Changes to per capita consumption (PCC) and the cost of debt have been assessed to be the most significant Covid-19 impact on the water sector, based on data from April – July 2020.
In a report jointly commissioned by Water UK and Ofwat, Atkins and Frontier Economics estimated the cost of Covid-19 during AMP7 to have an impact between -0.35 per cent to -0.97 per cent as the measured change in the return on regulatory equity (RORE).
The report found the change to consumption patterns, as identified at the time, was the most significant impact and likely to remain a consideration while people work from home.
The shift from non-domestic to household usage may affect outcome deliver incentive (ODI) targets and raise costs of water production, the report predicted.
The increase in household usage during lockdown, coupled with a warm dry spell during the period, was only partly offset by reduction in non-household consumption. The report noted that while non-domestic consumption is metered, not all in-home water use is, so the changes were not reflected in billing, meaning costs to companies rose between April and July.
The report noted companies that saw particularly large shifts from non-household to household consumption were likely to experience bigger changes in PCC, water production costs and revenue.
The report set out three scenarios for projected scale of impact. In each, low inflation on the real cost of nominal embedded debt was projected to be the biggest impact. It made up more than half the total impact in the prevalent, controlled and diminished scenarios.
These were accompanied by macroeconomic scenarios – upside, central and downside depending on the speed at which economic activities can resume and to what level.
The second largest impact under any scenario is the potential increase in bad debt, the magnitude of which will be influenced by the wider economy and unemployment rates.
This may be felt through increases in social tariffs and overall ability to pay bills.
Opportunities were also identified such as efficiencies to working practices and operations necessitated by the pandemic. These included cases of virtual inspections and visits, increased use of digital communication channels as well as potential changes in customers’ mindset that companies can tap into.
It assessed potential behavioural changes due to the pandemic including consumption patterns – the switch to homeworking and general increase during lockdown, flushing non-flushables, being more aware of water, and not paying water bills.
The report concluded there was insufficient substantial evidence to measure the long-term impacts of these behaviours.
The report noted the magnitude of industry-wide impacts was dependent on the path and longevity of the pandemic. Estimates did not account for company specific impacts.