The cautionary tale of the surge charging controversy

(by Karma Loveday)

Water UK and Ofwat last week outright rejected media reports that water companies could ‘surge charge’ during drought – a practice where higher prices are applied in times of high demand, such as for mini-cab fares on New Year’s Eve or for remaining ticket prices for near-sold-out shows.

The reports misunderstood key planks of water price regulation, including revenue neutrality and that charging schemes are set in advance. They also misinterpreted the intention behind the tariff trials that Ofwat is supporting, which is essentially two-fold: to fairly incentivise water efficiency and to support affordability.

While it is true that the tariffs being tested (while varied) generally seek to deter waste or profligate use by charging more for consumption over certain volumes or at peak times, that is a far cry from the profiteering suggested by headlines such as ‘Water companies to charge more during droughts’. But despite the inaccuracy, the backlash was rapid and included, according to some reports, a pledge from the PM to intervene.

This experience is important. It demonstrates the depth of media interest in water now, such that a pretty arcane-sounding Ofwat consultation (Statutory consultation on changing our wholesale charging rules and charges scheme rules to promote greater water efficiency) would even be read by mainstream news outlets, let alone make the headlines. It also demonstrates the danger of diminished trust in the sector, where public and political willingness to think the worst – and knee-jerk react to it – could derail pricing tools with the potential to help balance supply and demand.