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NEA response to Ofwat Forward Work Programme 2020-21

Date: 26th Feb 2020

NEA response to Ofwat Forward Work Programme 2020-21

Driving consumer and societal outcomes through company performance should remain a key ambition of Ofwat so that it can continue to demonstrate the legitimacy of a privatised water sector even with the reduced risk of re-nationalisation following the recent general election. Developing a richer understanding of company performance is valuable, providing the commitment to do so leads to consistent and comparable metrics made visible to a wider audience, including customers.

Swift and targeted action in the case of underperformance is also welcomed. The record fines imposed in June 2019 for deliberate mis-reporting and other ‘serious failures’ demonstrated Ofwat’s intention to appropriately use their formal enforcement powers as a way of proving the legitimacy of the sector. The fine of £126m was significant; the direct bill rebate of £61 over five years to every customer had a broad reach, but a relatively small impact on individual customers’ financial situations; a model such as the Energy Redress Scheme could have had a greater impact on those most in need. The scheme’s core priority is to support consumers, specifically those in vulnerable situations, and those who were negatively impacted by the specific issues that triggered the redress payment.

As an example, at a cost of approximately £75 per person, Benefits Entitlement Checks (BECs) have been shown to deliver around £1,000 in value to the average client. Focusing services and/or rebates to those most-in-need delivers more value in relative terms than a broad-reach rebate and can also support local charities and community organisations through project delivery, therefore providing greater social value.

In addition, NEA’s own illustrative analysis suggests that if a one-off investment of less than the individual direct bill rebate (using the June 2019 rebate as a benchmark) was channelled into low-cost water and energy saving measures, energy and water bill savings could be made on average of £78/year for a two-bedroom flat, and £156.50/year for a three-bedroom house. This approach provides a greater and longer-lasting impact for the households in receipt of the measures than a direct bill rebate would.

Within the evaluation of the current regulatory approach we also encourage Ofwat to follow through with their commitment to “consider the case for new high-level licence obligations to provide binding requirements on how companies treat their customers and the most vulnerable in society”. NEA supported the development of the vulnerability principle licence condition and Standards of Conduct for energy suppliers, which Ofgem recently included for Gas Distribution Networks and has suggested will also be rolled out for Distribution Network Operators. The principle’s clear focus on identifying vulnerability, as well as ensuring that once identified, those customers receive the most appropriate customer protection, meets the requirement within Ofwat’s strategy to “make sure customers’ diverse needs, and particularly those in vulnerable circumstances, are properly met”.

Taking inspiration from the achievements made since the first Consumer Vulnerability Strategy was published by Ofgem in 2013, NEA would like to see Ofwat follow suit and develop their own Vulnerability Strategy. We recognise the attempts Ofwat has made in the past to raise awareness of vulnerability issues and the need for water companies to do more by publishing reports such as Vulnerability Focus in 2016, but to truly embed support for vulnerable customers across the industry, there should be a central focus provided by the regulator. A Vulnerability Strategy could provide both Ofwat and water companies with a framework to guide all decisions by considering how they might directly, or indirectly, impact customers in vulnerable circumstances, and how customers’ needs can be safeguarded where required. NEA see this strategy as being separate to the wider strategy, ‘Time to Act Together’, but feel that it could be aligned to the three strategic goals with more vulnerability-specific guidance and initiatives outlined.

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NEA response to Ofwat Forward Work Programme 2020021
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