Memorandum submitted by Anna Walker (Ofwat
25)
EFRA COMMITTEE INQUIRY INTO OFWAT'S PRICE
REVIEW 2009
I hope you found the Oral Evidence session of
20 May useful. I agreed to write with further information on certain
topics, which I have set out below.CONSUMER
DEBT
I attach a table on household debt in 2007-08. The
figure reflects the revenue outstanding for longer than 12 months
by company. We have used this because revenue that is outstanding
for more than 12 months is less likely to be recovered and therefore
is a better indication of overall levels of bad debt. Water and
sewerage companies have significantly more customers than water-only
companies, and the proportion of households that are low-income
also varies significantly by area. If it is helpful, we can provide
you with further information on this. But even with these caveats,
figures do suggest that some companies have more success in collecting
bad debt than others.
During our session, we also touched on the legality
of landlords paying the bill to the water company and recovering
the revenue from their tenants. In the case of unmeasured households,
the rate is set and therefore easier for inclusion within the
rent. The Water Resale Order[5]
sets out how resellers (eg landlords) should recover water charges/what
they can charge (they can't make a profit) in such circumstances.
However, Ofwat does not enforce the Order—that would be
a matter for the courts if a landlord or tenant was not happy
with their arrangement. Resellers should identify separately the
water element if they are recovering water charges alongside rent—basically,
all customers should be able to see what they are being charged
for water. This would be the same for a local authority that bills
on behalf of the water company, or a reseller collecting charges.
Negotiated agreements between registered social landlords, housing
associations and water companies already exist and have been shown
to be particularly effective in the Dwr Cymru Welsh Water operating
area. However there needs to be caution to ensure that non-payment
of the water bill does not result in eviction from the property
for the tenant.
Figure 1
OUTSTANDING REVENUE FOR MORE THAN 12 MONTHS
PER COMPANY
Source: Ofwat
SOCIAL TARIFFS
I also agreed to provide the Committee with
more detail on social tariffs. WaterSure is the main social tariff
set out in regulations for England, and adopted voluntarily in
Wales. It caps the bill at the company average for metered customers
who have a requirement for high essential water usage (because
of a large family or a medical condition) and who are in receipt
of key benefits. We are likely to make a number of recommendations
on the refinement of this scheme, including a change to the level
of the cap.
As regards social and low-user tariffs, Ofwat made
clear in its response to the call for evidence that its charging
principles do not support the introduction of explicit new social
cross-subsidies, and that any cross-subsidies should be set out
in legislation or regulation. It has a statutory duty not to be
unduly discriminatory or unduly preferential. It interprets this
duty to mean that charges should broadly reflect costs and that
there should be no new transfers of funds between customer groups
through the charging system to meet social objectives, unless
explicitly mandated by government.
Ofwat currently allows some social tariffs as
long as they are closely targeted, are "win-win" tariffs
which have a positive impact on debt recovery and do not impact
adversely on other customers' bills. Examples of current social
tariffs on which we received evidence include Wessex Water's "Assist"
tariff, which offers customers who have been referred from a debt
advice agency a lower bill based on their financial circumstances
and ability to pay, and Anglian Water's two social tariffs, "SoLow"
for measured customers using less than 75 cubic metres of water
a year, and "Aquacare Plus" for households in receipt
of key benefits. Dwr Cymru Welsh Water has just had its "Water
Assist" tariff approved for a three year trial. This caps
the bill at £250 for customers receiving key benefits, and
with a large family or a medical condition.
Some companies told us that they would like
to be able to offer more flexibility and do more to help their
customers who are struggling We believe that companies could be
encouraged and allowed to develop local social tariffs, acceptable
to their bill payers. We believe that more could be done within
the current framework and will seek further views on this.
The interim report also considers innovative
tariffs. You will recall we discussed Rising Block Tariffs, which
I have concluded can create some unfairness between households
of different sizes unless the size of the cheaper blocks of water
is related to occupancy and essential water use. However, in England
and Wales data on household occupancy is not collected nationally.
