The number of UK households that have a water meter is on the increase – but there is no evidence yet that metering is having a significant influence on usage patterns. Rising concerns about climate change mean the time is ripe to change the way metering has been applied, to develop innovative tariffs to encourage conservation, and to start planning the cost-effective development of an appropriate metering infrastructure.
When the water industry in England and Wales was lined up for privatisation at the end of the 1980s, one of the issues was whether to include household metering as part of the flotation package. Several options were modelled, based on completing household metering by 2000 – which would have meant the installation of about 20 million meters. In the end it was decided to exclude a commitment to complete household metering and to leave it as an issue on which the newly appointed regulator, the Director of Water Services, would reach agreement with the companies in terms of pace and costs. In retrospect it is difficult to decide if this was good or bad for the industry and its customers. On the down side, those who believe that metering controls demand will point to the current supply/demand imbalance in the south-east of England and argue that, had metering been fully established, the supply companies would have been in a
better position to sustain supplies over the summer of 2006. The general view is that a metered charging system would see customers less prepared to pay for using water outdoors – the sort of use which can generate significant demand peaks in the summer and for which companies require large expensive storage.
On the up side, customers’ bills are slightly lower than they would otherwise have been. It is also a plus that the industry may now be in a better position to take advantage of technology development than it was in the 1990s. Figure 1 shows the increase in household metering in England and Wales, with over 5 million homes now paying metered charges. It also shows the level of household water demand from the start of the acceleration of meter installation. This is the total estimated water demand by households, combining metered and unmetered supplies. It is difficult to detect any downward move that could be attributed to an increase in the number of meters installed. However, caution is required in interpreting this line, as most of it is based on utility estimates of how much the majority of unmetered households are using.
The chart also shows the total volume put into supply by the utilities serving England and Wales. The significant reduction around 1996-7 occurred because a major effort was made by all these companies to reduce leakage. This followed a hot summer in 1995, when supplies in parts of England were almost exhausted and standpipes had to be set up in some northern towns. The effort to reduce leakage was successful, and utilities have tried to maintain it in succeeding years. However, there are signs now that leakage is starting to rise again. The rates of metering have been variable across the country, with companies differing in the use they have made of the gradually increasing powers to meter. Figure 2 shows how meter penetration has reached over 50% in parts of England, but in the south-east, where there is a current supply crisis, penetration is well below this level.
Powers to meter compulsorily for the purposes of trials were given in the 1988 legislation which preceded privatisation, and the industry used these powers to co-operate with the government’s Department of the Environment in implementing the National Metering Trials, which ran from 1989 to 1992. These powers were later rescinded, but the enactment of the householder’s right to have a meter installed free of charge, and to pay for water on a volumetric tariff, encouraged an increase in the number of meters installed. Further, in legislation in 1999, the water companies were allowed to install meters in properties where there was a change of occupier, and the Secretary of State was entitled to permit compulsory metering in areas where there was water scarcity.
Have the companies made full use of their powers to meter? Far from it. Properties change hands at a rate of about 10- 15%/year. With 16 million unmetered houses, this represents about 2 million possible installations/year. Currently, the combination of customer-choice installations and selective compulsory metering by the small number of utilities using the full powers available amounts to about 250,000/year. The logistics of ramping up the installation rate by a factor of almost 10 are daunting. It is also questionable whether it is the most effective way of increasing meter penetration. The utilities know where their high demand areas are, and cost-effective compulsory metering would have these areas singled out for priority treatment. If compulsory metering is the answer to excessive water demand, it seems weak to have to wait for a change of occupier to occur. What about the tariffs that companies are employing to control demand? Introducing a household to a charging system based on payment by volume may in itself encourage more careful use of water, but there is also the enhanced effect that a different tariff level could deliver.
Interestingly, as the companies have introduced metering, they have been managing the metered price relative to the unmetered charge downwards. Figure 3 shows how the relative cost of metered supplies has reduced compared to unmetered bills in the largest of the water companies, and it is reasonable to wonder why, in a change driven by demand control, there should be this dilution of the price signal. The relative price change reflects the view of the Director of Water Services in the early 1990s that metered charge rates were too high. Companies had estimated the volumes of water used by their unmetered customers, and when the regulator converted unmetered bills into equivalent charges per cubic metre, the price was lower than the standard rates to metered customers.
So metering has advanced slowly, and the price signals which could have been expected to constrain demand may not have been deployed as strongly as they could have been. Which brings us to consideration of the current issue where, after two winters of unusually low rainfall, reservoir storage in southern England at the time of writing is at 54%, when it would normally have been over 90%. One company, Folkestone and Dover Water, supplying 66,000 households in the south-east, asked the Secretary of State to agree to a programme of compulsory metering to help deal with a growing problem of matching supply and demand. The Secretary of State has used the powers given in the 1999 Water Industry Act to allow a 10 year installation programme to be implemented. While the number of meters to be installed is small – Folkestone and Dover will increase their meter penetration from 40% to 90%, involving less than 4,000 compulsory installations/year – it is a significant change in the way metering has previously been applied in the UK.
With this change has come a surge in interest in the effectiveness of the metering that has so far been undertaken, as well as discussions of how to increase it. The Environment Agency has been encouraging companies to increase meter penetration and to investigate ways of enhancing the demand control effect through clever tariffing. To achieve this increased effectiveness, every stakeholder recognises that there has to be an upgrade of the simple metering technology now being installed. Tariffs can of course vary widely in sophistication, but even to support a relatively uncomplicated seasonal tariff requires more communication and data processing than is currently achievable.
Rising block tariffs, with a lower price starting volume, create higher bills for families whose high household water use is not seasonal and is determined by essential use. The more appropriate tariffs would seem to be those targeted at the seasonal use for garden watering – but this needs metering which has date stamping incorporated. If the industry can agree the data it needs to have from a metering system to achieve the tariff flexibility that is likely to be effective in demand management, it will be able to advise manufacturers, and there can be some concentration on producing the required technology at lowest cost. Industry stakeholders have the opportunity to co-operate in defining the technology for the year 2020 and to prepare a transition plan.
Of course, in the same way as the decision to go for rapid meter installation in 1989 was deferred, the industry also has the opportunity to defer another – possibly key – project. If sophisticated tariffs are believed to be an important tool in trying to achieve a sustainable supply/demand balance, and if climate change is going to increase the need for the use of such instruments, the time to start planning the cost-effective development of an appropriate metering infrastructure would seem to be sooner rather than later.