Conclusions and Recommendations
1. Only 28% of UK households have a water
meter. Consumers without
a meter pay a fixed sum for their water supply and have no financial
incentive to use water efficiently. Ofwat should press
companies to encourage more consumers to use meters by, for example,
promoting the benefits of metering to consumers as well as routinely
installing meters when there is a change of building occupancy.
2. Since 2000 Thames Water has persistently
missed its leakage targets, but Ofwat took no enforcement action
until 2005-06, and even then did not apply its new powers to impose
financial penalties.
Ofwat should take enforcement action against companies who do
not meet their targets by applying the maximum financial penalties,
and it should clarify its legal position should it wish to use
a stronger sanction such as revoking a company's licence.
3. Research shows that 62% of consumers will
save water in a drought if they believe that their water company
is doing the same. Ofwat
should require water companies to take specific action during
periods of water scarcity, such as repairing all visible leaks,
in order to demonstrate the companies' commitment to saving water.
4. Consumption data are unreliable. Consumption
estimates vary substantially, even within the same region. Three
Valleys Water estimates that each individual uses 177 litres of
water per day, while nearby Tendring Hundred estimates the corresponding
figure as 124. Ofwat should require companies to use consistent
methods for measuring consumption, so that it can secure better
data on per capita consumption.
5. Ofwat cannot explain fully the variations
in consumption. Research
eight years ago suggested that 60% of the difference was due to
socio-economic factors. Ofwat has not commissioned more recent
research. Ofwat needs to gain a much better understanding of consumption
before it determines price limits in the next periodic review.
6. Ofwat has failed to identify which water
efficiency measures are the most effective despite a recommendation
from this Committee in 2002.
Collecting robust evidence on water efficiency should be one of
Ofwat's top priorities. It should commission research into different
approaches to water efficiency and encourage water companies to
provide advice to consumers on the best way to save water. The
results should be available for the next setting of price limits
in 2009.
7. Since the Committee's 2002 recommendation
Ofwat has made some progress in improving the consistency and
accuracy of leakage estimates and in calculating the economic
level of leakage. But
the assessment of the economic level of leakage does not yet take
sufficient account of social or environmental costs. Ofwat should
develop a sustainable level of leakage based on the current economic
level of leakage measure.
8. Consumers do not automatically receive
any direct compensation for water restrictions imposed by a water
company. Ofwat can fine
a company for poor levels of performance but the fines do not
result in compensation for consumers. Ofwat should investigate
whether the compensation arrangements that other regulators use,
for example in the postal sector, could be applied to the water
sector.
9. All the water companies are monopolies
in their regions. There
is therefore no market to determine the price that consumers are
willing to pay for a particular standard of service. Ofwat should
co-ordinate research to establish whether consumers would be willing
to pay more for an improved service.
10. Ofwat has been slow to use its full enforcement
powers. It was for example
content to accept undertakings from Thames Water after the company
missed its leakage targets for six consecutive years, rather than
to impose a fine. It has now proposed to fine United Utilities
just 0.7% of its turnover for repeated and serious breaches of
its licence conditions. Ofwat has yet to demonstrate that it has
the necessary determination to secure adequate compliance from
the companies.
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