Utility Week

UTILITY WEEK | AUGUST 2022 | 31 Water Despite it being only two years into the new mechanisms, the regulator is currently consulting on the dra methodology for PR24 (see analysis, p9) and believes C-MeX will largely be retained as it is. "If people raise large issues, that might be something we have to think about. I think most stakeholders have been broadly sup- portive on C-MeX. That doesn't preclude us making changes but nobody has suggested starting again," says Young. Level of reward One of the key areas CCW believes needs addressing is the level of reward and pen- alty that can be awarded to water companies depending on their performance. Currently C-MeX is of less value to compa- nies than other incentives, but CCW believes it should be comparable to keep pushing companies to keep up with changing cus- tomer expectations. Companies can receive reductions in household retail revenue of up to 12% and increases in household revenue of up to 6%. The highest percentage achieved by a company in 2020/21 was by Northumbrian Water, resulting in a payment of £2.9 million. Higher payments can also be received if companies achieve one of the three highest scores, have above average customer com- plaints-handling and place in the top 25% of the UKCSI, but this will require significant improvement even among the best-perform- ing water companies. Despite being a stretch, Joanna Causon, chief executive of the Institute of Customer Service, which runs the UKCSI, believes it is not unrealistic for water companies to be able to achieve the necessary scores in the future. She says water companies should be aiming to achieve such scores because cus- tomers will inevitably benchmark their per- formances against companies outside the water sector. While Hobbs acknowledges that compa- nies are motivated by reputation, he believes this in itself is not enough. "We know companies are very motivated by the availability of financial rewards and penalties, so it does need that extra carrot and stick, albeit reputational incentives can be strong by themselves, but for something as essential to customers as receiving a good service and making sure your complaints are dealt with effectively it does need that extra financial clout." Although reputation alone may not be enough of a driver, Causon points out that the evidence shows that where companies outperform on customer service they see much better returns and this should be a motivating factor as well. One of the risks Hobbs sees of lower pay- ments in C-MeX is that companies choose to focus their efforts on other areas where the rewards are greater. Young says the payments for C-MeX are relative whereas the rewards and penalties for many other incentives are not, making them difficult to directly compare, but adds that they are not insubstantial, with Ports- mouth Water receiving nearly a third of its outperformance payments in 2021 from C-MeX. She doesn't believe companies will focus on the more profitable areas at the expense of others. "Achieving more payments on C-MeX doesn't stop a company achieving more pay- ments elsewhere. "Whether the ranges are right is another question, these are carried across from SIM and one of the things we will be consulting on is whether we should be expanding or reducing that range." Complaints given more clout One of the main reasons for changing SIM was to remove the complaints element in "There was a worry that we were giving a company an outperformance payment, whereas the industry as a whole was not doing particularly well." JULIET YOUNG, CHIEF ECONOMIST, OFWAT favour of a second survey assessing a com- pany's wider reputation. This was to avoid incentivising compa- nies against receiving complaints, says Ian Bannon, the Ofwat principle in charge of the day-to-day running of C-MeX. Now under C-MeX, complaints han- dling acts as a gateway to higher payments, meaning companies with only average com- plaints-handling can still qualify for rewards payments, which is a concern to CCW. Rather than using complaints as a gate- way, CCW would prefer to see the quality of complaints-handling given weighting within the score. "We think there's an opportunity now to raise the bar higher on the complaint element side of it, maybe not have it as a gateway but have it as an additional third component so the two surveys and the com- plaints are used to set what score you need to get to achieve rewards or penalties," says Hobbs. As well as being given proper weighting, he would like to see the bar raised over time so potentially only the top four performing companies could qualify for rewards to help prevent complacency creeping in over time. However, with fewer companies in line to receive reward payments, such a move would need to be accompanied by an increase in the value of payments and be brought in over time to ensure that poorer performing com- panies were not completely disincentivised. Causon says that compared to other sec- tors, complaints -handling in the water sec- tor is "not bad", but would only score around a six out of ten, while the leading companies such as Amazon receive far fewer complaints and are known for responding much better. She says the speed of response and tak- ing a proactive approach such as phoning a customer to make sure the issue has been resolved in a satisfactory manner are key. Currently there is no formal process built into C-MeX to ensure that water companies are following up on feedback from custom- ers to the surveys, or from complaints them- selves, which Hobbs believes is a missed opportunity. Lucinda Dann, features editor

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