Examination of Witnesses (Questions 1
- 19)
MONDAY 19 JANUARY 1998
MR IAN
BYATT, MR
MIKE SAUNDERS,
and MR CLIVE
WILKINSON; MR
FRANK MARTIN
Chairman
1. This afternoon we welcome Mr Ian Byatt
to the Committee to discuss the C&AG's Report on Regulating
and Monitoring the Quality of Service Provided to Customers by
the Water Industry of England and Wales. Welcome. Perhaps we had
best start by your introducing your two colleagues for the benefit
of the Committee and then we can get on with the questions.
(Mr Byatt) Thank you, Chairman. On my left is
Mr Michael Saunders, who is the Assistant Director of my office,
who is concerned with consumer affairs. On my right is Mr Clive
Wilkinson, who is the Chairman of the Central Customer Service
Committee. That covers the areas of Severn-Trent Water Company
and South Staffordshire Water Company and a large area in the
Midlands, and he can talk about the particular experience of one
Customer Service Committee.
2. Good. Thank you. I will say at the beginning
that I am conscious that you had to re-organise to be here today,
so a double thank you for coming. I see from paragraph 2.8 of
the report that you have not set comprehensive targets for the
quality of service to be achieved by water companies. So could
you tell the Committee how you can satisfy yourself that the companies
are providing the best possible deal for customers?
(Mr Byatt) May I say that we are encouraged by
many things in this report but this report does raise a number
of recommendations which we are responding to, and so I do not
think we have reached yet the perfect state of doing our best
for the customers, but we do think we have made very considerable
progress and we have in particular built on the opportunities
which we have for comparative competition in the water industry.
There are the ten big companies and a substantial number of water-
only companies. They are all pushed by the Stock Exchange both
to be more efficient and to satisfy the regulator as regards customer
service, and so we have encouraged them to leapfrog over each
other. I believe that that has led to considerable improvements
in customer service and we have seen between 1990 and now improvements
in customer service, fourfold in many cases, twofold in other
cases, sometimes greater, so very substantial improvement, and
that track record must be the most important aspect. I think that
as we have developed that-and it is a question of getting comparable
information right across the companies so that one can expect
the best companies to do better-we have come to see that, while
at the upper end of the range I am very reluctant to say what
is the best practice because I do not want to damp initiative
in what is a dynamic situation. We have seen the importance of
chasing those who are not doing well and this year I have written
to, I think, seven water companies requiring them to set standards
of performance to get them up to a proper level. So it has been
a process of incentives, comparisons, using management imagination,
where possible, and chasing those who are not performing.
3. You will forgive the question from somebody
who lives in the Yorkshire Water area, but is it not the case
that some of these companies have far greater difficulty than
others, for example in security of supply, and for that reason,
after ten years of knowledge and technical insight that you must
have in handling them, surely you should be able to set more stringent
targets for those who have an easier job than for those who have
a much harder job?
(Mr Byatt) We are certainly setting stringent
targets for those companies where we feel they are not performing
properly and, of course, we developed the indicators, so that
recently we developed an indicator of response to telephone queries
and many of the companies were not doing very well when we measured
that. Indeed, that is one of the big reasons why water companies
do not perform as well as electricity companies. We then asked
those companies who were performing badly to set better standards
and when they failed, as they did in some cases, to set better
standards, standards were set for them. So there is a process
of standard-setting which is in operation to a greater extent
now than in the early days when we were concentrating on getting
comparable information across the board. We think we have a good
base from which to operate now.
4. I will press on but others may want to
come back on that later. Paragraph 2.5 is the basis of my next
question. It says that your regulation of the balance between
prices and service quality is intended to reflect customer preferences.
How have you established what these are?
(Mr Byatt) I may say I hope my colleagues will
come in and supplement any replies that I may make. We did in
the early days do considerable market research ourselves. We got,
for example, MORI to do a piece of work for us and we have also
done work in terms of how people might pay for water, the social
effects of water metering and so on, so quite a lot, and in Yorkshire
we did some work following 1995 about customers' views there.
