A Framework Methodology for Estimating the Impact of Household Metering on Consumption, 2003-2004

The Situation

In April 2000, UK households became entitled to a free meter to measure their water supply and to be switched to a tariff based on volumetric usage rather than Rateable Value. While many companies already had some experience with households opting for measured charging, there was no consensus across the industry as to what the effects of this policy would be on companies' revenue base and demand levels. NERA was commissioned by UK Water Industry Research to produce a framework methodology for water companies to use to estimate the impact of household metering on consumption. The objective was to produce a robust set of guidelines that would provide companies with a clear procedure for determining the impacts of differing household metering programs on various customer groups, as well as to identify the information needed to do so.

NERA's Role

The methodology was to differentiate between the propensity to opt for measured charging ('switching effects'), and any behavioral changes as a consequence of this ('demand effects') -- as well as assist with quantifying both. NERA's study included a survey of the published literature on household metering and two empirical analyses: the first explored the determinants of the household decision to voluntarily opt for a metered charge, and the second investigated the impact of optional metering on consumption. For these analyses, NERA assembled a unique panel dataset combining household data from eight UK water companies' consumption monitors. The framework methodology itself set out a number of options for companies to choose between to evaluate the impact of household metering on consumption depending on the availability of data. The methodology was designed to be acceptable to both industry and regulatory agencies.

The Result

The framework developed by NERA has become the best practice standard for the UK water industry. Moreover, the results from the empirical analysis have been used by many companies for their regulatory submissions.