Open Letter to David Black on the Customer Protection Code of Practice
20 December 2024
David Black
Chief Executive
Ofwat
Dear David
I am writing to express CCW’s deepest concerns regarding a number of recent Ofwat decisions and proposals that will have a negative impact on services and protections for business customers in the water retail market.
Ofwat has a duty to protect the interests of consumers, wherever appropriate by promoting effective competition. As the custodians of the Customer Protection Code of Practice (CPCoP), the market code setting out the requirements for retailers in their engagement with business customers which is binding through retailers’ licence conditions, we expect Ofwat to ensure the right balance is achieved to ensure businesses are protected and to enable retailers to operate effectively in the market.
In order to propose a change to the CPCoP, key market participants (CCW, water companies, retailers, customer representative organisations etc) are required to submit a change request to Ofwat by following the steps set out in the code. To date CCW has submitted two formal change requests, which are key to delivering improved services and protections. Both of the change requests have been rejected by Ofwat this year. I set out below the negative impact this will have on business customers and the market, including our concerns with the Ofwat processes and decisions.
Credit Protections
In August 2022, CCW submitted a CPCoP change request to require retailers to automatically refund business customers’ accrued credit on an annual basis, unless customers choose to opt out. We then refined this change request so automatic refunds would apply to business customers who pay by direct debit only, as these customers are more likely to build up credit.
Our aim behind the change request was to protect business customers from losing credit on their accounts should a retailer exit the market due to financial difficulty. If this happens, there are no protections in place, and business customers could lose a substantial amount of money – money which should rightfully be returned to them. The need for the change request was well evidenced by customer complaints data showing the difficulties business customers are encountering to get their credit refunded, and robust research findings on business customers’ preferences on credit.
We do not agree with Ofwat’s decision to reject the change. This was made at the same time as putting in place measures to improve communication with business customers about credit and the risks they are currently exposed to, and requiring refunds at the request of business customers to be within a set timeframe. While we support these changes, they do not go far enough, and put the action firmly with the customer to ask for a refund. This is a huge risk given 43% of businesses are still unaware of the water retail market, so will not necessarily be aware of the risk to credit remaining on their account for a significant period of time. In addition, 24% of businesses are unaware of their water retailer, making it highly unlikely they would be proactive in requesting a refund.
With retailers holding £115m of customers’ money in live accounts and £127m in closed accounts (as at March 2024), we urge Ofwat to reconsider its decision, particularly as CCW has no means to appeal it on customers’ behalf. We are concerned that overall the amount of credit has grown since our original change request was made two years ago, and may continue to increase.
We do not consider it to be overly complex for retailers to refund customers annually. We also do not agree with Ofwat’s “concerns that the change could require retailers to take action which inadvertently misaligns with customers’ preferences and could negatively impact customer experience of the market”. Our research shows those businesses wanting refunds preferred it to be paid automatically (69%) rather than by request.
We cannot wait until a retailer folds to see the true impact on customers from failing to require annual credit refunds. We therefore want to keep dialogue open between CCW and Ofwat on the best way to address this key market issue. We will also continue to monitor customer complaints to CCW about refunds.
Meter Reading Requirements
CCW is extremely concerned with the proposal to alter the meter reading requirement in the CPCoP, which was published for consultation on 9 December 2024. If implemented this will result in business customers’ bills being based on a visual, customer or remote meter read, only where this is available. The current requirement is one accurate bill a year based on a meter reading, where the property is metered. The Ofwat proposal is a significant shift from the current requirement for the core service of meter reading.
We believe this proposal will reduce customer protection, and does not align with the water industry’s direction of travel in terms of improving meter reading standards. It is vital that the CPCoP provides robust minimum standards for business customers, and that any amendments do not erode these. Ensuring customers have regular visibility of meter reads not only provides confidence that they are being billed for what they use, but will allow them to better understand their usage, and make savings where they can. As the whole country faces challenges through water shortages, consumption data is a key driver to delivering greater water efficiency.
Overall, business customer complaints to CCW remain significantly higher than pre-market levels, and the vast majority of these concern billing and charges. A large proportion of complaints in this category are driven by customer dissatisfaction at the accuracy of their bills. This was also reflected in our 2024 ‘Testing the Waters’ tracking research which showed that over a third of customers stated inaccurate billing as a reason for being dissatisfied with their retailer. If retailers are less incentivised to take meter reads, billing accuracy will decrease, leading to even higher levels of customer dissatisfaction. To tackle this, billing standards must be increased, not reduced.
Customers quite rightly expect accurate billing from their retailer as a ‘core service’, and retailers are funded through the Retail Exit Code to read a significant number of their customers’ meters. Because of the low number of customers switching supplier, there is a lack of competitive pressure on retailers to achieve high service standards, which means they need to be strongly incentivised in other ways. Retailers being required to read meters under the market codes, and then having to meet a minimum billing requirement under the CPCoP, is a way to incentivise them to do all they can to read meters, and bill their customers accurately. Amending this so retailers only have to bill on an actual read when it is available reduces the emphasis on maintaining a regular meter reading service, including tackling problems when they arise.
The change to the meter reading requirement also appears to be based on the new Market Performance Framework (MPF) delivering sufficient incentives on retailers to read meters. While we believe the MPF has the potential to do this, it should not be relied on alone. The CPCoP should retain a strong requirement to bill customers accurately, thereby providing an extra incentive to take the reads. However, Ofwat’s proposal would mean that if a retailer fails to comply with their MPF meter reading requirement, they can still comply with the CPCoP as the meter read would be ‘unavailable’. This would include circumstances where retailers could have done more to read their meters (e.g. by working with a customer to resolve an access issue). While we acknowledge there may be reasons outside the retailer’s control for why they cannot read a meter (at first attempt), we expect retailers to work to resolve these circumstances in order to provide excellent customer service. This proposal risks encouraging retailers to default to using estimate reads for billing purposes as the risk of non-compliance with the CPCoP is removed.
We are also concerned about some of Ofwat’s rationale for introducing this change, particularly the view that the cost of taking some meter reads may be “disproportionate to the customer benefit”. Customers expect to be billed on actual reads rather than estimates, which is supported by our previous research into SME customer preferences around meter reading frequencies. This shows that only 7% wanted their meter read less frequently. Signaling to retailers that the cost of reading a meter can be a factor in whether they attempt this or not is clearly detrimental to customers, and will result in reduced billing accuracy.
Ultimately, the minimum billing requirement should be increased so retailers are obliged to send at least two bills a year based on actual reads. CCW asked for the CPCoP to require this in our change proposal submitted to Ofwat in December 2023.
Most metered customers receive two bills a year at a minimum, so ensuring both are based on actuals does not create an additional cost burden on retailers. As we stated in our change proposal, aligning this with the MPF requirement for two reads to be taken each year ensures there is a consistent approach. Our complaints and research evidence clearly shows customers would benefit from an enhanced billing requirement. We urge Ofwat to review their proposal and make sure that customers receive bills based on actual meter readings twice a year.
If you wish to further discuss the above water retail market issues, please do not hesitate to contact me or Christina Blackwell, Head of Business Customers at CCW.
Yours sincerely
Dr Mike Keil
Chief Executive, CCW