New charging structures are being trialled at eight water companies this year to address affordability concerns and reduce water consumption.
It comes after Ofwat called on the water sector to shake up how consumers are billed for the water they use to ensure low-income households are not overly-burdened.
Affinity, Anglian, Northumbrian, Portsmouth, South Staffs, South West, Southern and United Utilities all proposed running a trial in 2024-25. These vary from rising block tariffs, seasonal and peak demand charges, and essential use tariffs, all of which will be piloted this year and into the next asset management period (AMP8).
Social tariffs are in place at all companies, but have eligibility criteria that some low-income households might not meet. Ofwat wanted to see innovation in charge structures for more consumers.
Overseeing the work, Emily Bulman, director of consumer policy at Ofwat, said the regulator had urged companies to broaden the charging structures they offered to encourage water efficiency as well as lowering bills.
She explained that communicating with customers what was happening and why their bill might be changing was an essential piece of the work to ensure householders were not left in the dark.
Affinity launched the sector’s first rising block tariff trial in October with views to expand it if successful. It estimates that at least two-thirds of participants will pay less for water, even if their consumption remains the same. Billpayers are charged a low, flat rate for the first block of water consumed, after that unit charges are higher to incentivise efficiency.
As well as Affinity, Southern Water and United Utilities proposed piloting rising block tariffs in the final year of the current AMP7.
Anglian and Southern put forward seasonal tariffs to incentivise behavioural change and encourage customers to reduce discretionary usage.
South West’s plans include charging properties that are only occupied part of the year in a more cost effective way, it also proposed a peak summer demand tariff. The region was subject to a 14-month hosepipe ban after the 2022 drought.
Although the cost-of-living crisis has pulled affordability into much sharper focus, Bulman said extra data from water meters opened up opportunities to be nimble with billing.
Bulman explained the efforts to innovate around charging has been supported by CCW, who had previously recommended a single social tariff be introduced ahead of the start of AMP8 to ensure billpayers do not find bills unmanageable as investment needs rise.
From next year, South Staffs proposed running an essential use trial that would charge customers at the social tariff rate for the first 110 litres of water. It would be available for consumers who do not qualify for other social tariffs, but are struggling to pay. It would reflect the number of occupants in a home and charge the standard rate for water used above the “essential” amount.
Meanwhile, Northumbrian said its pilot tariff would reward billpayers for reducing consumption.
Affinity also plans to trial four more charging structures over AMP8. While Severn Trent, Thames and Welsh have indicated they will be offering rising block tariffs to reward modest consumers from 2025.
On 1 February, water companies will announce charges for 2024-25, which will come into effect from April. From 2025, bills are anticipated to climb as the sector targets investment programmes that dwarf previous AMPs.