prs sp 090925simoverview

							The service incentive mechanism – an overview
 Sue Cox, Head of Service and Performance

                  14 September 2009




 Protecting consumers, promoting value, safeguarding the future
       Overall performance assessment

       Used since 1996-97 to incentivise performance across
       the broad range of services

       Acts as a financial and reputational incentive

       Company score and league table

       A company that provides particularly good service can
       charge a little more, a company providing poorer
       service must charge less




Protecting consumers, promoting value, safeguarding the future
Success of the overall performance assessment

         With our other regulatory tools, the OPA has been
         successful in delivering improved services to customers
         over the past two decades:

         Customer service is significantly better – only 4,825
         properties (0.02%) are now at risk of low water
         pressure, compared with 344,259 (1.6%)
         properties in 1990-91




  Protecting consumers, promoting value, safeguarding the future
                                                                                  The need for change

                                                     100%
Percentage of maximum achievable performance score


                                                     95%

                                                     90%

                                                     85%

                                                     80%

                                                     75%

                                                     70%

                                                     65%

                                                     60%

                                                     55%

                                                     50%
                                                            Water and sewerage companies    Water only companies



                                                                                                        Performance 1996-2000
                                                                                                        Performance 2002-2004
                                                                                                        Performance 2005-2009




                                                              Protecting consumers, promoting value, safeguarding the future
                The need for change

       Performance against OPA measures has reached a
       stable level and consumers are satisfied with core
       services

       But

       Significant number of complaints continue to be made
       to the companies and CCWater

       And

       Need to incentivise qualitative aspects of service

       Measures need to adapt to consumers’ changing
       expectations

       Need to adapt to changing industry

Protecting consumers, promoting value, safeguarding the future
   Maintaining current service standards

       Service incentive mechanism (SIM) is part of a suite of
       incentives

       Not intended as safeguard of basic service levels –
       other ways of doing this

       Consumers purchase based on price, core service,
       experience

       SIM focuses on experience




Protecting consumers, promoting value, safeguarding the future
               Aims of the new mechanism

           Get things right first time - Best and cheapest
1          Consumer experience survey shows correlation
           between first-time resolution and higher overall
           satisfaction levels

           (Some) complaints are inevitable, but those that are
           received should be dealt with quickly and efficiently

           Repeat contacts are costly!




    Protecting consumers, promoting value, safeguarding the future
 Two new consumer experience measures

       Quantitative measure

            Volumetric measure of unwanted contacts

            Contacts not dealt with effectively at earliest
            opportunity have an increasing impact



                        Qualitative measure

                        Satisfaction levels of consumers who
                        have had direct contact with water
                        company




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               Quantitative measure

       Broad measure of failure demand

       Five elements weighted according to severity of
       service failure – in company’s interest to prevent
       issues escalating

       Weighting factors will be fixed to give stability, clarity
       and transparency




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                  Qualitative survey

       Based on a survey of consumers who have had
       direct contact with their company

       Gauges how a consumer feels about a specific,
       “resolved” interaction

       Seeks views from first contact to resolution of the
       issue

       Covers all aspects of a company’s business,
       household and commercial, written and phone
       contact




Protecting consumers, promoting value, safeguarding the future
     Impact on information requirements

       Continue to publish core service information in ‘Service
       and delivery’ report

       New measures may enable us to reduce some of the
       information we currently collect




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                    Our proposals

       Service incentive mechanism based on:

       consumer experience measures

       + reputational incentive

       + financial incentive




Protecting consumers, promoting value, safeguarding the future
               Reputational incentive

       We will regularly publish the companies’ performance
       against the measures

       Companies value being recognised as leaders in their
       sector

       Some customers will be able to make informed choices

       Others will be able to put pressure on the companies
       to improve




Protecting consumers, promoting value, safeguarding the future
                 Financial incentive

       In a competitive market:
       Good service…
        = customer loyalty and increased retention
        = increased profits

       Poor service…
       = customers more likely to switch supplier
       = reduced profits

       In the absence of choice, regulation can act as a
       surrogate for competition




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                 Price Adjustments

       Shape of the incentive = +0.5% to -1.0% price
       adjustment in year one (2015-16)

       Modest positive adjustment –
       Customers’ concerns about price increases

       Potential efficiency gains for companies from
       improving first-time resolution

       Larger negative adjustment –
       Mimics competitive market as dissatisfied customers
       more likely to switch suppliers




Protecting consumers, promoting value, safeguarding the future
               Applying the incentive

       Applied to relevant turnover depending on
       performance against consumer experience measures

       Will reflect relative performance 2010-11 to 2013-14

       Applied when next set price limits for 2015-16




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                   Key principles of incentives

We will consult on specific details of price adjustments closer to 2014

Companies should compete with each other to receive a reward and
avoid a penalty

Company performing below the industry average over the four years
from 2010-11 to 2013-14 should expect a negative adjustment

We will avoid making artificial distinctions between the companies

To provide transparency and reduce the risk of performance
deteriorating across the water and sewerage sectors, we will publish
regular information on consumers’ experiences




        Protecting consumers, promoting value, safeguarding the future
                      To Conclude

       “We seek to ensure that the monopoly
       companies identify their customers’ needs,
       deliver services designed to meet them and
       continually try to improve those services within
       the price limits we set”

                         – SIM consultation paper, August 2009




Protecting consumers, promoting value, safeguarding the future
                   Post-it exercises

       Impact assessment costs and benefits

       Reducing the regulatory burden

       Additional information or questions




Protecting consumers, promoting value, safeguarding the future
                   Breakout groups

       Does the proposed service incentive mechanism
         capture consumers’ priorities?

       Is the proposed approach workable and effective?

       Will the proposed incentives drive the improvement in
          consumer experience that we seek?




Protecting consumers, promoting value, safeguarding the future
                   Breakout groups

       Will clarify but not Q&A sessions!

       To promote discussion and share ideas

       Not expecting final responses at this stage




Protecting consumers, promoting value, safeguarding the future
                    Any questions?




Protecting consumers, promoting value, safeguarding the future