ODI policy opens door to "significant bill increases" cautions CC Water

The Consumer Council for Water’s (CC Water's) long-standing hostility to Outcome Delivery Incentives (ODIs) on the grounds of lack of customer support for the model at PR14 continued in its response to Ofwat’s draft PR19 methodology, published last week.

The watchdog warned of “a risk of a negative customer reaction” from the stronger rewards earmarked, “particularly if ODI rewards drive bill increases and inflation also rises”. It pointed out in particular that the removal of the +/- 2% cap on the Return on Regulated Equity for ODI rewards “opens the door for significant bill increases”. CC Water argued that should the incentive mechanism be used:

“Ofwat will need to show that rewards relate to tangible service improvements that customers accept and are happy to pay higher bills for rewards achieved under this regime. The collection of rewards should also be spread over time to avoid bill spikes for customers.”

It continued to suggest the value of the full package of financial ODIs be applied to revamped SIM, the C-MeX (though CC Water suggested Ofwat split its new customer experience measure into two separate measures with associated incentives, one for contact and complaint handling and the other for customer satisfaction with value for money and Net Promoter Score).

It said applying the ODI package value to C-MeX would drive companies to increase customer service and value for money, thus increasing customers’ trust and confidence in the sector; would mimic a competitive market; and provide an additional incentive for companies to collect rewards over time.

CC Water’s 51-page response covered all Ofwat’s PR19 proposals, chapter by chapter. Among its other comments and proposals were:

  • Concern over the plan to index-link the cost of new debt financing “at a time when interest rates are historically low and are more likely to increase than decrease”.

  • A proposal for dedicated Performance Commitments (PCs) on customer affordability and vulnerability.

  • Continued regulation of non-household retail prices and service in England to help protect customers while the new retail market is in its infancy.

  • Emphasis that customer views be at the heart of all aspects of the price control, including the selection of common PCs, companies’ entire price and service packages, and Ofwat’s business plan assessment.

See full coverage of CC Water’s response in September’s The Water Report.

Source: https://www.ccwater.org.uk/wp-content/uploads/2013/12/Consulting-on-Ofwats-methodology-for-the-2019-Price-Review-August-2017.pdf