Utility Week

UTILITY WEEK | APRIL 2023 | 17 Water data mentioned above could then make it possible for water companies to implement meaningful new tari s and pricing mod- els designed to drive consumer behaviour change and deliver the substantial changes in consumption that are needed to head o water scarcity. Leading discussion around the rst point, a senior gure from an English water and sewerage company admitted that, while hard evidence of the cost of living crisis as a driver for late or non-payment of bills is not yet apparent, his company is braced for this to manifest in the coming months. "My nervousness is around the annual billing cycle," said this industry representa- tive. "On the whole, we're not seeing the impacts of the cost of living crisis yet. Direct debit rates are going up and customer con- tacts to ask about support or payment plans are going up – but we've done a lot of pro- motion about those things so its hard to say what's driving the trend. "But half my customers are still on an annual billing cycle and we are now in that part of the cycle where they don't pay. So, in this gap where they don't have to think about water, will energy bills and other calls on the customer wallet mean they can't pay me in a couple of months? That's what worries me." Others echoed this feeling of anxiety, sharing their concerns about how to prepare for a surge in customer contact and payment issues, both operationally and from a nan- cial planning perspective. Digitalising customer pathways To get ahead of these issues, and help cus- tomers achieve better nancial management in the process, several debate participants said there is an immediate and intensi ed focus in their organisations on digitalising customer pathways and service channels. "For customer operations the future has to be digital," said one senior attendee. "Anything we can implement that will help to dampen that peak in customer contacts that we get in April in association with the annual billing cycle, we have to do it." Fur- thermore, compared with other possible investment areas that are harder to build business cases for, digital customer o er- ings "are a lot easier to tie to customer pay- ment behaviours and therefore bad debt and also our opex performance. All of which are important to Ofwat". Expanding on this point and touching on the ways in which digital customer o er- ings can support customers who nd them- selves struggling as a result of the cost of living crisis, this nancial leader continued: "There are so many incentives for us to do this. For example, I can implement a digi- tal I&E [income and expenditure] and drive a ordable payment plans on these, which is brilliant because I can help vulnerable customers, credibly and measurably. At the same time I can track shareholder return [on the digital investment] credibly and measurably." Others agreed with this powerful logic for investment in digital customer o erings. However, they also mused on the challenge of building business cases for other, harder to justify, technology investments which, they said, are essential for long-term resil- ience. Primarily, these included smart meter- ing, customer engagement tools and systems capable of supporting new water pricing structures. In the case of smart metering – a topic that gained extensive air time at this debate – participants acknowledged that "aggres- sive" deployment is an absolute essential for meeting per capita consumption reduc- tion targets in the next price control period (PR24) and heading o the dual risks posed to security of supply by population growth and water scarcity. By gaining better under- standing of consumption, and growing an ability to in– uence it, attendees also identi- ed an opportunity to gain e— ciencies in asset investment and implement smarter net- work operations. One attendee, whose organisation has recently substantially increased its smart meter footprint, said "leakage is the big immediate win. It highlights continual leak- age – like toilet leakage. That's the real win and massively more so than we ever dreamed". Looking further down the line, this senior wholesale services leader said a high pen- etration of smart metering should help with intelligent asset planning. "It should lead to reduced operational costs and asset costs – if we can con dently in– uence that demand and get it down then we don't need to invest in reservoirs and so on." By linking consumption to asset value and network optimisation, the same partici- pant suggested an opportunity could arise to introduce new forms of water pricing, designed to help companies manage water resources and manage constraints in their asset base. Others agreed, sharing insights into new innovation pilots focused on inno- vative pricing and new tari structures. However, getting this joined-up think- ing working will be hard in reality, it was acknowledged. One attendee in particular expressed sharply de ned views on the chal- lenges involved. "Everyone is talking about innovative tari s [as a potential smart meter- ing bene t] but that doesn't make them easy to implement. "If you want to drive down consumption you could in theory introduce price blocks for customers with di erent pricing points. But obviously because the household size massively in– uences the consumption, it would have to be some kind of per capita pricing and I don't see that in the current so™ ware infrastructure being viable." Expanding on this point, the same attendee said that while smart metering o ers a lot of value via its scope to "reduce consumption, address leakage, become more sustainable and improve operations", these bene ts will be achieved only with substan- tial complementary technology investments. "My question is, who is going create the logic to query that smart meter data and put it in a presentation that will drive customised communication to consumer to say – hey look, you are consuming a lot of water for your household, what's going on?" They continued: "It's a problem – the time and money needed to develop it…How will I justify the money that needs to be spent. Especially when the bene ts fall across oper- ations, billing, bad debt and customer ser- vice? The funding requires cross-functional e ort and the payback is likely to be long term." In the current industry environment, this leader said this makes it hard to build the business case for investment in technologies which would maximise the value of smart meters, notwithstanding the value these would unlock across the water value chain. As talk of challenges and dependencies took o , others pitched in with their views on the major blockers to e ectively in– uenc- ing consumption and proactively tackling the implications of climate crisis for water. "When we're thinking about what bene ts novel pricing and tari s could unlock, you've got to acknowledge that pricing regulation for household water is antiquated," said one attendee wearily. "It's 35 years old and has a whole load of contradictory rules in di erent places. Ofwat is trying to allow a bit more – exibility with some pilots running this year. However, they are pilots. They do nothing to change any of the core pricing regs in the background." in association with continued overleaf "Everyone is talking about innovative tariffs … but that doesn't make them easy to implement."

• Cover