Forecasting Household Meter Optants, 2003

The Situation

In 2003, a UK water and sewerage company asked NERA to produce a 10-year forecast of the number of household meter optants in its supply area. The forecasts were to be used to feed into its strategic business plan submission to Ofwat as part of the 2004 periodic price review.

NERA's Role

The client supplied NERA with data from its household consumption monitor and descriptive data on the household population in its supply area. We developed an econometric forecasting model in which the probability of an unmeasured household opting for a meter was estimated as a function of the size of its unmeasured bill, the would-be measured bill if the household were on a measured tariff, occupancy, property type, the month of the year, whether or not the household was sent any metering publicity in the month, and local meter penetration.

The model was calibrated to the population using sample-to-population frequency ratios and inputted with forecasts for the demographic base, measured and unmeasured tariffs, metering publicity and selective meter installations. This enabled forecasts to be derived for the numbers of household optants over ten years.

The Result

The forecasts developed by NERA were used by our client in its strategic business plan for the 2004 periodic price review and were accepted in full by Ofwat.