Don’t mislead customers about lower bills, warns CCWater

Customers will feel misled if water bills rise after promises of lower prices in PR19, the water watchdog has warned, while predicting increases from five companies.

Consumer Council for Water’s chief executive Tony Smith urged caution to prevent customers feeling confused about the cost of water following the price review and told Utility Week there is more to be done on affordability.

“It’s a good start and we are pleased Ofwat has been tougher on the industry than it has in the past. On the face of it this looks like a tougher deal and companies will have to work a lot harder to deliver for customers,” Smith said.

He explained that some customers would feel misled by the way Ofwat and the industry express bills in ‘real terms’ but without adding the effects of inflation.

“The bill reduction also excludes the effect of any incentive benefits the company gets so customers could be confused by that,” Smith said. “We always have a look at the effects of inflation and there are a few companies that – depending on the rate of inflation – some will have prices going up.”

Smith predicted an inflation rise of 2 per cent would see bills for Hafren Dyfrdwy go up by £25 and Thames by up to £10 as well as increases from Portsmouth, South East and Affinity over the five-year period.

CCWater had previously criticised the regulator of favouring the companies rather than protecting customers’ interest in price reviews.

“In the past we thought they have been overly generous but what we have seen in the draft and final determinations is that the cost of capital is now in the range of what we thought it should be, which is good. They have obviously set some stretching efficiency targets to make sure the companies deliver and aren’t overly generous.”

But has Ofwat now gone too far and set too great a challenge for the sector that it cannot achieve?

“The signs are that this has been tough enough, whether it’s too tough is for the companies to decide. If they think it is too tough, companies can go to the CMA, but while they have that option the customers cannot appeal so it’s important Ofwat is tough and firm in price reviews.”

He added CMA referrals may be on the cards. “Based on what the companies have been saying I wouldn’t rule out referral. That’s their call and it’s part of the process.”

On incentives he said the penalty for companies is greater than the upside in most cases, but this might not be clear to customers.

“Many customers don’t like the idea of incentives. They can look at what the companies must do to make extra money and say: ‘hang on, that’s part of your day job’. Avoiding interruptions to supply is just what they should do. From a regulatory perspective we understand it, but customers don’t always understand this.”

Overall the watchdog was pleased with the stance taken by the regulator and felt the price review put focus on customers but warned there is more to do.

While the price review has moved “in the right direction” on affordability, Smith warned there are about 3 billion customers struggling to pay their bills, with only 1.4 million of them benefiting from measures in PR19.

On fairness he thought the price review will help but there remains more work to do to assuage the public perceptions of the water sector.

“The ambition is greater than in the past,” he said. “The more we can address the issue of affordability the more the customers will find their bills acceptable and think it’s value for money and fair.”

Smith said CCWater’s research showed links between people who felt prices aren’t fair because bills have risen since privatisation, but companies hadn’t been clear enough about the benefits to customers.

He encouraged companies to communicate fully with their customers about work being done locally and how money is spent to benefit communities.

“We tested the draft determinations and eight out of ten customers approved of the deal and if anything, it’s improved for customers since then so customers should view this as a positive.”