Impact of shock events on Per Capita Consumption (PCC) (2604)

Project Description

Artesia Consulting and Frontier Economics have undertaken a large collaborative project with almost all Water Companies in England and Wales investigating the impact of shock events and particularly Covid-19 on Per Capita Consumption (PCC). This metric has been fundamental for measuring and analysing water consumption in the UK. Artesia and Frontier have both conducted previous research that estimated an increase in PCC of 10-15% during the Covid-19 pandemic. Emerging from lockdown we have experienced new societal norms and further shocks in the forms of extreme consecutive summers and a cost-of-living crisis.

In this project we:

  • Developed an analytical framework to quantify and justify shock events.
  • Assessed the quantitative impact of three “shock” events through statistical modelling and qualitative evidence:
    • Covid-19 and the new normal including greater home working.
    • The cost-of-living crisis due to high inflation and poor real wage growth.
    • Consecutive peak summers.
  • Created a regulatory framework to determine the criteria for adjustments to PCC targets.

This study found that shock events in recent years have caused a disconnect between company activity to reduce PCC and the changes in PCC that companies have reported. We note that the combined aggregated net impact of shocks between 2020 and 2023 is greater than the year-on-year reductions in PCC determined for PR19. Without an adjusted regulatory approach, this could undermine investment incentives of the PCC Outcome Delivery Incentive (ODI ) going forwards. We therefore set out a proposed regulatory approach for evaluating shock events and determining whether adjustments are appropriate for these individual shocks. While doing this we also recognised that a more holistic outcome measure may better reflect the relevant outcome behind PCC.

We now look towards AMP8 to evaluate how the new normal will impact performance targets and water resources in the future, and how to address these challenges.

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