A proposal by Ofwat to lift the cap on the rewards water companies can receive for meeting their performance targets could lead to higher costs for customers. Our policy manager James Mackenzie explains why we think companies should be rewarded only for exceptional service.
Back in 2014, when the industry regulator Ofwat first introduced the idea of giving water companies financial rewards (Outcome Delivery Incentives, or ODIs) to motivate them to provide better services CCWater thought it was important to ask customers what they thought.
Customers told us in research we did that they didn’t like the prospect of companies being handed more money for delivering the day-to-day services that customers were already paying for through their bills. You wouldn’t be happy handing over an extra £1 for your coffee if the barista has sprinkled on some chocolate shavings you hadn’t asked for. That means companies face a challenge to persuade their customers that these rewards are a good idea.
In its draft methodology for the 2019 Price Review (PR19), Ofwat is proposing to remove the cap on the rewards companies can reap if they meet their ODI performance targets.
We think this opens the door for companies to rack up ever greater rewards – and add significant costs to customers’ bills. This could also see companies focusing their attention on those areas where they believe they can achieve these rewards at the expense of the overall service they deliver to customers.
Any financial rewards must only be paid to companies for good performance in those areas that customers say are high priorities for them and where there have been definite improvements in services. The challenge for companies will be to show customers the benefits they will receive in exchange for these rewards, and to phase in the collection of any rewards to prevent a spike in bills.
CCWater wants to see rewards only for companies delivering exceptional service. We believe that to help deliver this the performance commitments companies look to achieve should be dynamic. That is, these targets should move each year to reflect the improvements being made across the industry, making them more stretching. Rewards must only be allowed for the best performers who improve year on year. Companies shouldn’t be rewarded for standing still.
We also think that the majority of any financial ODIs should be linked to the ‘C-Mex’ measure of customer satisfaction, which should include a measure of companies’ performance in handling customer complaints.
This will help to encourage companies to improve their customer service and value for money. This will also improve customers’ trust and confidence in the water sector.