Bills and affordability at the heart of Defra’s Charging Guidance to Ofwat

Defra publishes final guidance to Ofwat for principles to be followed when devising charging schemes for water and sewerage. Shepherd and Wedderburn's water regulation team provides a summary of the guidance.

1 February 2016

Defra have now published their final guidance to Ofwat on the principles to be followed when devising charging schemes for water and sewerage. The guidance covers all of the different charging regimes, from household customers to developer charges and upstream markets.

The guidance applies the following principles across each of the different charging regimes:

  • Fairness and affordability
  • Environmental protection
  • Stability and predictability
  • Transparency and customer- focused service

Customers are at the front and centre of the principles, with requirements to particularly reflect the needs of vulnerable customers. But it goes further.

For example, while charging schemes should encourage efficient use of water, this principle must also be balanced by the need to ensure fairness across customers. Through this, the guidance explicitly highlights the advantages of cross subsidies within the sector in ‘sharing the load’ across customers, particularly when addressing the issues of volumetric charging and charges for surface water drainage.

There are some other interesting highlights in the guidance:

Companies should be encouraged to roll out metering for those regions that can afford it, but not to do so for regions where there is a higher chance of customers struggling to pay their bills as a result.

Sustainable Urban Drainage Systems (SUDS) get a mention with regard to their importance, but the guidance stops short of any new instruments to encourage their use.

Area based surface water charging continues to be a controversial subject and the policy position has not really moved on from the previous position. There is support for the principle, but with recognition that many organisations would see their bills rise under the policy, for instance churches and schools. The guidance proposes another review of the regime and the launch of a reduced tariff scheme for certain organisations, very similar to the scheme in place for the 3rd sector in Scotland.

The government reinforces the fact that the development of upstream competition will be evolutionary, and that for the avoidance of any doubt, the costs principle will continue to apply until a new set of rules has been developed and proposed by Ofwat.

Overall the principles suggest a focus on keeping bills fair, affordable and stable. These themes are present throughout the guidance. This customer focused approach reinforces the importance of extensive customer engagement within the industry, particularly for future price reviews.

The full document can be found here