Ofwat has ‘enabled companies to limit scrutiny’

Ofwat’s decision to soften rules on customer challenge groups has “enabled companies that want to limit scrutiny to do so”.

Research commissioned for the water sector’s consumer watchdog CCW reveals some companies failed to properly engage with their independent customer groups (ICGs) during the development of their PR24 business plans, with others “cut out” completely.

It reveals only half of the water companies shared their final plans with their respective ICGs and of those who did see it three were asked not to give feedback.

The research – compiled by Indepen – adds that ICGs were “under-informed, cut out of the process […] and [in one case] ultimately dissolved” after providing feedback on draft plans.

It concludes that that lack of engagement with ICGs was a direct consequence of Ofwat’s decision to remove the mandate for customer challenge groups.

Ofwat mandated customer challenge groups for PR14 and PR19 business planning. However, the regulator scrapped the mandate for PR24 planning and instead decided that “there should be flexibility for companies to design their own approaches to meet their own specific needs and ambitions” in respect to customer challenge groups.

The research concludes that “the downgrade […] has resulted in some companies constraining the challenge they receive by limiting the independence and remit of their ICGs, and the information available to them”.

It adds: “Ofwat’s removal of the mandate has enabled companies who value customer challenge to innovate and to refine their approach to maximise the value of their ICGs. Where arrangements are in place to facilitate high quality scrutiny and challenge, ICGs’ distinctive input can and does add significant value for companies and customers.

“Unfortunately, the current arrangements enable companies that want to limit scrutiny to do so.”

To tackle this Indepen recommends the reinstatement of the mandate alongside a framework for Ofwat and companies to consider when designing arrangements for future price reviews.

“Without a mandate, the ICGs operate at the discretion of the company. Even with Ofwat’s formal guidance, there is leeway for companies to facilitate or limit the quality and scope of their ICG’s scrutiny and challenge,” the research report states.

“The evidence from this review shows that if all ICGs are to be empowered to deliver effective customer challenge, this will require more than the current approach of Ofwat merely setting out its expectations in formal guidance.”

It adds: “Ofwat setting a mandate and core scrutiny remit would not only provide clarity, it would enhance the ICGs’ standing with their companies, adding weight to their challenge and recommendations.”

The report adds that there is “arguably a greater need now for effective customer challenge of water companies’ behaviour” than ever before given the “sector’s reputation is at a low, with regular negative media comment”.

It concludes: “Showing themselves to be worthy of customers’ trust would be an important part of rebuilding the reputations of the companies and their regulators.”

The CCW recently criticised South East Water, Portsmouth Water and Hafren Dyfrdwy for the way they engage with their Independent Challenge Groups (ICGs), in its review of PR24 business plans.