Ofwat is calling on more water companies to trial innovative ways of charging customers, to make bills more affordable and help encourage customers to use water wisely.
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.
The announcement comes as Ofwat confirms its good practice principles for trialling different models for how people pay for water. Currently, customers’ bills are set on a flat standard amount based on their type of property, or on flat rate based on how much water they use.
Under Ofwat’s updated charging rules, the trials might include:
- seasonal charging to help lower water bills in the winter;
- 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; and
- charges to support messaging about reducing water use at times when water is less available.
Successful trials could be rolled out to all households in a given area.
David Black, Ofwat CEO said:
“We know that an increasing number of customers are struggling with cost of living pressures. At the same time, water resources are being impacted by climate change which poses significant long-term challenge to river water health and security of water supply. While charging is only one approach, companies need to use every tool at their disposal to support affordability, encourage us all to use water wisely and reduce our impact on the environment.
“We are encouraged that Affinity Water is leading the way in developing ways to reduce bills for customers while protecting our precious water resources. We want to see more companies seeking out and implementing innovative solutions.”
The regulator’s good practice principles for charging trials include robust trial design and evaluation, effective engagement with and support for customers, for example in addressing household leakage, and maximising learning across the sector. Ofwat’s customer protections remain in place, including on the overall limits companies can charge customers.
- Ofwat’s decisions on charging trials are set out in ‘Conclusions on charging innovation to support affordability’. It follows a consultation in September 2022. In December 2022 the regulator also concluded on changes to its charging rules for water companies for April 2023 onwards, to support affordability and facilitate trials.
- Ofwat published new cost of living research in December 2022 that showed a 33% rise in number of customers struggling to pay their water bill. Link to press release: https://www.ofwat.gov.uk/pn-37-22-33-rise-in-number-of-customers-struggling-to-pay-their-water-bill/
- Affinity Water is a company delivering water-only services to 1.4 million households across parts of Bedfordshire, Berkshire, Buckinghamshire, Essex, Hertfordshire, Surrey, the London Boroughs of Harrow and Hillingdon and parts of the London Boroughs of Barnet, Brent, Ealing and Enfield. It also supplies water to the Tendring peninsula in Essex and the Folkestone and Dover areas of Kent.
- Affinity Water’s trial will involve 1,500 pre-selected customers – with a further 1,500 customers selected to compare the results against. Ofwat estimates that currently up to 10% of customers are on reduced charges for affordability or health reasons, and would continue to be eligible for these discounts irrespective of the trial or other changes to charges. The company will contact individual customers selected as part of the trials later this year. Further information on Affinity Water’s charging trial is available on the company’s website at: affinitywater.co.uk/news/tariff-trial
- Affinity Water is trialling a form of rising block tariff:
- A rising block tariff (RBT) charges more per volumetric unit of water for each subsequent block of water used.
- Each block is associated with a certain amount of water and can be designed on a per person basis or a per household basis.
- Blocks can be set at different levels. For example, to reflect essential use, average use and discretionary use.
- RBTs have been used as the basis for some water bills in Australia, Asia, South America, Portugal, Spain and the USA.
- Graphic: how a rising block tariff works