Lets talk about the... C - word

Ok own up. What was the first C word that popped into your head? You might be relieved to hear that this is not the one I want to talk about here.

C is for ..... Complaints

This isn't the C word I had in mind either. But it is a good place to start if only because en- route to London this week it was one I was soon made aware of.

CCW published on Thursday 3rd October their latest annual report on water sector complaints. In short, complaints about our water companies (both overall and unresolved complaints) have gone up. Just under 223,000 complaints were made to water companies in England and Wales during 2023-24 - a hefty rise of 29% Billing issues and environmental concern seem to be the most common reasons cited.

On the same day I was to hear plenty other versions of the C word. UK Water Industry Research (UKWIR) held their 5th Annual Conference in London and there was a reflective if not upbeat mood. Prominent C words heard from speaker after speaker were Challenges, Colloboration and Connection. Water industry professionals facing up to the challenges for their sector through sharing experiences, knowledge and expertise.

But I want to reflect on a more basic variant of the C word in the water industry lexicon.

What C are you ?

Are you a consumer or a customer?

If you ask Google on the first you might answer both:

“A consumer is a person who consumes a product or service.”

Feels a bit tautological to me and then Google says:

“The word consumer is often used interchangeably with the word customer.”

Hence, you might conclude they are the same thing. And the water industry lexicon has tended towards this direction. We have had Customer Challenge Groups (CCGs). We might be getting updated Consumer Panels with stronger remits and of course we have CCW (Consumer Council for Water). As an aside, my new favorite AI tool tells me that in its recent draft determination document, Ofwat mentions "customer" 27 times and "consumer" 8 times. So we have a scorecard of sorts.

But dig a tad deeper. What does Google say is meant by customer? It says

“a customer is someone who buys something from a seller, vendor or supplier in exchange for money or something else of value…”

This statement is a lot more interesting to me (as an economist). Interesting because of the bit I have put in italics.

This suggests consumer and customer are in fact not so interchangeable. This is important I think when we think in particular about utilities like water.

Economics does it best to confuse things as usual. The textbook teaches us the theory of the consumer who makes choices (exchanging things of value) subject to their budget (money) constraints.

The utility consumer is a recipient. What they consume is the flow (literally) of services that arrives at their tap or perhaps their smart meter.

The utility customer is someone who has to give something up. Money or something of value. And when we have to give something up - our opportunity cost - it makes our think about the flow we want to receive. What I consume will depend on how much I am willing to exchange.

This is how I was educated to think about the difference between consumers and customers in water back in my days as a regulator. And that distinction influenced whose “preferences” we thought mattered most. When willingness to pay became a thing to understand in the water sector the standard protocol was to survey “bill payers”. Bill payers after all are the ones exchanging value. They are the customer.

But it wasn’t long before the ignored water industry consumers were getting attention. The consumers who don’t pay a bill. The ones who only receive but don’t exchange - our younger generations but also perhaps our newts and other protected species.

So my question is was the distinction ever important. Did and does it matter?

Why the C word matters

Words are language. Not the only language. But we know all language matters.

Language is such an imprecise vehicle I sometimes wonder why we bother with it.

(Karen Joy Fowler, We are All Completely Beside Ourselves)

Our water industry lexicon - particularly that promoted by regulators - has over time suffered from similar imprecision. This imprecison can be traced to a diffusion of objectives, the perhaps un-intended consequences of the extension of regulatory reach.

At inception there was always a pretty clear-cut understanding of what the purpose of an economic regulator needed to be. It was to overcome the 3 failures why markets can't be relied upon to give us the water services we need. The failures of information asymmetries (about product quality), the failure to drive efficiency (because of monopoly cost structures) and the failure to protect the environment (because of externalities).

With the passage of time it would be to unwise to assume these are still the only failures to be concerned about. But there is growing evidence that it is time to reflect on what a system of water regulation fit for the challenges of the 21st Century needs to look like. Look no further than the recent deliberations from the House of Lords Industry and Regulators Committee examining the accountability, independence and performance of UK regulators. The stand out for me is:

Some regulators were being “overloaded” and “accumulating objectives” without clear guidance on how they should be prioritised.

(Source: https://lordslibrary.parliament.uk/accountability-independence-and-performance-of-uk-regulators-house-of-lords-committee-report/)

And this is where more precision on language would I am sure help. We don't need to be too precious about the C words we think are important - whether that be the water customer, the water consumer and even the water citizen. Arguably, they are all important. But our priorities will be helped by a bit more precision.