Our response to MOSL’s 3rd consultation on MPF Reform

We believe that all of the proposed nine activities should be included in the MPF as they have a clear customer impact, and if undertaken correctly, should result in improved customer outcomes. As well as expecting a reliable and safe water/sewerage service, a key expectation of business customers is that charges for their services are accurate. Therefore, the activities focusing on improving the accuracy of consumption data, and efficiently maintaining meter assets, are welcome, as these are needed to improve customer service delivery and billing and charging.

The number of business customer complaints to CCW in 2022-23 remains 2.5 times greater than before the market opened, with the majority of these relating to billing and charges and administration issues. It is therefore vital that the MPF incentivises much needed improvements in these areas in order to reduce ongoing customer detriment.

While we agree with all the activities , it is important to be able to measure how well these are being undertaken, and incentivise the correct trading party to maintain a high level of performance.

Activity A4 – ‘market participants to support customers during unplanned events’ – does not have any key performance indicators (KPI) that could be used for incentivisation. We think this should have KPIs. We want to see this activity further enhanced and we urge MOSL to develop performance indicators to ensure this is subject to the same incentivisation as the other eight activities.

We believe that the following two activities should be included in the top tier of activities:

GS.3 – ‘Retailers resolve complaints in a timely and efficient way’;

UWE.4 – ‘Retailers facilitate the provision of timely and accurate consumption data to customers’.

Given how both complaints to retailers, and those to CCW, remain at a concerning level, we believe there is merit in incentivising retailers through the MPF to further improve complaint resolution. As the industry consumer body, CCW should continue to lead in this area by continuing to work with retailers to tackle complaint root causes, and to improve complaint handling. However, if performance remains poor, this should be subject to incentivisation under the MPF. To help determine the level of performance in this area, we want to continue working with MOSL to see how our complaints data can be included
as an additional metric.

Providing timely and accurate consumption data is a key part of ensuring a good customer billing journey. Retailers should not only be incentivised to ensure accurate data is maintained in CMOS, but that it is also being provided to customers too. The current low level of customer engagement in the market means there is insufficient competitive pressure on retailers to get this right, so other incentives are needed to fill the gap. Given how the aforementioned activities are directly linked to accurate billing, we urge MOSL to either reinstate this activity to the top tier, or combine it with A1 to further enhance this activity and create a strong incentive.

As stated in our answer to Question 10, we are concerned that Activity A4 does not have any KPIs attached to it, so there is a risk that trading parties will be inadequately incentivised to perform well in this area. While we understand there are no existing market metrics, MOSL should be working with the industry and stakeholders to develop measures of performance in this area. For example, mandatory sharing of customer contact information between retailers and wholesalers, within set timelines, could help to measure whether these are being met, and whether enough support is being provided to affected customers during unplanned events.

As stated in our answer to Question 10, we agree that all the activities cover areas that have a clear impact on customers, so if the incentives are also right, trading parties’ performance in these areas should improve to the benefit of customers.

As well as supporting the activities focusing on accuracy of consumption data and asset maintenance, we also welcome the inclusion of A5 – ‘market participants improve processes to facilitate new connections’.

It is vital that the new connections process is robust to ensure that customers are being correctly identified so they receive the correct services, and are billed correctly. This should help to ensure a good customer journey from the outset.

CCW’s review of business customers’ experience of the water retailer market highlighted that failures in this process have led to some household customers being incorrectly placed in the business retail market, which leads to a poor experience for those affected, and delays in the provision of services that they would otherwise be entitled to as a household. It is, therefore, right that a revised performance framework focuses on what happens at the start of the customer journey, as well as on the services subsequently provided.

Generally, we believe the activities meet the majority of the key success criteria as
outlined in the Activities document. In particular, we believe that all nine activities should facilitate improved customer outcomes given the fact they encompass meter reading, asset management, and customer service provision.

CCW’s 2022-23 annual business customer complaints report highlighted that complaints about billing errors, estimated billing and the frequency of meter reads, collectively made up 18% of overall billing and charges complaints from business customers to CCW. Taking action to improve data accuracy and encourage more, timely meter readings are therefore important to reducing customer detriment in this area.

We agree simplicity is an important principle as it is important that trading parties focus their efforts on the core activities that most impact customers. However, a balance needs to be struck between this and ensuring that poor performance in all areas is being properly addressed. We do not want to see the top tier of activities kept too condensed to satisfy the simplicity principle, when increasing this number may be warranted if performance in other activities has deteriorated, and results in poor customer outcomes.

