An increasing number of customers are struggling to pay their water bills and the rise in the cost of living puts a sharper focus on affordability challenges. At the same time, climate change poses significant long-term challenges to the sector. A wide range of tools are needed to tackle these issues and new approaches to setting charges can play a role to support affordability, as well as other objectives such as incentivising water efficiency.
We called on water companies to conduct charging trials that are accompanied by effective customer engagement and support. The trials are aimed at supporting affordability, and potentially other sustainability goals such as reducing demand. See our September 2022 consultation and March 2023 conclusions.
On this page you can find more information about:
- current charging trials
- how we regulate charges to protect customers
- how household charges are currently structured
- trialling new charging structures
- good practice principles for charging trials
- our expectations of water companies in sharing information about charging trials
Current charging trials
|2023-24||Affinity Water, which supplies drinking water across South East England, plans to be the first to implement a charging trial under new Ofwat rules. Due to go live later this year, it will charge around 1,500 pre-selected households a cheaper rate for using a lower amount (or ‘block’) of water, and progressively higher prices for using larger volumes of water. The company expects at least two out of three homes in the trial to pay less for their water than they do currently. More information at affinitywater.co.uk/news/tariff-trial|
How we regulate charges to protect customers
We limit the amount of revenue each water company can collect in total from its customers each year. We also have rules that require companies to set fair charges for different classes of customer. Together, these measures help to stop companies from overcharging customers and means they will be protected during charging trials. You can find out more about how we set these revenue caps on our price review web page and more about how we regulate the setting of charges on our charging web page.
Our most recent research suggests around 9% of customers receive financial support for their water bill. If you are worried about paying your bills, contact your water company to see what assistance they can offer. You can also contact CCW to get more information about the different types of help available.
To find more about our work to protect customers, learn about our work to develop a new customer-focused licence condition.
How household charges are currently structured
Water companies in England and Wales currently set their charges for household customers in different ways, depending on whether customers are metered or unmetered.
- Unmetered customers pay a fixed amount, in total, for their water. This usually comprises a small, fixed charge (the “standing charge”) and a separate fixed amount based on the rateable value of their property or an assessment of the expected water use.
- Metered customers also pay a standing charge, but then pay per litre of water consumed. The price per litre is the same, irrespective of how many or when they are consumed.
- Some customers will also be eligible social tariffs or the WaterSure scheme, which limit the size of the customer’s water bill.
Trialling new charging structures
There are other ways for companies to structure their charges, which could provide benefits and incentives to customers. For example,
- water companies could charge less per litre of water consumed up to a certain amount, and more per litre above this amount. This could help to reduce discretionary water consumption and make water bills more affordable;
- seasonal charging to help lower water bills in the winter when energy costs are higher; and
- reducing bills for homes with water butts and permeable driveways which can help to reduce risk of flooding and pollution to rivers and bathing water, particularly at times when water is scarce.
We set out some examples of charging structures in our September 2022 consultation on charging innovation to support affordability.
To learn from and better understand the likely effects of moving to new ways of setting charges, we are encouraging water companies to conduct trials of these new charging structures. This would typically involve a small number of customers paying new charges for the duration of the trial. This would allow the sector to learn things like:
- how the charges can be set to help lower-income customers with their water bills;
- how best to engage with and support customers, for example to help customers understand the new charges, get financial support (such as access to social tariffs) or help with household leaks; and
- how effective the charges are at saving water, supporting the health of rivers and alleviating water scarcity.
Good practice principles for charging trials
We will support charging trials that are consistent with good practice principles. Companies are responsible for their own charges and for designing and running their trials to test new charging structures. They will design, implement and evaluate trials that are specific to their own and their customers’ needs and circumstances. Because trials involve real customers and there are risks associated with any changes to charges, it is important that trials that are of a high standard.
Our good practice principles for charging trials are:
- Careful planning and design means trials need
- to be based on an understanding of their customers’ needs and characteristics.
- to have a clear objective, a statement of what the trial is trying to achieve and why.
- to be based on charging policy that estimate the likely impact on customers, has identified mitigating measures and has robust plans for engaging and supporting customers.
- to be based on a fair and neutral approach, to make sure findings are robust and unbiased, be large enough to be meaningful but small enough to manage.
- to reflect consistent principles to aid comparability across companies.
- Good customer engagement and support means
- Companies will need to communicate and engage effectively with their customers, explaining the purpose of the trail, so that customers feel that they have the information they need to react appropriately.
- Offering support for customers struggling to pay, informed by the estimate of potential impacts
- Supporting customers in reducing leakage and discretionary water consumption, including repairing leaks and providing advice on water efficiency
- Supporting the full diversity of customer needs, for example communication in an accessible format or help with meter reading to monitor water consumption.
- Maximising learning means
- Using experts where needed, for example, to design a consistent basis for evaluating trials.
- Collaborating with other companies to develop consistent and robust trials, including how they will be evaluated
- Sharing learning with each other, to improve the effectiveness of future trials and wider implementation of more innovative charging approaches.
Sharing information about charging trials
When companies trial new charging structures or research how charges are set in other countries and in other sectors, they should share this information with the whole sector. This can allow water companies to widen and deepen their understanding of different approaches, and analyse results from a larger number of different trials, to see what the best approach could be for their customers.
To help to facilitate this learning, we use this page to link to published information that could help the sector to understand more about different approaches to setting charges and the potential effects this could have on customers and their consumption. In addition we are establishing a shared space for water companies and CCW to share information such as trial design, challenges and opportunities around implementation, evaluation of results and analysis of customer feedback.
If you have any research or analysis that you consider would be useful to share with the sector, please get in touch at [email protected]. We are primarily looking for research on:
- the approach to setting charges in other relevant sectors or in the water sectors in other countries;
- guidance on how to set up, run and analyse charging trials; and
- analysis of the results of charging trials.