Expert Advice on Assessing Customer Valuations

We require expert advice on assessing companies' evidence on customer valuation techniques such as stated preference willingness to pay, revealed preference willingness to pay, experiments, behavioural economic approaches, data from day-to-day contacts etc. Companies will use these techniques to support their business plan proposals for the 2019 price review (PR19). We expect the suppliers to set out what good looks like for these customer valuation techniques, which will involve some consideration of their limitations as well as their strengths.

We will use this expert advice to inform our development of the initial assessment plan (IAP) tests that involve assessing companies' evidence on customer valuations. [Note: we do not require the contractor to develop these tests].

We will require the supplier to provide a workshop to Ofwat staff on what good looks like for customer valuation techniques and what to look out for when assessing companies' customer valuations at PR19.

Tasks for the supplier Ofwat welcomes views on different or additional steps that it would need to consider to ensure it meet its objective.

1. Task 1 - Evaluate the use of different customer valuation techniques - this should draw on a range of literature as well as the lessons learnt from PR14. In evaluating the different approaches the supplier should: • Set out the limitations of each of the techniques. • Outline what analysis and challenges we can apply to test the validity of each technique. • Outline the issues associated with the practical application of each technique. • Identify what good look likes for each technique.

This work should complement the research that has already been carried out on behalf of CCWater. Particular focus should be given to less familiar methods, for instance, behavioural experiments.

2. Task 2 - Identify which customer valuation techniques companies could apply at PR19 for their customer engagement, performance outcomes, ODIs and cost adjustment claims. [Note that this has been done to some extent by the work carried out on behalf of CCWater.]

3. Task 3 - The supplier should write a report providing expert advice on assessing companies' evidence on customer valuation techniques such as stated preference willingness to pay, revealed preference willingness to pay, experiments, behavioural economic approaches, data from day-to-day contacts etc. The report can use studies. These case studies can come from a range of sectors.

4. Task 4 - The supplier should provide a workshop to Ofwat staff on what good looks like for customer valuation techniques and what to look out for when assessing companies' customer valuations at PR19.