MD139

TO MANAGING DIRECTORS OF ALL

WATER AND SEWERAGE COMPANIES

AND WATER ONLY COMPANIES

30 September 1998

ASSESSMENT OF THE OVERALL SERVICE PROVIDED TO CUSTOMERS

In MD133 we invited comments on the methodology we proposed to use when assessing the overall service provided to customers. This assessment would form the basis of adjustments to price limits for the next quinquennium.

We have now completed our consideration of the responses, including the views of the Drinking Water Inspectorate and the Environment Agency. As a result we have modified the methodology. In particular, the environmental measures have been broadened and a measure of performance in respect of drinking water quality is included. The summary of responses and my conclusions are set out in Appendix 1.

My assessment for the Price Review will be based on a combination of three years' results, that is 1996-97, 1997-98 and 1998-99. This will allow me to take account of early delivery of key outputs and the extent to which companies have improved their performance. For 1998-99 the assessment will take into account such data as is available at the time of draft determination of price limits. Results of the separate improvement analysis will be used to inform my judgement on the appropriate price adjustment only where there are exceptional factors to be considered; for example, where a company has a poor overall performance, but has made very substantial improvements from a low base.

I have not yet decided on the final scale and magnitude of the adjustment that I will make to price limits. The issue of the scale and magnitude of the adjustment will be explored in Prospects for Prices.

The results of this year's assessment based on this revised methodology will be included in the Levels of Service Report, to be published in mid-November.

I C R Byatt

Appendix 1

1999 PERIODIC REVIEW - A PROPOSED APPROACH TO ASSESSING OVERALL SERVICE TO CUSTOMERS – SUMMARY OF REPLIES

Introduction

The technical consultation paper was published on 31 March 1998 with comments requested by 22 May 1998. A total of 39 replies were received; 10 from water and sewerage companies (WaSCs), 12 from water only companies (WOCs), 9 from Customer Service Committees (CSCs), and 8 from other interested organisations. A full list of respondents is attached.

The quality regulators (The Environment Agency (EA) and Drinking Water Inspectorate (DWI)) have not formally responded but were involved in the preparation of the technical paper and working level contacts continue.

A number of companies discussed the paper in detail with Ofwat in person and by telephone. In all cases discussions were conducted in an open and constructive way and some areas of confusion ironed out at an early stage allowing written submissions to be more focussed and concise.

The general tone of the replies was that it was right to assess overall performance and that the methodology suggested was a suitable vehicle for making the assessment. A small minority of respondents argued that a poor starting position at the time of privatisation and overly restrictive price limits had put some companies in a position where their performance was not comparable with the rest of the industry. Comments on specific areas and Ofwat's conclusions are set out below.

• Drinking water quality

  A total of 11 of the 34 respondents agreed that it was important to include some assessment of drinking water quality – it is a key aspect of services to customers and an area where companies are investing to meet legal obligations. No one argued for not including such a measure.

  Since publishing the technical paper the Chief Drinking Water Inspector has published Information Letter 6/98 examining comparative water quality performance and concluding that there is variation in company performance in respect of Iron. We are using his results in our assessment as part of the water supply area. The weighting attached to the measure in the model may not truly reflect the importance customers attach to water quality; however, the output accounts for only one aspect of water quality and the weighting reflects this.

• Marine performance

  Five respondents thought that it was unreasonable to exclude the marine measures from the environmental impact area. The EA also supported the inclusion of such measures. It was suggested that WaSCs without measures of marine performance should have the area weighted out – essentially given an average score. One respondent did devise a combined method of measuring performance in respect of marine and inland waters, however, it suffered from being relatively complex and requiring some data that is not readily available.

  In the light of these comments we have included measures of non-compliant bathing waters and unsatisfactory sea outfalls. For those companies where the measure is not relevant, an average of their other environmental scores is used.

