I normally provide an indication in December of likely tariff increases in the following year to help customers with planning and budgeting. Given a very high increase now looks inevitable in April 2023, I wanted to explain what we are expecting and why, even though at this stage there are still a number of significant uncertainties.
The Bank of England Monetary Policy Committee has revised its estimate of inflation for Q4 2022 to 13% (August 2022). Water bills are increased on 1 April by several factors, including CPIH for the preceding October. Based on the BofE forecast and the current PR19 revenue control for water networks, we expect water bills to increase on average by approximately 13% in April. Using October increases in inflation for the current year reduced the impact of high inflation, with October 2021 CPIH at 3.8%. This will reverse next time, and October CPIH in 2022 will reflect the increase in prices which has already been seen in other areas.
There will be higher increases for customers of the four water Wholesalers that successfully challenged Ofwat’s PR19 price control: Anglian Water, Yorkshire Water, Northumbrian Water and Bristol Water. For these companies, we expect increases of an additional 1 to 3%.
These estimates are approximate: there are a range of variables which can change the outcome for individual companies, including the application of a “recovery” mechanism to adjust for over/under recovery of revenue in prior years, and specific incentives awarded by Ofwat. Differences in the recovery mechanism can be significant between Wholesale areas: we are seeing high water usage in farming and food production in the South East, which may reduce the level of increase from South East Water, but continued low usage in office buildings in London which may increase Thames Water tariffs. Also, individual customers may see different levels of increase depending on their specific tariffs.
Although water bills are not increasing by as much as energy, they will still be a concern. There are specialist consultants able to provide Water Audits, who can assess your water usage and look for inefficiencies. These can be of varying types, from a water efficiency audit of your estate and water usage looking for signs of leakage and inefficient use of water, to a detailed engineering assessment of industrial water use. You can complete the enquiry form here, and one of our consultants will contact you to discuss your requirements. Water efficiency audits can result in significant savings in water and other costs; we have seen customers benefit from very large energy savings by reducing unnecessary water usage where water is heated.
Many businesses regularly read water meters to monitor their consumption and to help identify any leaks indicated by unusual consumption patterns. Where possible, it is also worth periodically checking your meter at a time when you do not expect water to be used, as this can also highlight any leaks (take two reads 30 minutes apart). Submitting water meter readings monthly to your retailer helps to improve bill accuracy. You can provide meter readings to us at any time via the Submit Meter Reading button on our website.
For customers on Rateable Value tariffs (normally called ‘Unmeasured’ on bills), it will nearly always be worth installing a water meter, and the savings typically give a very short payback. Rateable Value tariffs are set at a very high estimated level of consumption. You can contact the Developer Services department of your water Wholesaler (who owns the network, e.g., Thames Water) to ask for a quote to install a water meter. Payback periods from water meter installation can in some cases be less than 6 months. I do not believe that Rateable Value tariffs are appropriate and fair but have so far failed to persuade Ofwat and the Consumer Council for Water to act on them. Unmeasured tariffs are normally significantly higher cost than “Assessed”, which are also used for some customers without water meters. Customers who are judged by Wholesalers to be eligible to fit a water meter will not normally be charged on an Assessed tariff.
Looking further forward, I asked Ofwat to confirm how negative inflation would be treated, if the eventual outcome of a reversal of energy prices results in negative CPI. Ofwat has confirmed that “where the relevant inflation index is negative there is a consequential reduction in charges”.