Ofwat will challenge bad debt levels in PR19

Regulator believes companies have generally handled bad debt “badly”

Ofwat will “challenge” companies on the bad debt levels as part of its price setting process for PR19, an Ofwat director has said.

Speaking at Utility Week’s Consumer Debt Conference today, John Russell, senior director of strategy and planning at Ofwat said: “For PR19, when companies submit their plans, we will be looking for efficient debt management practices and considering ways to reduce bad debt levels.”

Russell stated: “We will challenge companies’ bad debt levels in our price setting process. We will do that by using evidence from within the sector, and from other sectors.”

He added that the regulator will expect companies to compare their performance and practices to that of their peers, but also to organisations outside the water sector.

Russell made his comments during a presentation which set out Ofwat’s future thinking around customer vulnerability and affordability.

He acknowledged significant and effective work across the sector to promote uptake of social tariffs and government protections for customers least able to pay for the utility services.

However, Russell pointed to evidence that increasing numbers of customers are struggling to pay their utility bills. One in five households across England and Wales now say that they feel their bills are unaffordable.

In this context, Russell said that it is “important that we recognise that some customers will not be eligible for any of the targeted measures, yet they may have their own affordability concerns – and these customers will still be paying for those that are on social tariffs”.

Therefore, for PR19, Ofwat’s approach to affordability “is not just going to be about protection and support for those that are most struggling to pay their bills” but will focus on “providing affordable bills for all over the long term”.

To achieve this, Ofwat expects companies to pursue greater efficiency in their organisations.

“We think that there is real scope for companies to be more cost efficient in the next price control, which will enable them to set low bills, as well as promoting resilience and the service customers receive,” said Russell.

He continued: “As part of tackling this efficient challenge, bad debt must also be addressed. Customer bad debt is on the rise in the sector. Historically, this is an area where the sector has performed badly.

According to Ofwat, water sector bad debt has risen by four per cent in four years. This effectively adds “a hypothetical £21 a year” to the bills of customers in England and Wales.

Ofwat believes that improving the quality of customer data in the sector, and the way companies are using it, could help to address bad debt levels. In June will publish a report, Unlocking the value of customer data, to set out its thoughts on what good looks like for data collection and exploitation.