House of Commons - Public Accounts

Select Committee on Public Accounts Thirty-Sixth Report

THE WATER INDUSTRY IN ENGLAND AND WALES: REGULATING THE QUALITY OF SERVICES TO CUSTOMERS

OTHER CUSTOMER SERVICE ISSUES

Setting targets for the quality of service to be provided

25. One of the ways in which OFWAT have sought to improve the quality of the services provided by the companies is through comparative competition - comparing the quality of each company's services with that of other water companies, taking action on shortcomings with the companies concerned, and publishing annually comparative information on the quality of service provided by each company.[32] But they have not set comprehensive targets for the quality of service to be achieved by water companies.[33]

26. The Committee therefore asked OFWAT how they could satisfy themselves that companies were providing the best service for customers.[34] They thought they had made very considerable progress and, in particular, had built on the opportunities for comparative competition in the water industry. There were ten big companies and a substantial number of water-only companies. The companies were all pushed by the stock market both to be more efficient and to satisfy the regulator as regards customer service. OFWAT had encouraged the companies to overtake each other and they believed that this had led to very substantial improvements.

27. OFWAT added that, while at the top of the range they were very reluctant to say what is best practice, because they did not want to dampen initiative, they had come to see the importance of chasing those companies who were not doing well. This year they had written to seven water companies requiring them to set performance targets to get them up to a proper level, and they were now setting stringent targets for those companies they felt were not performing well.[35] OFWAT set targets to a greater extent now than in their early days, when they had been concentrating on getting comparable information across the board; and they were now, in response to the C&AG's report, assessing companies in terms of whether they were "good", "satisfactory" or "poor", and providing greater clarity for companies and customers of what they considered to be an unacceptable quality of service and of what was best practice.[36]

28. The Committee asked whether OFWAT would be setting targets that would trigger compensation payments or sanctions by any companies failing to meet them.[37] They said that they had set a number of such targets, which would be published. In the case of Yorkshire Water in 1995 they had set targets for interruptions to supply and flooding from sewers.[38] Once targets were set, the companies would have to keep to them, and if they failed to do so they would be at risk of losing their licence.[39]

Compensating customers for poor service

29. OFWAT's aim is that, where customers receive a poor service, they should receive appropriate redress, which in some cases should involve financial recompense through a refund of charges or payment.[40] As part of their work to secure such redress, OFWAT have required companies to include in their complaints procedures a commitment to consider compensation. The Committee asked them why they had failed to impose upon companies a stricter system requiring them to compensate customers.[41]

30. OFWAT said that compensation was provided for certain failures under the guaranteed standards scheme. They had reviewed the operation of the scheme once so far, and would be examining it again during 1998. There were certain areas where there was automatic compensation under the scheme and those areas were being extended and covered the issue of how much the compensation should be. In addition, the guaranteed standards scheme imposed a compensation regime enforceable in law if customers found themselves not getting the sort of service required.[42]

31. OFWAT said that the guaranteed standards scheme did not cover all the things for which customers should get compensation.[43] There were certain areas where things were a good deal more difficult to codify. Nevertheless, the companies should be compensating people. OFWAT had encouraged companies to consider that; and thought that, as a result of being able to compare the performance of different companies, they had secured compensation for customers. The Customer Service Committees, for example, had secured compensation in the order of £4 million by pressing companies in particular cases.

32. The Committee also asked OFWAT whether compensation was payable if someone's water supply was cut off by a third party.[44] They said that whichever utility was cut off, regardless of the fault, that utility ought to put the matter right and then claim off the others.[45] OFWAT were in the process of examining this with the other regulators with a view to achieving the objective that if a water company, for example, was responsible for a lost gas supply, the customer would obtain automatic compensation from the gas company, and the gas company would seek to recover it from the water company.[46] OFWAT did not want to be so precise at this point about what happened if the third party was not a utility, but they told us that they would ensure that the companies provided their customers, directly or indirectly, with this kind of compensation if they were cut off, for whatever reason, from their direct supply.[47] OFWAT undertook to inform the Committee when the matter was concluded.[48]