We believe that seasonal tariffs show promise, but Ofwat should
work with companies to ensure that tariff trials provide robust
and detailed information on the behavioural response to innovative
tariffs.
PARTICIPATORY BUDGETING
We have looked at participatory budgeting in
the review as part of our work on customer understanding and involvement.
This approach is used in the US and Canada regulatory systems
and is explored further in Stephen Littlechild's Constructive
engagement and negotiated settlements—a prospect in the
England and Wales water sector? The Cave Review recommended
that a participatory budgeting approach should evolve over time
with any extension of retail competition to domestic customers,
and the All Party Parliamentary Group on Water has also expressed
interest in exploring such an approach in the UK. The Cave Review
suggests it would be for CCWater, together with other stakeholders,
to negotiate the size of the settlement and the service and quality
improvements to be delivered, and for Ofwat to be responsible
for agreeing and incorporating the results of negotiations in
price limits. We will be seeking views on the viability of such
an approach for the England and Wales household water sector.
WATER EFFICIENCY
We also touched on Unison's suggestion of a
scrappage scheme to reduce water consumption in households by
giving grants to replace inefficient devices with water efficient
ones. This suggestion was not included in the evidence submitted
to the review team and is therefore not included in the interim
report. Unison submitted evidence for the interim report and we
will follow this issue up with them for the final report. We have
looked in the interim report at ways to encourage water efficiency
in households, and the report makes a number of recommendations
to achieve this. On this issue, reading the transcripts of my
evidence I realized that my answer to your question on a water
efficiency statutory body was inadvertently misleading. What I
will be recommending in the interim report is a statutory water
efficiency scheme targeted at defined low-income customers, not
a statutory water efficiency body. As we discussed, both Waterwise
and Energy Saving Trust are already doing valuable work on water
efficiency. Our interim report also highlights the synergies of
working with Warm Front.
INSET APPOINTMENTS
We have also looked at inset appointments for
new household developments. Inset appointments can supply household
and non-household customers, and have the same duties and responsibilities
as other water companies towards their customers. The interim
report makes clear that the recommendations in the report apply
to inset appointments when they supply household customers.
The evidence submitted to the review team raised
questions as to whether inset appointments undermine the position
of the main provider of household services in the area and ultimately
affect the prices charged to their customers. Inset appointments
can offer benefits to the customer. The interim report concludes
that it is for Ofwat to ensure that the terms and conditions on
which inset appointments are made are not unfair either to the
incumbent or the inset appointee. The Cave review of competition
and innovation looked at this issue and made recommendations on
the supply price to inset appointees.
CRITICAL INFRASTRUCTURE
In the oral evidence session, we also discussed
the need to invest in the strengthening of critical infrastructure
and how it should be funded. Water companies have put forward
in their business plans for the current Price Review proposals
for investment in this regard, which Ofwat is considering ahead
of issuing draft determinations of water price limits in July.
My interim report findings and emerging recommendations are based
on companies' draft business plans. The final report will explore
these issues further as appropriate.
SEWERAGE CHARGES
Finally, the table below shows the structure
of the sewerage bill for different sewerage companies, expressed
as a proportion of the revenue recovered from the different elements
of the sewerage bill. This shows wide variation on the proportion
of the sewerage bills related to the three services (foul sewerage,
surface water drainage and highway drainage) provided by sewerage
companies, as we discussed. These variations raise questions about
how different companies allocate their costs to different services.
I would like to explore this issue further and the interim report
invites evidence on what factors might explain this variation
and views on the basis on which the costs can be allocated fairly
and appropriately between the three sewerage services.
I hope the Committee finds these comments useful.
I am quite happy to brief you further on the interim report and
its emerging recommendations, formally or informally, when it
is published later this month.
Anna Walker
Chair, Independent Review of Household Charging for
Water and Sewerage Services
5 www.ofwat.gov.uk/consumerissues/prs_lft_guidetowresale.pdf Back
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