But I do think it is very important that the companies, as the
managers, should grasp the nettle of looking after their customers
and, therefore, I have in recent years been pressing hard in terms
of getting the companies to do their own surveys, their own pieces
of market research. The role I charge the Customer Service Committees
to do, and a role we have ourselves, is to make sure that that
job is done properly. One of the areas that the National Audit
Office drew attention to was the question of whether we are getting
sufficient measures of customer satisfaction and we have certain
plans for intensifying our work in that area. I do not know whether
my colleagues would like to add to what I have said.
(Mr Saunders) I think I would add one thing, which
is that when price limits were reviewed in 1994 there was the
issue of the extent to which prices should go up for better services
or stay down, and clearly the approach that the Director adopted
was to require the companies to carry out market research in the
preparation of their plans. That was submitted to us, we scrutinised
the research and, on the basis of that, arrived at the balance
between, on the one hand, price and, on the other hand, quality
of service.
5. You will understand we have heard this
argument about the companies' own MORI polls before. The point
the NAO quite properly raised is that in a sense you fulfil almost
part of the role of the market as OFWAT in a proper competitive
arena and the feeling was that you would be getting lots of "apples
and oranges" comparisons rather than a uniform one across
the country, but we will press on and others again may want to
come back on that topic. Figure 18 is my next point. It shows
that more than five out of ten customers who complain to the Customer
Service Committees appointed by you are not satisfied with the
outcome of their complaint, whereas paragraph 3.50 shows that
eight out of ten of those who complain to the electricity regulator
are satisfied. Can you tell us why this is?
(Mr Byatt) We are happier with our numbers than
we are with-I cannot speak for the electricity company regulator.
I believe that we need to find out more about this and I am proposing
some work in this area, but there are certain special features
of water which lead one to believe that there may be special issues
there, and I do note in passing that the National Audit Office
has noticed no lack of rigour in the way in which we pursued these
matters. The particular features, I suppose, are that water prices
have been rising whereas prices have not been rising in the other
utilities. This not only affects people-I always get a big spike
of complaints in February and March when the bills go up-but it
also has its effect on the whole issue of, "Am I getting
a decent standard of service when I am paying much more for it?"
There are also quite considerable complexities about the water
situation, the joint supply pipes, etc., which I do not think
always apply in the electricity area. So we have not got to the
bottom of it. Mr Wilkinson may be able to talk a bit about some
of the particular issues we get but we do accept that some additional
work is needed by us in this area.
(Mr Wilkinson) Yes, Chairman. In a sense when
we saw this in the NAO report and from our own experience we are
slightly perplexed at the degree of satisfaction expressed, although
it is on an upward trend, it is improving, but not at the pace
we would like, and in discussing with my local colleagues from
both the Electricity and the Gas Consumer Council, I think we
came to the conclusion that our feeling was that the complexities
of some of the cases in water and sewage are completely different
to the ones they face in gas and electricity. For instance, we
currently have a complaint which has been running for some time
where a builder built houses with a joint supply. He put a stop
tap in one of the houses inside their back garden. There was a
neighbour fall-out and the complaint is that the one neighbour
is turning the water off at certain times to the detriment of
the other. Severn Trent, who are responsible, have written and
said "You should not be doing this. We would like to see
the stop tap put out in the street". Severn Trent are not
prepared to pay for it and neither is the person who has got the
stop tap in there. It is very difficult to resolve a case like
that. You often get cases where somebody's back garden all of
a sudden becomes a swampland and that is because there is a leakage
of water. Tracing that leak to whether it is a neighbour's pipe
or Severn Trent's pipe can be long, complex and tortuous and you
do not necessarily get completely to the bottom of it to get satisfaction.
Our feeling is that if gas is escaping then you have got to deal
with the issue otherwise you get an explosion. If water leaks
for a long time sometimes you do not notice it and when it comes
to fruition it is sometimes difficult to resolve. That is our
general feeling, there is a complexity that the others do not
get, and sometimes, although you can deal with it, you cannot
always get satisfaction. There are sometimes things that are clearly
outside our jurisdiction which we explain to the customer but
they are not satisfied with the powers that we have to resolve
it. That is our feeling. Like the Director General I think we
feel we have got to examine this in a bit more detail and see
if our feeling turns out to be fact. We tried that once about
two years ago and we did not get the positive results we hoped
for.
