The regulator has released guidance confirming how it expects water companies to allocate cross-subsidies for social tariffs and surface water drainage concessions in PR14.
Ofwat said companies had the option to offer social tariffs, which are reduced charges for individuals who would otherwise have difficulty paying their water bills, or reduced charges for community groups known as ‘surface water drainage concessions’.
The Flood and Water Management Act 2010 allows companies in England and Wales make up the cost of these reduced charges – by charging other customers more.
However, the companies are not obliged to introduce social tariffs.
The UK government’s guidance on company social tariffs states that “companies wholly or mainly in England will need to consider whether a social tariff is the best means for tackling affordability problems”.
According to Ofwat, it is not feasible for companies to recover costs of any social tariff cross-subsidies through their non-household retail price controls due to competition in the market, set to be introduced in 2017.
“In such a market, individual customers would be likely to switch to those suppliers whose tariffs are not as high because they are not subsidising household customers,” said Ofwat.