MO3 – It is important to measure whether or not meter reads are being submitted within the agreed timescales. However, the metric should not create a perverse incentive on retailers to not submit a late read to CMOS in order to avoid a penalty, or any other intervention.

We want to encourage more accurate reads into the market, as well as these being timely, as this ensures customers are billed based on actual consumption, and also allows them to monitor leakage, and make water efficiency savings if they can. Keeping this metric as it is currently proposed could lead to poor performance remaining unchecked, and a worse outcome for customers. Therefore, this metric needs to be amended to be ‘time based’, rather than relying on the submission of the read, otherwise we believe there is merit in it being removed.

We believe that Activity A4 – ‘customers being supported during unplanned events’ – needs to be incentivised given the impact on customers. While we agree with using trading parties’ adherence to the RWG Unplanned Events Good Practice Guide as an Additional Metric, the development of a KPI is needed too.

As stated in our answer to Q10, a new requirement for trading parties to share customer emergency contact details with each other within set timelines should be developed. While there will be work to ensure the quality of the data is sufficient, this should provide a basis for measuring how well trading parties are supporting businesses during unplanned events.

M37 – ‘Complaints to CCW’ – We welcome the proposed inclusion of CCW complaints as an indicator of how well trading parties are performing key activities such as regular submission of meter reads, improving the quality of customer data and responding to customer queries. Given the key purpose of a revised MPF is to produce good customer outcomes, the level of customer complaints in a particular area is a vital indicator of whether or not good outcomes are being achieved. We therefore support using complaints to CCW as an additional metric, as proposed, and will work with MOSL to segment this
data so it can apply to all of the nine activities.

We are currently concerned that there is inadequate incentivisation for wholesalers to complete bilateral requests in a timely way, with customers being adversely impacted as a result. We, therefore, welcome the metrics against activities A7, A8, & A9, as it is important to measure how well wholesalers are responding to bilateral requests, along with how often they are deferring them, and to incentivise improvements accordingly.

Given the impact on customers, it is particularly important to understand why wholesalers are deferring bilateral requests, so we urge MOSL to continue auditing this activity to understand whether these are being used appropriately, and make changes to the process if there is evidence this is not the case.

Please refer to the answer we provided to Q17.

We are generally supportive of all the proposed metrics, particularly M37 – Complaints to CCW (as detailed in our answer to Q17), and also the metrics that apply to Activity A2 – ‘Outgoing retailer to ensure CMOS has good quality timely customer data on switching’ (M09, M04 & M05).’.

When a customer has chosen to engage in the market, it is important that the journey with their new retailer starts as smoothly as possible, which includes having a timely and accurate first bill. Given the level of estimated transfer reads has been historically high, it is positive that retailers will now be incentivised to improve the number of actual reads being taken on transfer.

Overall we agree that the proposed metrics meet the key success criteria. As each metric is clear on which trading party’s performance is being measured, this should increase accountability and consistency, and is therefore likely to lead to improved customer outcomes.

We also agreed with the need to reduce the number of proposed metrics featured in the 2nd MPF consultation, to a more manageable number. Too many metrics may have rendered the revised MPF unworkable which would ultimately fail to lead to improved trading party performance and good customer outcomes.

However, while we recognise the benefits of simplicity, another consideration for future reviews is whether or not the proposed metrics are working, and may need adding to or amending, if performance is not significantly improving. MOSL, therefore, needs to be prepared to develop and introduce more metrics if such improvements are not taking place, which a desire for a simple framework should not override. It is vital the incentives are right to improve the market for the benefit of customers.

We agree that the vast majority of the tools should be included in the revised MPF. It may not be possible to achieve good customer outcomes if the framework is too limited in the type of interventions to rectify poor performance. As customer priorities and market conditions change over time, so too will the appropriateness of intervention tools. It is, therefore, important that a wide range of options are available.

In the standard tools, we do not consider that compensatory payments should be a possible alternative to under-performance penalties, and we explain why in our answer to Q24. In addition, there are some tools that will need careful design before implementation, which we elaborate on in our answer to Q25.

We do not believe that any further tools need adding currently as the proposed list is
already comprehensive, and as stated in our answer to Q21, it includes an appropriately wide range of interventions to deal with varying degrees of poor performance. However, if it becomes clear that additional tools are needed in the near future, we would expect the MPF to be agile to adapt to these changes.

While intervention tools, such as publishing peer comparison, would result in more information being available to trading parties and customers, it may not result in improved performance. While some trading parties may be motivated to improve in response to poor performance being publically available, this may be limited if business customers are not switching away from those poor performers, which would otherwise provide an extra incentive (particularly on retailers) to further improve.