Establishing customers' views

33. OFWAT are required to seek to protect customers' interests as regards both prices and the quality of services provided.[49] Because the provision of very high quality services may increase costs, which may in turn affect prices, OFWAT seek to achieve a balance between prices and service quality that best reflects customers' preferences and, where comparisons can be made, reflects what is achieved in competitive markets.[50]

34. The Committee asked OFWAT how they had established what customers' preferences were.[51] They replied that in the early days they did considerable market research themselves. For example, they had got MORI to do some work for them, and had also examined how people might pay for water, and the social effects of metering. They had also carried out research in Yorkshire in 1995 about customers' views there. But OFWAT thought it very important that the companies look after their own customers, and in recent years they had been pressing hard to get the companies to do their own surveys and market research, with OFWAT and the Customer Service Committees making sure that the job was done properly.

35. We asked why OFWAT's research on customers' views had only been on whether customers would accept water meters, or higher prices for a better quality of service, and appeared to have reflected the companies' interests rather than those of the consumers.[52] OFWAT said that the question of whether customers would be willing to pay more for a better service had been a small but important issue that arose out of their last review of companies' prices. They had carried out surveys into how customers thought they should pay their bills and the metering issue. They had also conducted jointly with the Department of the Environment a very expensive survey into the social impact of metering. In 1992 they had undertaken a major survey to check whether they were broadly capturing those issues that were important to customers.[53] In addition, they told us that, once the companies themselves have done their own research, as OFWAT encouraged them to do, a lot of their findings were shared with OFWAT.[54]

36. OFWAT have plans for intensifying their work to get sufficient measures of customer satisfaction. They consider that customer satisfaction will have to be tracked continuously if its monitoring is to be of any value, and they do not have the resources to conduct annual surveys providing robust results for each company.[55] They plan to collect information from companies on current practice among them in monitoring customers' satisfaction, to review the position, and to consult with the companies and the Customer Service Committees on how their minimum requirements would best be met, which might be through either harmonising companies' individual surveys, or by commissioning jointly with the companies a separate survey. They plan to decide on their reporting requirements in June 1998 and will report their decision to the Committee.

37. The Committee also asked OFWAT about the role of the Customer Service Committees and, in particular, whether or not they truly reflected the views of customers.[56] The Chairman of the Central Customer Service Committee told us that, in appointing members of the Customer Service Committees, OFWAT advertised in the local press throughout the area. A balance was made between male and female, between skills, background and ethnic communities, to try to balance the representation in order to give a good reflection of what normal customers would think. Customer Service Committee members were appointed by the Director General of Water Services, and appointments followed a process whereby there was an advertisement in the local press, applicants were interviewed the recommendations of the Committee's Chairman were followed.[57]

Customers' complaints

38. OFWAT and the Customer Service Committees together received over 10,000 complaints in 1996-97, most of which were received by the Committees.[58] Monitoring by OFWAT of the satisfaction of customers who have complained to the Committees has found that only about a half of the customers responding to this monitoring - 46 per cent in 1996 - said that they were satisfied with the outcome of their complaint.[59] By contrast, in the same year, among customers complaining to the equivalent bodies in the electricity industry, the Electricity Customers' Consultative Committees of the Office of Electricity Regulation, 78 per cent said they were satisfied with the outcome of their complaint.[60]

39. The Committee asked OFWAT why the level of satisfaction was lower among customers complaining in the water industry.[61] They told us they needed to find out more about the reasons for the lower level of satisfaction, and were proposing some work. But they suggested there were certain features of the water industry that led them to believe there may be special issues in it. They said that prices, for example, had been rising for water when they had not in other utilities, and there were quite considerable complexities about water, such as joint supply pipes, which they thought did not apply to the electricity area.

40. The Chairman of the Central Customer Service Committee told us that, in discussion with his local colleagues from the Electricity Customers' Consultative Committees and the Gas Consumers Council, they had come to the conclusion that the complexities of some of the cases in water and sewerage were completely different from the ones faced in gas and electricity. There were also sometimes things that were outside OFWAT's jurisdiction. When that was explained to the customer they were not satisfied with OFWAT's powers to resolve it.

