Every five years the water industry regulator, Ofwat, sets the amount that can be collected from customers through bills. The amount we can collect from customers was last agreed with Ofwat in 2019, which applies to the period 2020-21 to 2024-25. Any changes to what was agreed is controlled by law and our operating licence.
We prepare a five-year business plan, which sets out our proposed commitments, investments and how much this will cost. Our customers are a very important part in creating our business plan. We consult with customers at length and take their views into account. Ofwat reviews our business plan to inform the appropriate amount we can collect from customers over the five-year period.
Ofwat then sets a price formula that enables us to put the plan into practice while limiting increases in our charges each year. This formula uses the November rate for inflation to set prices for the following year. The water industry uses the Consumer Price Index including Housing Costs (CPIH) as the measure for inflation.
This process caps the overall amount we can collect from customers. Within the cap agreed with Ofwat we may need to change individual charges by different amounts. We do this so that charges to customers are fair in reflecting the cost of the services provided. It means that the increase in unmetered charges can be less or more than those for metered services.
Additionally, your bill will change by more or less depending on the service you receive from us (eg, water, wastewater or both), how much water you use if your property is metered or the rateable value of your property if it is unmetered.
Since 2015 Ofwat has said that if we receive more from customers’ bills than we had expected, for example, if a dry summer prompts customers in metered properties to use more water in their gardens, the following year we must return that extra amount to customers through slightly lower bills than we had planned.
Finally, where we fail to meet our commitments to the services we offer, we return money to customers through lower bills. Similarly, where we’ve exceeded these commitments, we are rewarded.
Charges applicable from 1 April every year are published by 1 February.
Compared to the previous year, our current charges increased by around £3 per month on average for a two-person household with a water meter and around £6 per month on average for a typical household without a meter. This was primarily driven by inflation.
We recognised with household costs rising rapidly, the timing of water bill increases was not ideal, and we were able to keep bill increases below inflation.
As mentioned above, where we fail to meet our commitments to the services we offer, we return money to customers through lower bills. Similarly, where we’ve exceeded these commitments, we are rewarded.
Our performance in 2021-22 was industry leading and as a result we were due to be rewarded. To help customers during the immediate cost-of-living crisis, we agreed with Ofwat to collect the reward in 2024-25, meaning bills went up by less that would otherwise have been the case in 2023-24.
Unfortunately, we are expecting our charges to increase again from 1 April 2024. This is because inflation remains high (although not as high as last year) and we are collecting the reward from 2021-22 performance (see above).
In addition, we have received slightly less from customers than we expected to last year (2022-23) and therefore we are planning to collect this same amount from customers in our 2024-25 charges.