Our Testing the Waters 2022 research shows that there remains a lack of motivation, particularly on small businesses, to engage in the market. We do not believe there will be significant improvements for customers without a set of intervention tools that fill the ‘natural incentives’ gap that currently exists. As such, the T04 peer comparison tool may be limited in its effectiveness while customer engagement in the market remains so low. While this is the case, the T05 tool would be the most appropriate standard tool, with the other discretionary tools also potential options if trading parties performance does not improve.

Our preference is for performance charges, as we do not consider that monthly
compensation payments should be a possible alternative to these. Out of the two options, a trading party properly accountable for delivering a particular activity, is better incentivised to improve performance if there is a possibility of being penalised for failing to do so. This is also simpler to administer, and is a principle that customers will understand.

A compensatory payments tool may be too complex, as it could be difficult to define in monetary terms, how a party has been affected. In addition, there would not be the option of payments funding market improvement initiatives (a proposed option for use of performance charges), if these were being paid to affected parties instead. Even if customers were the beneficiaries of compensatory payments, this is likely to be less preferable for them than the wider benefits of trading parties delivering a high standard of service instead. For these reasons, we want to see the compensatory payments tool removed as an option in the proposed framework.

T05a – We do not believe that any performance charges should be redistributed to trading parties, unless they have qualified for them as part of an out performance payment tool (which would need to be very carefully designed). Where no trading parties have qualified for an out performance payment, any under-performance charges should be used instead to fund market improvement initiatives, for the benefit of customers. An automatic redistribution of charges ultimately reduces the incentive to improve performance, so we do not want to see this as a feature in the new MPF, and urge its removal.

T05a – Any use of an out performance payment tool needs to be carefully designed so the defined standard that needs to be exceeded is genuinely stretching for trading parties, and encompasses innovative service offerings that have clearly benefited customers. Currently, the basics are still not being delivered properly for large numbers of businesses in the retail market, so it would not be appropriate for the defined standard to be set at a level that is effectively rewarding trading parties for improving performance in their core functions. We would not expect rewards for ‘getting the basics’ right, so we would welcome seeing the design of this tool in the next phase in order to ensure it is meeting our desired objective.

T08 – If the intention is to base this tool on the current rectification and escalation process, then improvements need to be made. While the existing tool is fairly clear on the circumstances in which a trading party can be escalated for poor performance (which includes a positive focus on how this is impacting customers), it is less clear on what should happen in the event there is a failure to improve. While escalation to Strategic Panel and Ofwat is mentioned in the proposed tool, the circumstances in which this would take place need to be clearer, alongside the potential actions that may be taken. We would therefore urge MOSL to develop this tool before implementation, as otherwise it may prove ineffective in improving performance.

Given how those metrics that are key performance indicators will be used to incentivise performance, it is vital that trading parties and stakeholders are clear on which tools they are mapped to. It is therefore positive that Appendix 2 in the metrics consultation document clearly shows this, and displays the proposed framework very clearly.

We broadly support the structure of tools that have been proposed. In particular, it is important that tough intervention tools are used where it’s obvious that natural incentives on trading parties to improve performance are currently lacking. This is not only the case for wholesalers, but also retailers too. The current low level of customer engagement in the market means there is insufficient competitive pressures on retailers to deliver good customer outcomes, so other incentives are needed to fill the gap. However, it should also be an active list of tools that can react to changes in priorities for the market and customers. For example, if there was evidence that customers were engaging more in the market, then reputational tools may have more impact at incentivising retailer performance, which could enhance, or eventually replace, more regulatory ones.

Overall, we agree that the proposed tools meet the key success criteria. If and when customer priorities and market conditions change, there should always be an appropriate intervention option as a result of the wide range being proposed.

We agree that the MPF should be agile, and in this respect it should support competition, by changing if competitive pressures increase. However, while these pressures remain largely absent at this current time, greater intervention is appropriate with respect to both retailer and wholesaler activities in order to ensure that parties are properly incentivised to improve performance for their customers.

We agree with the four levels of governance as it is important to have a process that
clearly distinguishes between strategic and operational decisions. As the body
responsible for setting the strategic direction of the market, it is sensible that the Strategic Panel makes the strategic decisions, with the regulator retaining ultimate authority within the governance model.

We also agree in principle with the Performance Assurance Committee, as a market led governance model, allows both trading party expertise, along with customer and
independent voice, to guide decision making.

We largely agree with the authority proposed at each level, particularly as it is clear on the different responsibilities, and strikes the right balance between a level of agility that allows the MPF to respond to changing market priorities, but also ensuring that any major framework changes (e.g. to KPIs) would need a code change.

