9 minutes reading time (1760 words)

Should consumer challenge groups set up by utility regulators have a role during Covid-19?

I've been struck over the last few weeks how in responding to the Covid-19 crisis neither Ofgem nor Ofwat has either consulted or proactively communicated their approach to the Customer Engagement Groups (CEGs), User Groups or Customer Challenge Groups (CCGs) that they required companies to set up. For example, Rachel Fletcher's letter to water companies on 19th March 2020 setting out expectations of the sector was transparently copied to Rebecca Pow MP, Lesley Griffiths AM, the Environment Agency, Natural Resources Wales, the Drinking Water Inspectorate, MOSL and the Consumer Council for Water but not circulated to the CCGs. Similarly, Jonathan Brearley's messages such as those on 8th April are addressed to networks, transmission owners, independent DNOs and gas transporters, and "other interested stakeholders". The absence of any kind of direct communication between the regulator and the consumer challenge groups during this pandemic, which is likely to have impacts for months and years to come on all aspects of water and energy businesses, begs the question, is there a role for these consumer groups during crisis such as these, and if so what should this be?

Broadly speaking, both Ofwat and Ofgem have required water, gas and electricity companies to set up these consumer challenge groups to strengthen the voice of consumers in the monopoly utility businesses and to help legitimatise the decisions taken by the regulators in relation to the price control determinations. This was meant to be primarily achieved through these Groups challenging forward looking business plans prepared by companies before they are submitted to the regulators for approval. The water CCGs and energy CEGs are not intended to be representative of all consumers (this would not be practical), though the transmission user groups broadly reflect key stakeholder groups. I chair two such Groups, one for Gas (Cadent) and one for Water (South East Water).

The Customer Challenge Groups in water have been in operation now for two price controls. While Ofwat's expectation was initially that these groups challenge and provide a view on the quality of the company's stakeholder engagement and the extent to which future business plans reflect diverse customer views, most groups now have an ongoing role. Often this involves (among other activities) holding their respective company to account for the promises made in its business plan and ensuring emerging and changing customer and stakeholder concerns are reflected in day to day decision making.

In energy distribution and transmission these Groups, called the Customer Engagement Groups and User Groups, are much younger (a couple of years old), and the scope of their activity much broader, covering all aspects of the business except financing. Most gas and transmission companies have committed to an ongoing role for their Groups though discussions are under way as to precisely what this role might be and Ofgem has not yet set any expectations. In electricity distribution, the challenge groups have recently been set up and members are in the process of scrutinising company activity and the detail of draft business plans.

The pandemic will clearly impact all areas that these consumer groups focus on.

While the Groups vary across companies and sectors, they have some particular characteristics worth noting. Collectively across GB, they contain members with a diversity of perspectives and experience including from key industry associations, councils, business and consumer groups, charities, consultancies and NGOs. They may have good community and regional knowledge and networks. In addition, thanks to working both within and at arms-length of the company, they are often particularly well placed to understand the strengths and weaknesses of the business, including the culture.

During emergencies, decisions have to be made quickly and seeking views via all member bi-monthly meetings such as the CCGs or CEGs, is unlikely to be timely or efficient. Regulators, government and businesses have been rightly focused on responding to the immediate and urgent needs presented by the crisis. In particular the protection of customers and staff, especially the most vulnerable, and keeping the energy and water flowing.

Company executive teams are under pressure, facing increased scrutiny from their own boards, the regulator, government, their statutory watchdogs and at times the media. The speed and scale of the emergency has taken most by surprise. Engaging with their CEGs/CCGs may seem like a lower priority yet for the companies with truly embedded engagement strategies, who understand the Groups' value, this is precisely what they are doing.

