Our response to Ofwat’s consultation on consumer involvement in company decision-making rule

We welcome the opportunity to provide a response to Ofwat’s consultation about the consumer involvement in company decision-making rule.

Executive summary

Overall, CCW fully supports the aim of the rule to ensure that companies have appropriate arrangements in place for involving consumers in decisions of the undertaker that are likely to have a material impact on consumer matters. We have been engaged with Ofwat on the development of this rule and how it interacts with the forthcoming CCW-convened panels.

We are also pleased to see the inclusion of wider consumers in the rule (e.g. business consumers) as wholesalers could go further to engage with business customers on issues that impact them. As business customers vary considerably by both business size and consumption, it is important that wholesalers are engaging with a broad range of businesses to ensure different needs and experiences are understood.

As acknowledged by Ofwat in the consultation, business customers do not have a retail relationship with their wholesalers, which can present challenges in identifying and engaging with them. As retailers own this relationship, it is beneficial for the customer and is important for wholesalers to work with retailers to ensure they are overcoming these challenges. It will also make retailers aware of the material changes wholesalers are making and any resulting impact on services to business customers.

There are elements of the rule and guidance which may be strengthened to ensure that it is clear that the focus is not to just demonstrate engagement with consumers on matters of interest, but for companies be able to appropriately demonstrate that these views have been take into consideration before decisions are made that would affect consumers.

Detailed response

Decisions that are likely to have a material impact definition

CCW agrees that this definition needs to be sufficiently flexible to capture all decisions that have a non-negligible impact on consumers, and that decisions taken by the Board on consumer issues are a good starting point. We also agree that there will be some instances where decisions taken outside of the Board will also have a material impact on consumers.
The guidance surrounding this must allow enough flexibility to ensure that companies are engaging with consumers on the key issues that people outlined in the research on customer engagement and research that CCW and Ofwat jointly commissioned. This includes decisions consumers see as having a direct impact on their pocket – bills, investment and affordability of new plans; as well as anything affecting what they see as the core service – treating and delivering clean water and provision of sewage services.

Monitoring, compliance and enforcement

The consultation sets out that: the foundation of our rule is that in order to involve consumers in their decision making effectively, companies must first take steps to understand what their consumers think and experience. They must take demonstrable insights from these steps, and then incorporate those insights into the decisions that they make.

CCW strongly agrees that it is important that consumers’ views are gathered and used to inform business decisions where such decisions will have an impact on consumers. Mandating this through the rule is a positive step and should help address issues of trust within the industry.

However, the rule and subsequent reporting should be clearer on how companies are expected to demonstrate that consumer views have been used in decision making. It is not enough for companies to set out how they plan to and have engaged with consumers. For Ofwat to be able to monitor compliance of the rule, and satisfy itself that the rule has been effectively met, companies must be transparent in reporting to both regulators and consumers about how consumer views are used. They should maintain an audit trail to be able to demonstrate this. CCW understands that the reporting requirements may become clearer in the consultation on reporting arrangements within the regulatory accounting guidelines process in due course.

Specifically on company engagement with the CCW-convened panels, we intend to monitor company engagement, and the outcome of this, and will share this information with Ofwat.

The consultation outlines that Ofwat can use powers under section 35B of the Water Industry Act to issue direction to the undertaker to take steps to address the contravention which Ofwat has identified and enforcement action if they breach that direction. Ofwat needs to ensure that the reporting requirements that are put in place for companies are strong enough and frequent enough to be able to make this decision.

Engagement with the CCW-convened consumer panel

CCW welcomes the inclusion of the requirement for companies to engage with the CCW-convened panel within the consultation, but the rule must go further to set out the expectation that companies will engage with both aspects i.e. the research outputs as well as the accountability sessions.

While the rule provides some flexibility in how companies engage with the panels to allow for them to develop and evolve, CCW wants to ensure that companies are meeting our requirements when engaging with the panels and will set minimum standards for this.

It is not enough that undertakers make all reasonable efforts that water company representatives attend the accountability sessions – attendance must be mandatory. Non-attendance would render the sessions meaningless, leave panellists feeling de-motivated and would have the potential for reputational damage for water companies.

Engagement with company Boards and the consumer Independent Non-Executive Director (INED)

Engagement by company Boards on consumer issues should be frequent, not just annually as suggested in the consultation document. As a minimum, CCW would expect this to be quarterly, with ‘independent consumer experts’ (i.e. CCW) engaged in line with major decisions. Annual involvement is unlikely to provide the timeliness or depth of consumer insight required for Boards to make informed decisions.

Component 2 of the rule should make it clear that consumers can attend open meetings of the board and actively contribute to them.

In relation to consumer representation on Boards, CCW recognises that companies may adopt different approaches, including the use of a designated consumer INED. What matters most is that Boards can demonstrate robust and independent consumer challenge in their decision making. Where companies do not appoint a consumer INED, they should be required to set out clearly how alternative governance arrangements provide the same or stronger level of independent consumer insight and challenge.