Getting the right outcome for consumers
Pushing water companies to focus on delivering the results that matter to consumers
What are outcomes and why do they matter?
For us, outcomes are the objectives that matter to consumers, society and the wider environment. Like the quality and reliability of their water supply, how well water companies look after their local environment, and how good their customer service is. In the past, we and other utility regulators focused more on companies' activities, not the results those activities deliver. For example, in the past, that could mean looking at upgrades to particular sections of pipes, rather than the benefits that consumers would get as a result.
In 2015 we changed that and we now focus on outcomes – the results for customers – instead.
This shift is to help us and water companies focus on what really matters to consumers, and to give companies the space to innovate and react to local priorities and circumstances.
We want companies to think creatively about how they can secure the best outcome for consumers
To support this approach and make sure companies are on the right track, they all have performance commitments. These are companies' pledges about how they will reach the desired outcomes. The companies agreed their performance commitments in collaboration with consumers. Companies have reputational incentives to deliver against their performance commitments as they have to report against them each year.
We have also introduced financial incentives to penalise or reward companies depending on how successful they are in delivering their performance commitments. These are called outcome delivery incentives.
What we are doing now?
We want to strengthen the outcomes approach for the next price review in 2019. And so we are consulting on four areas:
– making performance commitments more stretching for companies
– making outcome delivery incentives more powerful
– how to focus company outcomes on resilience
– how we can make performance commitments more transparent
More stretching performance commitments
Companies set their performance commitments based on conversations with consumers and local stakeholders. To help push companies to set stretching commitments, consumers and stakeholders need to understand what a truly stretching target looks like and often they may not have the in-depth industry knowledge to help them. We want to strengthen consumers' hands in three ways.
1. By making more comparative information available about different companies’ performance. If consumers can see a neighbouring water company delivering better performance they might want to understand why their water company cannot match or beat it. We have been working with Water UK as they have developed the Discover Water dashboard – which aims to make more comparative information available to consumers.
2. By setting some performance commitments common to all companies. While we want targets to be informed by local priorities, and for example in Wales companies will want to consider how they’re contributing to the Wellbeing goals, there are some issues which are important to all consumers. We are considering developing ten common performance commitments for all companies. These cover water quality, supply interruptions, internal sewer flooding, pollution incidents, leakage, abstraction, resilience, mains bursts, sewer collapses and consumer satisfaction. We are consulting on options for these targets and how to make them stretching.
3. To underpin our approach to strengthening performance commitments, we will develop new guidance for companies. Through this guidance we will expect companies to set more stretching targets, and consider a wider set of information.
Making outcome delivery incentives more powerful
To encourage companies to remain focused on delivering the services that matter to their consumers, we use outcome delivery incentives. These penalise or reward companies depending on their performance in delivering what consumers care about.
We are considering how we could make outcome delivery incentives more powerful. This could change behaviour away from focusing on cost reduction, for example, towards improving services. We are consulting on the size of penalties and rewards and the options for increasing them. We are also considering their timing. Should we wait until the end of the five year price control period to apply the penalty or reward? Or should companies get this as close to real time as possible? We would like to get your views.
Resilience – a critical requirement
Resilient services - water coming out of the taps and wastewater being taken away - are really important to customers, both now and in the future. Long-term resilience, alongside long-term affordability, is at the heart of what the sector needs to deliver. If approached in the right way these two areas should go hand in hand.
Resilience is at the heart of our approach to regulating the water sector, so it will feature at our next periodic review. We are looking for companies and stakeholders to develop a more integrated approach to resilience across their plans.
Let us know what you think.
More transparent performance commitments
For performance commitments to help deliver better results for consumers, and secure their confidence, they need to be transparent, clear, and understandable. We do not think that some current performance commitments are as clear as they should be. We are consulting on principles which encourage companies to make sure they are presenting their performance commitments as transparently as possible.
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