WWT ROUND TABLE 2009
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out exactly what the price signals should be. – and feel that is okay socially because they
However, the evidence is that, when you are paying for it. I will be interested to see
get price signals to people at the current how far Anna Walker takes some of that
level, then, even before you have tariffs, you thinking in her report.
have a 10% reduction in demand.
The industry has also under-estimated Martin Hurst Yes. This is the one place
the extent to which tariffs can increase the where I differ with Ofwat, in that the whole
number and, once you have meters, you pricing system is riddled with cross-subsidies,
can then think about long tariffs, seasonal quite frankly. We are allowing cross-subsidies
tariffs or whatever, which will give a better to be eroded by default through metering, so
marginal signal. That is why I draw a that such cross-subsidies as there were in
distinction between marginal cost and the rateable value system go. I do not
average cost. Perhaps the way to do it is to personally think that defending the erosion
get the marginal signal right so that the cost of cross-subsidies in all cases is an absolute
you pay for an extra unit of water beyond a totem. Some of the other regulators, like
certain point of necessity is higher, but you Ofgem, have appreciated this, and there are
adjust it so that the average cost is not cases where cross-subsidies are something
higher. You could do that for water that it is legitimate for a regulator to look at.
companies, you could do it through trading. There is not a huge rift between the two
For customers, you can do it through rising organisations.
block tariffs or something like that whereby
the marginal costs for water of, say 80 litres Rob Ashley Ofwat would not be very happy
per head per day, is higher than the to do it, because primary legislation is
marginal cost for water below 80 litres a day. before us, so we have no problems
You can play around with it. whatsoever with cross-subsidies.
Any politician will have some serious
questions to ask if you are talking about Richard Aylard I do not believe you would
markedly increased average costs to get an need primary legislation at all.
environmental signal. That is not to say that
you will not do it, but there are some pretty Rob Ashley But that is what we believe.
hefty issues to broach. At the moment, we
have to move towards some marginal Richard Aylard I think you are wrong.
pricing first and then use that marginal
pricing to get the best signals we can, before Rob Ashley We have been very clear about
creating a very, very controversial approach, it – but that is what the regulator states. Rob Ashley: Very clear
which may actually put some people off.
The other thing that we have heard, is that Richard Aylard Yes, but the legislation talks open up more problems than we could
some people who were on a meter said: about undue cross-subsidy, so I do not see solve. Personally, that is something that we
“I’m paying for my water and therefore I’ll why you need primary legislation to... would be delighted to do but we just do not
use it.” have the expertise.
Rob Ashley The reason is actually quite
John Cuthbert You are commoditising the clear. Do we have the knowledge base to Richard Aylard The point we are starting
product and you can understand people make some judgement calls? We do not, from is that there is a strong cross-subsidy
thinking like that. Something that worries me because we are not involved in social tariffs from the better off to the poorer, in general
in all of this, as has been mentioned before, and we do not collect the right amount of terms, because of the rateable value system.
is that there is a very deep sense of public data to make a judgment call on this group As we move to metering, we will unwind
service within the industry. of individuals here and whether they should that cross-subsidy. This is not just a small
Again, I do not want to be part of an have a subsidy as against that group. We group of people and I will give you the
industry where those who are least able to simply do not have the information and we example of a family of five living in a council
pay end up having a disproportionate are not skilled to make those types of policy house in Swindon – the sort of person who
charge, as against those who perhaps can decisions and that is why we try to keep out may well work in our customer centre. If
afford to pay and make a conscious of it. they use water with average efficiency,
decision to use excessive amounts of water We say that the people who have the when they moved from rateable value to a
skills, which could be the Department of meter, they would pay an extra £3 a week
“Some people who were
Social Security or, fundamentally, the for their water. That is just one family of five,
government and government departments, and there are many of those – Tony has
on a meter said: ‘I’m
should give us some very clear guidance by done some work on that.
saying it through statutes, which we would If you want to look at what pricing signals
paying for my water and
then happily follow. We do not want to step can really do, go to Berlin, where they use
into areas where we fundamentally do not about 25 per cent less, on average – as is
therefore I’ll use it’” have the expertise and where we could much quoted – water than we do, but water
16 Round Table June 2009