The ‘average household bill’ calculation is used by the water industry to ensure all companies present information in the same way. It is calculated as ‘total household revenue ÷ total household customers’. The industry uses it as it is the most consistent way for stakeholders to compare bill movements. It will not represent the bill many customers will receive, due to a number of factors such as metered or unmetered, single or dual service provision, size of rateable value or water consumption.

RPI inflation for the previous November is used as the basis for any bill changes. Companies are obliged by the conditions of their licence to use RPI and not CPI, however this is being reviewed by Ofwat.

There's more information here on how much water an average person uses.