41. The Director General added that OFWAT had not got to the bottom of the reasons for the level of dissatisfaction and that he proposed to commission people from outside OFWAT to examine the matter and send him a report which he could publish. The examination was planned to include a detailed review of a random sample of complaint files from customers who reported dissatisfaction with the outcome of their complaint.[62] This might possibly be extended to personal contact with the customer to establish the reasons for dissatisfaction. OFWAT planned to consider the outline of the review and would report to us, including action to secure improvements, in June 1998.

Customers' contacts with companies about their bills

42. One of the areas of service monitored by OFWAT is the speed with which companies respond to queries made by customers about their bills.[63] Such queries are the most common form of customers' contacts with the companies and there were more than 15 million of them in 1996-97.[64] At the suggestion of the National Audit Office, OFWAT have investigated why the number of such queries was so high.[65] The Committee asked why OFWAT concluded that there was no cause for concern at their number.[66]

43. OFWAT told us that those queries were not quite the same as complaints, and that many were better described as customer contacts. Contacts when customers were changing address, for example, were not necessarily an indicator of poor service.[67] They told us that, at the moment, the number of queries was levelling off and the number of queries made to OFWAT themselves was beginning to fall. But they thought that some more work was needed. They proposed to take advantage of the existence of the multi-utilities and see if they could provide good comparisons in the same areas with the same populations between gas, electricity and water. They planned to obtain comparative information from the three multi-utilities on the number of billing contacts and the reasons for them, to require detailed breakdown of all billing contacts from all companies if the level of contacts was found to be inexplicably high, to identify good practice, and to issue revised annual reporting requirements.[68] They said that they were not complacent about the matter and that they were looking into it.[69]

Conclusions

44. Because each company has an almost complete monopoly in its area, it is not possible for ordinary customers to take their business elsewhere if they are not satisfied with the service they are receiving. For customers to be protected adequately, the companies must be challenged to provide a good service in a way that provides as strong an incentive for them as would any threat of losing their customers' business. In the past OFWAT have relied mainly on comparisons between companies to provide this challenge. But some companies did not respond sufficiently to this pressure and OFWAT are now setting targets for those companies that are not performing properly, and are assessing all companies in terms of whether their performance has been "good", "satisfactory" or "poor". We look to OFWAT to ensure that the targets they set are sufficiently stringent to protect customers, and to act effectively against any company that fails to achieve them.

45. The Committee is concerned that OFWAT have not themselves carried out any comprehensive survey to establish customers' views of the service provided by water companies since 1992, and that their subsequent surveys of customers' views have concerned mainly the level of water charges and issues relating to water metering. We do not understand on what basis they argue that only continuous monitoring of customer satisfaction has value since monitoring at intervals can also provide reliable information regarding trends in customer satisfaction. We note that OFWAT plan to work more closely with the companies to secure regular information on customers' satisfaction. If satisfactory arrangements cannot be made with the companies, OFWAT should give further consideration to carrying out research of their own.

46. In 1996 only 46 per cent of the customers complaining to the Customer Service Committees were satisfied with the outcome of their complaints, compared to 78 per cent of those complaining to the equivalent bodies in the electricity industry. We note that OFWAT plan to carry out a review to try to identify the reasons for the low level of customer satisfaction, but we understand that one reason for it may be that some of the matters customers are raising are outside OFWAT's jurisdiction. We recommend, therefore, that OFWAT should ensure that their review includes consideration of whether their powers are adequate to secure a satisfactory outcome for customers.

47. Customers raise some 15 million queries about their bills every year. We are concerned that OFWAT do not know why. We note that they are now planning to investigate the reasons; we look to them to do so as a matter of urgency and, to the extent that the queries arise because of poor service, to ensure that the companies take remedial action.

32 C&AG's Report paragraph 5 Back

33 C&AG's Report paragraphs 6 and 2.6-2.8 Back

34 Q2 Back

35 Q3 Back

36 Q41, OFWAT Action Plan - recommendation 1 Back

37 Q66-68 Back

38 Q133 Back

39 Q134 Back

40 C&AG's Report paragraph 3.59 Back

41 Q69 Back

42 Q70 Back

43 Q69 Back