Affinity Water is preparing to launch the sector’s first novel tariff to drive down consumption and promote affordability for billpayers following Ofwat’s update to charging rules.
Consumers in 1,500 households will be allocated their first block of water free, and progressively higher rates will apply to subsequent blocks. To encourage consumption awareness, usage over a certain amount will be charged a higher rate.
Ofwat called on the sector to introduce innovation to charging structures and updated its best practice policy to support companies to trial alternative approaches to billing.
Martin Hall, head of economic regulation, told Utility Week the trial is aimed at the companies’ highest water consumers.
Consumption data shows 10% of customers are using this high rate of water, but only 1% of households are made up of eight or more people.
The premium kicks in at 245 cubic metres annually, which equates to the consumption of an eight-person household and customers will be warned ahead of their usage tipping into the higher charges.
Ofwat suggested companies could: explore seasonal charging to lower bills in the winter; lowering bills for homes with water butts or permeable driveways as sustainable drainage; or, time of usage charges to reflect when more or less supplies are available.
David Black, Ofwat chief executive, said: “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.”
Hall said the company ran some trials a decade ago and over the past two years began developing the tariff. “When Ofwat announced its policy for innovation around tariffs, it was something we were already doing,” Hall said. “We hope that by taking the lead we encourage other companies to run their own trials with different objectives and then across the industry get a view of what works.”
He said there was scope to extend the charge structure, based upon the evidence and data gathered during the two-year trial period that will run to the end of this asset management period (AMP7).
The company will communicate with customers ahead of the start of the pilot as well as during it. Lucy Hurst, Affinity’s PR24 project manager, said it was essential to engage households early about the trial. “It’s important to engage with customers about what the trial will mean for them to get buy in.” She explained there will be communications ahead of the start date and regular consumption updates throughout the pilot with information about what their bills will look like. This is intended to raise awareness of how usage impacts bills.
Tariff innovation was highlighted in Affinity’s strategic direction statement as a means to improve affordability for customers. Hall explained the experiment was conceived to understand how customers will respond to an alternative pricing structure and what impact it will have on usage.
The trial will be launched later this year to a test group representative of Affinity’s consumers with high and low income households and varying consumption, but all will have a water meter. The company will compare this to a control group parallel to the trial.
Black added: “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.”