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Interview the business South East Water's willingness to pay "With 18 business plans, sion ofOfwatCCG report. "With 18 to be getplans, should have enough (WTP) research found customers are not willing to pay any more than they do now for Ofwat should have enough ting on with to permit CCG reports to come in a little later," he remarks. service improvements. The company commisto be getting on with to Payment of CCG members: Companies sioned acceptability research on its business permit CCG reports to should consider paying volunteers a modplan proposals with a nil increase in bills in est monthly retainer or an attendance allowreal terms – although the actual proposition come in a little later" ance or alternatively make a donation to the in the final plan is for a 1 per cent reduction organisation releasing the individual from other work. in real terms. This acceptability research found around Darlington says the time commitment required of his 80 per cent of households and businesses found the plan CCG members turned out to be "way beyond what they'd somewhat or completely acceptable. expected". He adds: "The pressure on regulators has been The only aspects of pricing the CCG has raised for enormous. Just two or three people from the Drinking Ofwat to take forward are to check how proposed South Water Inspectorate (DWI), for example, have done all the East Water bills compare with those of other water comCCGs. We need the recognition that if you want custompanies, and whether the bill profile South East has earers to be at the heart of the process, it has to be resourced marked for 2015-20 could be flattened without affecting in some way, both for individual volunteers and regulafinanceability. tors like the DWI, which releases staff for CCG work." He There are other business plan matters beyond the CCG commends his eight group members for sticking with the remit for Ofwat to judge, too – notably most financials process, for their good attendance and full participation and in particular cost of capital (the business plan puts despite these issues. this at 4.45 per cent, higher than Ofwat had indicated Smoother organisation from Ofwat: Meetings for CCG it would like). Darlington also wants Ofwat to carefully chairs were set one by one, not timetabled in advance, check that cost allocation to each part of the business making it difficult for chairs to schedule attendance. plan – household retail, business retail and wholesale Moreover, frequent changes to the Ofwat personnel liais– is fair, with a view to ensuring costs are not unjustly ing with the group made relationship-building difficult. loaded onto monopoly customers. "We want to put down the need for a proper timetable He hints too that he is not entirely convinced the Outand consistent staff," Darlington says. come Delivery Incentives (ODIs) are substantial enough Research: The CCG would like a review of the current to be effective in changing company behaviours and WTP methodology used across the industry ahead of delivering benefits for customers. The proposed regime PR19. In particular, it was concerned about the "stated offers a maximum bill reduction of around £2.45 per cuspreference" approach used to discern customer prioritomer per year in the event of South East Water's failure ties. It worked with South East Water and researchers to to achieve all the targets and a maximum bill increase of conduct research using a different method to cross-check £1.44 per customer per year if it succeeds. In percentage findings in the south east. terms, the upside/downside potential (-1.23 per cent to Independent review of the CCG process: In time, Ofwat +0.73 per cent) is in the same ballpark as that offered by should commission an independent review of the CCG the Service Incentive Mechanism (-1 per cent to +0.5 per model with a view to informing both subsequent price cent), which has been effective. reviews in the sector and debate in other sectors. AccordThe CCG has also taken the opportunity to list some ing to Darlington, it is too soon to start such a process other – unsolicited – recommendations for Ofwat in its now because lessons are yet to flow from Ofwat's alloDecember report. Darlington admits this "pushes our cation of business plans to performance categories. He terms of reference", but wanted the views captured in an explains: "When Ofwat allocates companies to categoofficial document. He says other CCGs have hinted prories [enhanced, standard or resubmission], I hope they cedural matters could be improved but that "no-one else spell out exactly why they have been allocated as they has been so bold as us" in setting them out unequivohave. I'll be disappointed and surprised if they don't cally. The recommendations concern the following: refer to the CCG report. Ofwat should be clear whether Price review timetable: In future price reviews, Darindividual CCG reports have been helpful or not." lington wants CCGs set up before firms begin drafting The immediate future holds more PR14 work for the customer engagement plans – not after, as was the case CCGs, although Darlington says it's "still not terribly this time. clear" exactly what this will entail. For sure, the groups Critically, he says more time should also be allowed for will play a role commenting on the revised business a "considered dialogue" between companies and CCGs plans of any companies filed in the resubmission cateover the complete, final business plan. According to his gory, and will have the opportunity to comment on comgroup's report: "South East Water showed us five drafts panies' risk and reward menu choices. of the retail plan for households, four drafts of the retail As for PR19, Darlington sees the spirit of the CCG plan for businesses, five drafts of the wholesale plan, and model continuing, but in a developed form. He specuone draft of the overall plan. Only at the last CCG meeting lates that now companies have tasted the benefits of before the submission date did we have detailed informaworking side by side with customers, the model may not tion on prices and outcome delivery incentives and only have to be compulsory next time. Or there may be a more two weeks before the deadline was the CCG shown a ongoing role for customer representatives, whereby they business plan comprehensively populated by most of the also help monitor implementation. relevant financial, outcome and incentive statistics. South East Water is already planning a move in this "Essentially this was a consequence of the tight PR14 direction. It is set to introduce two new Customer Panels timetable and the common deadline for submission to in the spring – one for household customers and another Ofwat of the business plan and the CCG report." for business customers – to review on a quarterly basis Consequently, Darlington calls on Ofwat to take a its performance against its plan from April 2015. fresh look at the case for permitting a short interval See Utility Week expert view, page 7 between submission of the business plan and submis10 | 17th - 23rd January 2014 | UTILITY WEEK