London, United Kingdom — (METERING.COM) — April 11, 2007 – UK water and sewerage economic regulator Ofwat is to investigate incentive mechanisms to encourage companies to switch to water meters.
In its ‘Forward programme 2007-08 to 2009-10’ Ofwat comments that increased metering would enable implementation of more innovative tariffs to provide customers with the ability to make more effective choices about their consumption of water and drainage services. However, currently only about 30% of customers across England and Wales have meters and the incentives to switch to a meter favor those who use less water.
Ofwat says it is investigating whether a change to the price control mechanism, to control prices according to forecast revenue, or a mechanism to share revenue outperformance, including a revenue cap, could lead to more appropriate incentives for companies. This will include consideration of the interaction of incentives around revenue and water efficiency, with the findings due around the middle of the year.
Ofwat also says that it welcomes the proposals in a recent consultation by the Environment Agency and the Department for Environment, Food and Rural Affairs (Defra) to identify and encourage compulsory metering in areas of serious water stress. However, the regulator notes that while respondents to its forward program consultation agreed that metering should be prioritized in water-stressed areas, they felt that 100% metering would not be practical or cost effective, and some companies suggested that assessed charges would be needed for customers where metering was not possible.
Consumer consultation will be needed to enable consumer preferences to be considered in any metering plans for the longer term.
Ofwat says that strong themes dominating its strategy going forward include understanding and addressing the reasons for the failure of the current competition regime, and protecting consumers who, in the absence of competition, receive a service from a monopoly supplier.
Since December 2005 competition has been enabled, through the water supply licensing (WSL) regime, to consumers who are likely to buy at least 50 Ml of water a year, i.e. approximately 2,200 businesses, out of the 23.4 million consumers in the UK. However, to date there has been little or no progress in the development of market competition and so far no customer has switched supplier under the WSL regime.
In a recent internal review Ofwat found that one of the biggest obstacles to the development of competition in water supply is the mandatory regime, set out in primary legislation, for setting access prices payable by a WSL licensee to an appointed water company (the ´Costs Principle´). This will now be the subject of a more extensive public consultation, along with other aspects of market competition, including the 50 Ml threshold.
At the same time a review is to be undertaken to establish the value of water and the costs incurred by each company at each stage of the water delivery process, in order to assist in identifying and better targetting competition through regulatory interventions.
The other main area of work is the establishment of price limits, to be set in 2009, for the period 2010-15, which will enable companies to provide a sustainable service into the future, while also delivering best value for their consumers.