(Mr Byatt) I propose to appoint external people
to do this and send me a report which we can publish.[1]
6. Good. We would be interested in seeing
that. The sort of thing that you are talking about may have implications
for your powers which is an issue of some quite serious significance.
Others may come back on that. Paragraphs 3.36 to 3.39 is my next
issue. They report that customers make more than 15 million queries
about their bills each year. You think this is not a cause for
concern. Why not?
(Mr Byatt) The number of billing queries is not
quite the same as complaints. Many of these queries are properly
better described as customer contacts.
7. Contacts are for a purpose normally.
(Mr Byatt) Contacts sometimes when you are changing
addresses. That is not necessarily an indicator of poor service.
The situation at the moment is that the number of queries is levelling
off and, of course, the number of queries made to us is beginning
to fall. We think that again some more work is needed. What we
propose in that area is to exploit, if that is the right word,
the existence of the multi-utilities and see if we can get good
comparisons in the same areas of the same kinds of population
as between gas, electricity and water. I am not complacent about
the matter despite the fact that the exact number may be high
for reasons unconnected with any problems that customers have.
8. You are looking into it?
(Mr Byatt) We are looking into it.
(Mr Wilkinson) Can I just say as a supplementary
that the complaints levels, both of the companies' own complaints
and our own, have been falling and are on a downward path so we
take some comfort from that.
9. Thank you. Paragraph eight of the Executive
Summary at the beginning reports that your monitoring of the number
of people at risk of water shortages is unsatisfactory. Also I
think with respect to our earlier discussion on comparative studies
you dropped the risk of water shortages as a comparator. What
are you doing to put that monitoring issue right?
(Mr Byatt) The measure which I inherited in 1989
just is not a very good measure.
10. It is wrong, in fact.
(Mr Byatt) It may be that the matter is too complicated
to be subject to any single measure, which is what we believe.
There are a number of things which we are doing and they are all
related, of course, to the Government's Agenda for Action paper
published in the wake of the 1995 drought. Leakage is a major
issue there and we now set leakage targets. The leakage targets
for the next financial year will involve a reduction in leakage
of something like 16 per cent compared with what the companies
are aiming for this year, and this year is below what it has been
in the past. I am glad to say that not only are there leakage
targets but the leakage is moving in the right direction. It may
still have some way to go. We also believe that in the light of
the growing evidence in certain parts of the country about the
use of water particularly for garden watering, using sprinklers,
attention needs to be given to improving methods of charging for
water. At the moment, of course, if you are on a rateable value
charge and you have a sprinkler running all night you are using
as much water as a household might use in a week or more. It is
rather like having a two bar fire sitting on the front lawn at
somebody else's expense and that will not do. That is a piece
of policy as well as an indicator. Also all the companies are
now required to submit to us plans for how they are encouraging
their customers to use water efficiently. The first round of plans
we had to send back again. We have now accepted all those plans
and we are monitoring those plans. Of course, we are doing all
this work jointly with the Environment Agency who have responsibilities
for water supplies. They are currently assessing the reliable
yields for the various parts of the country and discussing those
with the companies. When we come to the next price review we will
be looking at the material coming from the companies of what their
water supply situation is, what the security of supply is like,
what needs to be done. I believe it is a much more complex issue
than can possibly be measured by one indicator. It was very valiant
of someone to think of one indicator to do it. We now have a much
wider approach across the field. The leakage, the efficient use
of water and the charging are all things that we did complete,
if you like, in the sense that we gave the instructions out to
the companies and achieved more in some cases by the end of last
year. The Environment Agency is, I gather, very well advanced
in talking to the companies about the reliable yields in the current
circumstances.
11. Thank you. In effect you have answered
my next question so I will press on to the question of leakage.
Paragraph 3.9 says that when you examined the level of leakage
after the 1995 drought you found about 30 per cent of the water
put into the distribution system, is that correct?
(Mr Byatt) Yes.
12. When did you become aware that leakage
was this high? What have you done in those companies to reduce
it?