There is an immediate role for the Groups during crisis. Firstly, to be available as a sounding board to provide tailored and timely input if needed. At South East Water for example, the CCG has been provided with regular updates by the company of the challenges faced and measures taken. Rather than whole group meetings (though these are still scheduled), key members of the CCG, according to their expertise, have been used as a remote sounding board on emerging issues – for example on new kinds of consumer vulnerability emerging in the region, how customers in financial situations can be supported, expectations on communication of support available. This is valuable as:

It helps to overcome blind spots and company biases

It can challenge assumptions on which key decisions are made early in the process

Can help to communicate messages to the public more clearly

Enable companies to join the dots between their own initiatives and the related activity going on outside of the company

And while Groups members must not substitute their views for the views of customers (as they are not fully representative), this external independent input is especially valuable if the need for urgent decisions means there is insufficient time for wider engagement to understand consumer and stakeholder views. Members can for example provide challenge on measures offered, prioritisation decisions and how these are kept under review.

As the Financial Times editorial of 30th March stated, "Crisis make reputations or destroy them… Companies will be split into two camps, those who treated staff and others well and those that take advantage". Indeed, this is where the rubber hits the road and it will be clear who simply talks the talk on 'social licence to operate' and who delivers it in practice. In short, in emergencies Groups can be a timely critical friend providing tailored input, to ensure companies avoid 'trust pitfalls' among others, and to deliver the best possible response for customers and society. The same could be said for the regulators as well.

Secondly, group members may also have networks that can be used to disseminate information and advice. Members can provide early warning of concerns from the grass roots or from different consistencies in a timely way back to the company and the regulator.

Thirdly, and importantly, as we move to the 'new normal' for business as usual, the groups with their diversity of experience, perspectives and cross-interest views are well placed to provide more strategic challenge and input on the medium to longer-term impact of Covid-19. At Cadent Gas for example our independent CEG is preparing for a discussion on the medium to longer-term impact of the pandemic, not just the impact on the business, performance levels, business plan commitments but more widely. Groups can highlight opportunities and potential solutions for customers and society. This kind of external independent challenge, with a focus on cross sector and whole systems approach is particularly valuable for a utility sector that has been criticised for its silo mentality and given that staff are likely to be even more heads down than usual in the operational detail of their own areas.

Historically, as Chairs of these groups we have perhaps not been as collaborative as we might have been, in part hindered by commercial sensitivities. Yet with this pandemic there is a shared problem and a need for shared, robust and timely solutions. We should perhaps all challenge ourselves to do more. We could as groups for example help keep company prioritisation decisions under review; help share good practice across water and energy; consider cross-sector solutions to cross-sector problems such as financial vulnerability; and be prepared to sing with a common voice should some utility companies use Covid-19 to push unfairly to reduce hard won performance commitments and standards.

As chairs and members of the groups, we have to adapt how we carry out our work during the pandemic. We also need to get the balance right. On the one hand, we must be mindful not to get in the way such that we slow down decision making, nor to place demands on already hard pressed company and regulatory staff. But on the other hand, companies more than ever need constructive independent and early challenge on their decisions to engage effectively with their customers and stakeholders during these worrying times. Utilities and regulators should not regard 'engagement' as a burden during this emergency, but an opportunity to regain public trust. This is the foundation of Sustainability First's Fair for the Future Project 'Sustainable Licence to Operate' proposals. Indeed, companies such as UKPN are also using ongoing consumer panels and networks to shape their approach to support customers in vulnerable situations.

So that then leaves us where we started, with the regulators and what they can do. It seems that Ofwat and Ofgem may be missing a trick and are not efficiently using the resources at their disposal. At a time when Ofgem are on the cusp of setting a new price control for energy, and Ofwat are being challenged by four water companies on their recent business plan determinations, how to handle the impact of Covid-19 and what it means longer-term, is of course front of mind. In the Groups, the regulators have a new tool in their regulatory toolbox - a wonderful resource that they could draw upon and use. A tool that they required companies to set up. Membership of these groups includes in some instances expert ex-partners and staff from their own regulators and the same consultants that they pay thousands of pounds to, who are in practice offering support at no additional cost. The Groups want to be as effective as possible for customers and society. So help them to help you, consider their role beyond the requirements to date, and if nothing else, copy them in!

As we start to emerge from the Covid-19 lockdown and the world returns to whatever our 'new normal' is in our uncertain world, it will be ever more important to ensure the consumer and citizen voice is taken on board. In the words of an old Tracey Chapman song, "if not now, then when?".

Covid 19, other disruptors and the case for public...
What do we do now? Re-framing Ofgem’s priorities