As well as having the proposed responsibilities at Level G4, we also believe that Ofwat needs to be able to intervene on a more operational level if deployed interventions are not significantly improving performance and customer outcomes. In practice, such regulatory intervention should only be as a last resort, as we support a market led governance model. However, it is important to preserve the option of greater regulatory involvement if performance is not improving, or if the model is not working.

We agree with this proposal, in principle, as it is important that performance is subject to periodic review as this aligned with the revised MPF being agile enough to respond to the changing priorities of customers and the market. However, it may be more appropriate to have fixed review periods as it may be undesirable for too much variance given the uncertainty around performance expectations that this may create. In addition, a constant revision of performance targets is unlikely to lead to sustained improvements, and therefore will leave customers worse off. A balance therefore needs to be struck between that greater certainty of what is expected from trading parties, and allowing the MPF to change according to priorities.

We agree with the proposed deliverables as it is important to both undertake a review of the performance period, and then change according to new risks and issues, if necessary. This is an essential part of an agile MPF that can respond to changing priorities.

We also agree that the code change process should be followed for changes to key
components, such as the list of incentivised activities and KPIs. While we want the MPF to swiftly change according to revised priorities, it is still important for major changes to be subject to the additional oversight that the code change process brings. In addition, proposed revisions to the current code change process will mean that the customer impact will be a key consideration of whether or not a code change proposal is able to progress through the process. Including a code mandated provision in the way described should help to ensure that any revisions to key MPF components are being made in the best interests of customers.

We largely agree with the proposals for a Performance Advisory Committee (PAC) as it is important that there is a market body that continues to oversee performance, and hold trading parties to account. We also support this replacing the current Market Performance Committee as we agree with the need for a ‘clean break’ with the previous MPF.

Given the key role that this Committee will play in the revised MPF, we particularly agree with the need for a market led governance model, as it is important for independent and customer voices to be part of the decision making process, as well as trading parties. However, given the primary beneficiaries of an improved MPF will be customers, it is important they have equal representation with other parties. We, therefore, would like to see the number of customer representatives on the PAC increased to two members.

It is also vital that the PAC acts in the best interests of customers, and that the revised MPF delivers genuine improvements for them. A barrier to this could be trading parties acting in accordance with vested interests, rather than in the best interests of customers and market improvement, as was noted in Ofwat’s Project RISE report. For the PAC to be effective, it needs to also be a requirement of the PAC Chair to uphold the impartiality principle, and robustly challenge members on this where appropriate.

We agree that the governance framework meets the success criteria. The revised MPF should be flexible, and be able to react to different challenges, and changing customer priorities. The proposed framework recognises this, and therefore should deliver improved customer outcomes. We also agree that the aforementioned agility allows interventions to change depending on the level of competitive pressure existing in the market. If competition is working, and naturally driving improved outcomes for customers, we believe the MPF has to be agile enough to adapt.

Similar to our comment on the components of the MPF, we agree that the framework should be as streamlined as possible, but simplicity should not necessarily override the need for any future changes to the governance that may result in there being additional layers and interventions.

While we acknowledge there may be challenges for trading parties concerning the scale of the changes, we have concerns that launching the reformed MPF in phases would result in a possible conflict between new and existing performance requirements, which could lead to confusion in accountability, and ultimately a worse outcome for customers. Due to extensive consultation, and industry participation through the Performance Advisory Group, we believe trading parties have had sufficient time to understand the direction of travel, and what is expected of them in terms of areas of focus.

As stated in our answer to Q35, we do not want there to be any ‘crossover’ between the existing and revised MPF given the possible conflicts this could cause. Therefore, a ‘shadow period’ would be undesirable as the existing MPF would need to end, but the new framework’s interventions would not apply until the conclusion of this period. This would therefore leave an incentivisation gap that could cause an unacceptable impact on customers if performance deteriorated. MOSL’s extensive consultation with the industry means that trading parties know the key customer and market priorities, so it is vital the MPF is fully launched as soon as it is finalised.

We do not believe there should be a shadow period for the reasons we provided in our answer to Q36.

Given how BR-MEX is currently intended to be based on business customers and retailers specific views of how well wholesalers are delivering services, this is different to how the MPF intends to measure how well wholesalers are performing key activities. It is important that customer and retailer views in this area are given full representation. We therefore believe that while the MPF and BR-MEX are both intended to incentivise improved performance, the differences between the two may warrant them remaining separate, which would also avoid any uncertainty and lack of clarity for wholesalers if the two were interfaced.