Ofwat has flagged up a new research study as further European context to its findings on water affordability – yesterday the water industry regulator published its report on Affordability and debt 2014-15 which calls for the water companies to do more to help customers struggling to pay.

The new research study from the Centre on Regulation in Europe (CERRE), the  organisation tasked with promoting robust and consistent regulation in Europe’s network industries, says policies to keep utilities’ services affordable need local knowledge and robust evaluation.

The CERRE report, which is calling for greater localisation in designing and implementing specific interventions says that affordability of utilities – the costs of using energy, water, transport and telecoms – is now a major issue on European policy agendas.

According to the study, local knowledge is crucial to assessing the potential behavioural issues, identifying specific local needs and potential barriers to adoption.

It also makes the key point that the political sensitivity of energy and water charges is explained by the “rapidly increasing expenditure shares of these two commodities as a household’s total expenditure (income) falls, so that price increases can cause particularly severe detriment to low income households.”

Co-authored by Professor Catherine Waddams from the Centre for Competition Policy at the University of East Anglia and Joint Academic Director of CERRE, together with  Dr. David Deller a Research Associate at the Centre, the new CERRE study Affordability of utilities’ services sets outs a series of in-depth findings and recommendations for tackling affordability concerns.

Professor Waddam is also currently a non-executive director at Ofwat and a member of the Expert Advisers Panel of the UK Regulators Network.

Drawing on the unique opportunities offered by CERRE to explore the issue and policy options across the utilities sectors and across the European Union, the study has brought together for the first time a wide variety of data. It combines extensive country- and household-level data analysis with literature reviews and stakeholder interviews.

The core findings and recommendations of the study include:

• Affordability issues vary widely, in type, in extent, between sectors and across Member States. Differences between ‘old’ and ‘new’ Member States are particularly stark. Consequently, policies to address these issues vary – and should continue to vary – across Member States. Local knowledge is crucial to the successful implementation of policies.
• Policies should vary between sectors because of the very different nature of the products and affordability  issues in each sector.
• Member States could however benefit from enhanced information and experience sharing, including a centralised repository of information and statistics about affordability issues in different sectors across the EU.
• The measurement of affordability difficulties is critically important. Some commonly used metrics may lead to the pursuit of inappropriate policy options or to targeting efforts at those who are easy to help, over those who need most help.
• Cost benefit analysis should be used to assess the effectiveness of particular interventions to increase affordability.
• To maximise results and avoid ineffective or inefficient programmes, policy choices must be based on realistic forecasts of individual behaviour and household response.

Professor Bruno Liebhaberg, Director General of CERRE, commented:

“In the wake of the economic difficulties affecting many Europeans, the significance and added value of this CERRE study stem not only from the latter's in-depth examination of the extent of the affordability challenges but also from its assessment of the true effectiveness of a wide variety of existing policies put in place to deal with the problem as well as from its recommendations for the future”.

Austria, Estonia, France, Northern Ireland, Republic of Ireland and the United Kingdom, are the six countries examined in the report, which includes a number of case studies, including one on the relationship of the internet to affordability.

On water, the report says that the requirement that prices reflect the true economic costs of abstraction, distribution and treatment was a key element of the EU Water Framework Directive, commenting:

“Since moves to full cost pricing generally led to price increases, it is unsurprising  that water metering and tariff rebalancing have frequently met considerable resistance from users.”

CERRE’s members include regulatory authorities and operators in the utilities, including Ofgem and the Utility Regulator for Northern Ireland.

Click here to download Affordability of utilities' services: extent, practice and policy