Confusion over incoming business water rates

The chief executive of business water retailer Castle Water has hit out at the bewildering array of tariff charges coming into force from 1 April under PR19.

In December the final determinations for Ofwat’s price review announced bill cuts for domestic customers averaging 15 per cent by 2025. However, as John Reynolds explained, for business customers the changes are far from simple.

He highlighted inconsistencies in wholesaler charges and tariff changes, which could spell uncertainty for the non-domestic retail sector.

Reynolds reviewed the variations in tariffs for wholesalers and said not only were they not in line with the consumer price index (CPI) of 1.9 per cent as at October 2019 but found vast differences in the charges that come into effect next month.

Reynolds called the spread of tariff charges relative to Ofwat’s PR19 determination the “rotting rat in the sleeping bag” because the spectrum ranges from 12 per cent to below 2.7 per cent without adequate explanations for the variation.

He said: “The underlying logic within these changes is even less clear when you break down the tariff basket: water charges vary from a 13 per cent reduction to a 7 per cent increase; waste charges from a 15 per cent reduction to a 5 per cent increase.”

For trade effluent, for which bills are typically high, the spread is  23 per cent.

Castle, which announced its acquisition of Affinity for Business this week, contacted wholesalers to measure differences in the tariffs broken down for each service and found how disparate the outcomes could be for customers.

As well as the tariff changes, another trickle-down effect from the price review will be seen in the Cost to Serve. This is applied by Ofwat to protect smaller customers with under 500m3 usage at an average of £29.02 with an average net margin of 3.14 per cent.

Reynolds points out that again this section of regulation includes discrepancies between companies from a high of £122.08 to a low of £8.40, and net margins range from 11.71 per cent down to 1.12 per cent across water and waste services.

Reynolds said the consultation and the determinations lack any rationale for how the specific costs and net margins were set. “We are baffled that the retail Cost to Serve in Thames for unmeasured water is two times that in Southern, and we calculate that the Thames Cost to Serve is only 25 per cent of the real cost, suggesting a significant cross-subsidy from large customer to small,” Reynolds said.

He suggested the impact for business customers, charities and public sector bodies will be bill increases or smaller than anticipated price reductions. He added that the impact on individual sites for customers will be difficult to forecast without “very diligent research (or a helpful retailer)”.

Other incoming changes the non-household market will have to navigate include the R-Mex score metrics to measure how well wholesalers are performing for retailers.

The market has struggled since opening with some retailers expressing dissatisfaction with the market structure and codes, and customer complaints remaining high since 2017.