(Mr Byatt) Of course there were no measures of
leakage before we came into operation and it is not an easy thing
to measure. There are all kinds of measures of leakage all over
the world, some of which are pretty unreliable, so we went for
a good comprehensive measure which catches the whole lot. It took
a little time to get that going. Our evidence was showing that
up to 1992-93 leakage was coming down and then after the price
review in 1994-95 we saw signs of leakage going up again. Of course,
we observed in Yorkshire a quite unnecessarily high level of leakage
in the very area where the water was in short supply. We then
moved and the companies responded to our moves by setting themselves
leakage targets which often involved a big reduction in leakage.
There were clearly some companies, like the company of which I
am a customer, Severn Trent, that took their eye off the ball
and they quickly got their eye back on the ball and leakage has
come down quite satisfactorily. In other cases we have had to
push companies. When we set the leakage targets for the next financial
year we found some companies who had gone further and better and
we simply needed to confirm what they were doing. For example,
Southern Water were doing quite a good job, whereas other companies
needed to be pushed quite hard, and where we have uncertainty
about what is really happening in some cases, for example Thames
Water, we require quarterly reports from them.
13. That is interesting. Just as a matter
of curiosity, you said that some have made reasonable in-roads.
What constitutes a reasonable in-road into leakage? What sort
of percentage change have you seen from your best performers?
(Mr Byatt) We prefer not to use percentage numbers
at all except as a shorthand way of standardising companies. The
Environment Committee of this House suggested that there were
better measures because of the two key measures being litres per
property per day lost-because the more properties you have, the
more joints there are in the system-and also litres per kilometre
of main, because again long mains cause problems and they are
better measures.
14. Give me a quantitative assessment that
you consider is worthwhile?
(Mr Byatt) It will differ in different parts of
the country. For example, in the South East, where water is in
much shorter supply than it is in the North East, where there
is the Kielder Reservoir with a large amount of water in it, the
economic position will be different, because, of course, reducing
leaks costs money, although it saves money in terms of additional
resources not to have the leaks, so it is a question of balancing
the two. The companies are now, under pressure, beginning to come
forward with assessments of what is a reasonable balance between
these two things. I believe that in many cases the companies are
probably-and I say "probably"-above economic levels
but they are charged by next summer that they must have proper
studies of the economic level of leakage so that we can set these
standards in a fully rational way.
15. Mr Byatt, I will try once more. You
said to me that one water company had done a good job, you implied,
of reducing its leakage. Can you give us any quantitative assessment
of what sort of reduction in leakage that was? I do not care how
you do it-by percentage, by volume, by volume per litre, by volume
per household. Do you have a number? I am interested in what is
achievable.
(Mr Byatt) Southern Water, which has reasonably
low levels of leakage, I think is certainly around 12 per cent.
Do you remember the exact number?
(Mr Saunders) I do not remember the exact number,
no.
(Mr Byatt) Can we send you the exact number?¹
It is that kind of level, whereas, of course, we have companies
whose leakage levels are up as high as 30 per cent.
Chairman: Thank you. We will widen
the questioning. Mr Christopher Leslie?
Mr Leslie
16. Thank you. Can I draw your attention
to appendix 1 of the National Audit office report, page 46. It
states that, as Director General of OFWAT, you have various duties
in law, one of which is to secure that companies are able to finance
the proper carrying-out of water and sewage functions, is that
right?
(Mr Byatt) Yes.
17. Can you tell me then, if the quality
of service is your focus, the whole reason of existence for OFWAT
is improving the quality of service, would you accept that that
is dependent on investment levels, basically securing sufficient
finance to modernise and upgrade the water network?
(Mr Byatt) A great deal of the money which the
companies are spending is in order to improve the quality of the
water, both drinking water and waste water, and if you take the
ten-year period for which we have set price limits from 1995 to
2005, something of the order of £15 billion will be spent
on quality and that is the quality of the product and not the
levels of service that are being referred to here.
18. But on the actual central point, do
you accept that investment is a very central part of your work
in terms of encouraging investment, as it says, securing sufficient
finance to make sure that the system, whether it is the quality
of the water-investment is very important?
(Mr Byatt) Yes.
19. Do you believe that the water companies
are prioritising investment sufficiently?
(Mr Byatt) Do you mean, are they investing enough?
1 Note by Witness: These papers are expected to be
submitted in due course (PAC 155). Back
|
