Higher performance payments and penalties under D-MeX
In Ofwat’s draft determinations, the regulator announced that it intends to increase the outperformance payments and underperformance penalties, applicable from 1 April 2020, under its new incentive mechanism for developer services customers, D-MeX. This raises the stakes and makes it vital that companies manage these customers and their data effectively.
The range for performance payments and penalties has more than doubled compared to Ofwat’s December 2017 PR19 Final Methodology. Since then, Ofwat has been carrying out a pilot and a shadow year of D-MeX scoring. Depending on performance, the best performing largest companies could now achieve a performance payment of around £4 million per year, and the worst performing largest companies could be faced with a performance penalty in the region of £8 million per year.
Don’t forget data
In the lead up to D-MeX coming into force, companies will no doubt be working on a number of activities to improve the service provided to developer services customers. However, they should also be careful not to overlook the importance of data governance, which will provide additional challenges to some companies.
The final data requirements for D-MeX will be set out in the guidance by April 2020. This means there is some uncertainty about the data required in the period leading up to ‘go live’, especially in light of Ofwat’s review of the Levels of Service metrics underlying the quantitative element of D-MeX. Additionally, D-MeX places new demands on companies to provide developer services customer details for surveying purposes, which challenges companies to ensure that they have accurate customer information and contact details.
Despite this uncertainty, the pilot year and shadow year have been a good test of companies’ ability to capture, and to provide data to Ofwat. The experience showed a variety of approaches to the collection and management of data, and the resulting usability of that data. Manual approaches are more time consuming and therefore costly, and have a higher risk of error. Automated approaches are more efficient and still carry risks if, for example, data quality activities such as validation are poor. Given the focus of PR19 on efficiency, and for the purposes of providing data to Ofwat’s agent in a consistent format, water companies may find that automation is the most appropriate approach.
Data governance will need to be robust across companies
Based on the D-MeX Shadow Year guidance, data on customer transactions will need to be provided to Ofwat’s appointed agent for surveying on a continual basis. In addition, it is likely that a high proportion of the sample submitted to Ofwat will be selected for surveying, and water companies will need to calculate their own D-MeX scores and supply them to the regulator. In doing so, they need to apply similar levels of assurance to those used for the underlying data on other performance commitments, and the D-MeX Shadow Year guidance suggests using internal and external audits.
The combination of these factors, compounded by greater financial incentives being applied each year rather than at the end of the price control, means that it is important for all companies to ensure they have a robust and consistent approach to data governance. This is necessary for the effective functioning of the league table approach that Ofwat intends to adopt and therefore the credibility and effectiveness of the entire mechanism. Furthermore, customer contact data will be used to survey customers about their experience and the results will feed into the qualitative element of the D-MeX score. The accuracy of this underlying data will undoubtedly affect the quality of the surveying and ultimately, customer satisfaction, and past experience has shown that some companies still have work to do to improve the completeness and accuracy of their contact data.
Step by step
The pilot and shadow year have demonstrated that water companies need to consider all aspects of their developer services data governance in preparation for D-MeX, for both the qualitative survey aspect as well as the quantitative element. Although companies will not know exactly what the data requirements are until the D-MeX guidance is published in 2020, the Final Determinations should provide more certainty.
Companies know that they will need to determine what information needs to be captured, ensuring the quality, security and accessibility of the data, and establishing the most appropriate ownership. Getting these data governance aspects right cannot be achieved in isolation from the operational business, and will need a clear focus on getting the right people, processes and technology in place to deliver an appropriate and sustainable outcome.
Companies should start with improving data completeness, by enhancing the tools and technology needed for developer services teams to log customer transactions data. This should be supported by staff communications about the importance of this task with recognition-based team or individual incentives used to reinforce the approach. They should then focus on improving data accuracy by establishing D-MeX data quality assurance processes, which will need to be added to existing assurance structures.
Finally, they will need to invest in systems to automate data extraction to reduce the time and resources required to provide data to Ofwat, and reduce the regulatory burden of D-MeX.
Jasminder Oberoi is a regulatory expert at PA Consulting, the global innovation and transformation consultancy