover the period from the start of 2017 until the end of 2019. This means that the next revenue control will start from January 2020 and it is envisaged that this will cover a five year period. A longer revenue control period will provide a level of certainty to Irish Water and will help it plan for and complete the work necessary to drive cost efficiencies and service improvement over a number of years.
How is Irish Water performing?
To read about how the CRU monitors and reports on Irish Water’s performance, please refer to the section on Monitoring & Reporting.
Where can I find out more?
To learn more about Irish Water’s current allowed revenue, please refer to the CRU’s decision paper and associated materials on Irish Water’s Second Revenue Control Period.
To read about revenue allowed under Irish Water’s First Revenue Control Period (IRC1), please refer to our decision paper and associated materials on Irish Water’s first Water Charges Plan.
The CRU also determines allowed revenue in the energy sector. Please click here to read more about our work in gas and electricity.