A study conducted on behalf of Ofwat and CCW on assessing the affordability and acceptability of water companies’ AMP8 business plans to customers has flagged up the scale of the challenges the water companies could face in engaging effectively with their customers on a range of issues.

Ahead of the upcoming Price Review in 2024 (PR24) , the water sector regulator and CCW are developing guidance for water companies on how best to engage customers in research about the affordability and acceptability of water company business plans.

As part of this work, they wanted to test out specific elements of the plans, to explore customer understanding and engagement.

Yonder Consulting ran eight triads from the 26th of October to the 1st of November and spoke to a total of 24 people across England and Wales as follows:

• 9 household participants across a range of life stages
• 3 future bill payers
• 6 financially vulnerable household participants
• 6 non household participants

Participants were presented with information on the Price Review process and the water industry more generally, together with basic information about an anonymised water company, and asked to comment on the following topics:

• Water company background
• Performance commitment areas
• Water company performance
• Performance targets
• Discretionary and statutory proposals
• Bill profiles and affordability
• Affordability survey

While such a relatively small number of participants cannot be regarded as statistically significant, the outcome of the discussions has highlighted a number of key issues which the water companies may need to address in developing their customer engagement activities.

Water company background

According to the research, while understanding of the water company background information was generally good, participants “did not always have a good understanding that water companies need to work with finite resources.” In addition, many of them distrusted water companies and were suspicious of the regulation process –which they felt may not be rigorous enough and would not bind companies to targets. Current news stories about sewer overflows contributed to the general scepticism, as people felt that water companies would not respect targets anyway.

Recommendations to address these issues include:

• Talk about prioritisation within the business plan –there is a finite amount of money to spend each year and it does not occur to most people that a water company needs to make decisions about what to do first or what to do more of.
• Provide more information about the role of customer consultation within the price review process (how this is taken on board etc).
• Provide more information about the robustness of regulation, including monitoring, penalties and rewards for water companies so that it is clear that consequences do happen.

Performance commitment areas

Six aspects of service were tested with participants:

• Unplanned water supply interruptions
• Contacts about appearance, taste and smell of tap water
• Sewage flooding of homes
• Sewage flooding of gardens
• Reducing leaks
• Pollution incidents

The research says that customers generally understood the topic of each service aspect, but “could not necessarily picture the issues in a tangible manner, which impacted their understanding and reflection later on.” This meant that it was harder to understand the impact of the targets and evaluate water company performance.

The researchers are recommending that the topics could be made easier to understand and more tangible by providing more information i.e. exploring what the issue is, how it happens, how it would impact customers and the likelihood of this happening. However, they caution that “there is a need to keep this as simple and concise as possible to reduce overloading participants.”

For water company performance, the research suggests that participants should be provided with more information for each performance commitment, including:

• Why targets were set at the level they were set on, especially if they varied across water companies.
• Why water company actual performance was at the level it was at, especially if they had missed their target (was it due to the weather, customer error or water company responsibility).

The need for more information was also highlighted with regard to the performance targets themselves.

The researchers say that participants had found it hard to make a judgement on the level of the targets without knowing how they would be met and without knowing how water company performance was evolving over time. Without this information, participants found it hard to make a judgement on the levels of these targets.

Participants also struggled to associate the targets with increased costs and bill impacts, which caused frustration with water company performance.

Performance targets recommendations included:

• Provide more information on how the water company will meet the target
• If possible, provide some information on bill impact of each performance commitment target
• Provide more context on water company performance so far, i.e. by adding more historical performance data from 2020
• Provide more information on what good looks like –as much as is possible for different performance commitments

With regard to discretionary and statutory proposals, the research says that participants understood the information about the difference between discretionary and statutory proposals, but found the difference frustrating. In addition, “most felt that discretionary proposals should be happening anyway and this section could have benefitted from more setting out upfront to avoid this confusion or frustration.”

The researchers showed participants an example showcard on the topic of lead pipes and outlined four suggested proposals that participants could choose from, which differed in timeline, cost and risk of illness to the public as follows:

• Delivery by 2030
• Delivery by 2035
• Delivery by 2040
• Defer delivery until after 2030

The researchers’ recommendations included:

• Provide more background on why the specific proposal isn’t already being delivered as part of a performance commitment / day to day running
• Present the discretionary showcards after the bill impacts for the statutory proposals so participants can better reflect on bill impacts
• If possible, provide a number for the cost of deferring delivery until after 2030 based on inflation so participants can picture this better

The discussion with participants around bill profiles and affordability appeared to present particular challenges, with participants struggling to relate the bill profiles to the targets they had been shown.

The research says:

“Seeing the proposed bill increases raised questions and frustrations from participants around why bills were being increased in the current climate, what they would be getting for their money, and whether this was fair considering some of the stories around water companies in the news (sewer overflows, profits and shareholder bonuses).”

Recommendations on bills and affordability included:

• Participants need to be provided with some information to understand the increase on year-on-year and differentiate it from the increase due to inflation.
• As much as possible, provide participants with a breakdown of the bill increases –why is this increasing year on year? What does that increase mean for them?
• Link bill increases back very clearly to current levels of service delivery and proposed targets to get participants responding to bill increases in "a more considered, and less emotional manner."

Participants were also asked to answer a mock survey on Google Forms, then report back to the group to discuss individual questions.

Questions explored the topic of affordability for participants in general, and built on the information they were provided with about proposed water bills in the session.

The research has highlighted interesting reactions to the affordability survey, pointing out that participants were answering “in varying frames of mind, which is worth noting for analysis” as follows:

• Thinking of their current situation
• Thinking ahead to the increases in bills and rising costs
• Comparing themselves to other less well off people
• Future bill payers found answering the survey more challenging because they do not pay the bills, so they may not be able to answer the questions accurately
• Some participants found this survey emotionally challenging, particularly vulnerable participants, and left them feeling concerned about their current situation. It may be worth providing participants who code as financially vulnerable with information about available support at the end of the survey.

The results of the research will be used to inform the guidance Ofwat and CCW are currently developing for water companies on how best to engage customers in research about the affordability and acceptability of water company business plans.

Click here to download the research findings in full