• Additional environmental measures

  It was suggested that we should broaden the assessment of the environmental impact of company operations, perhaps including sewage sludge disposal. We were also asked to consider developing a measure that covers the environmental activities of the water only companies.

  We have been able to develop a measure of unsatisfactory disposal of sewage sludge to land for inclusion in this year's assessment. We are in discussions with the EA to explore the scope for a measure that will allow comparisons of water abstraction policies. If this proves feasible in future it will be included within the existing environmental impact category although the overall weighting given to this category will not be altered. Companies will be told of any change.

• Leakage/Resources

  A small number of companies (particularly those with high leakage) were not happy with the inclusion of leakage in any form, arguing that it was not important to customers, and that companies had not been funded to reduce leakage. However, the overall view was that leakage was important and had to be included. Some non-company respondents stressed the environmental nature of leakage. In general companies voiced concern over the use of the leakage/resource matrix, as they thought that the resource element of the matrix was of dubious value and was entirely beyond their control. Most wanted to use progress towards the economic level of leakage (ELL) as a comparative measure and in the absence of ELLs, suggested that we use progress in respect of leakage targets.

  Companies were, in general, favourably disposed towards the inclusion of hosepipe bans.

  The emphasis on the environmental impact of high levels of leakage has persuaded us that it should be considered an environmental issue. Accordingly, it forms part of the environmental impact assessment in this model. The environmental emphasis on the measure of leakage strengthens the case for continuing to use the leakage/resource analysis rather than the suggested movement towards leakage targets. In any event, not all the companies yet have robust ELLs on which such a comparative assessment could be based. However, we do intend to use ELLs as a basis for future assessments as soon as they are available.

• Assessment of customer service

  There was some concern that the procedures used to derive the 'assessed service' score were not transparent enough. Some companies discussed this with us during the consultation phase and were supplied with additional material to help them understand how we had reached conclusions. We were also encouraged to include some assessment of quality of telephone response, efficacy of complaint handling procedures, and customer satisfaction. A CSC and one Reporter drew attention to the problems of the very real variation in standards across large companies that could skew the results from small-scale audits. A number of additional factors were suggested for consideration – including charitable trusts and early rebates.

  The assessment of customer service beyond the DG indicator levels looks at broadly objective data (such as meter option costs, opening hours) and is subjective only in as much as a judgement must be made to reflect differences in the service.

  We agree that it is important to include measures of the quality of performance as well as quantity. We are talking with the industry about the possibility of making a comparative assessment of the quality of telephone responses and will use this in the overall assessment when it is available. We have been able to use the data held by CSCs and the results of their audits of company procedures to develop a measure of quality of complaint handling for inclusion in this year's analysis. Company position on 'charitable' trusts has been included as part of the assessment of debt and disconnection procedures. It would not be appropriate to include early rebates as these are fully taken account of in other elements of the periodic review methodology.

• Relationship to bills

  Generally, companies with low bills thought that the level of bills should be part of the assessment – arguing that keeping bills low was a good service to customers.

  While customers will welcome lower bills this reflects the company's operating environment and inherited assets and its efficiency. Efficiency in providing services is dealt with separately. Ofwat therefore does not consider that this should be included in an assessment of company performance in delivering good service to customers.

• 1994 price limits

  Some companies claimed that performance is unduly influenced by the 1994 price setting process and the scope for additional efficiencies. Others were concerned that companies given allowances to solve specific service level problems had an unfair advantage. Some companies pointed to differences in renewal and maintenance assumptions included in price limits.

  Price limits set in 1994 included specific allowances to improve services for only three companies where there was evidence of an investment need to overcome problems of sewer flooding. There is no evidence that these, or any other financial assumptions made at the last review, have directly contributed materially to the overall assessment.

• Information quality

  Some companies were concerned that the information used may not be comparable, either because some depends on subjective judgements made by the CSCs, or because some of the data collection systems were of differing standards.

  Where data is not subject to independent scrutiny by reporters, DWI or EA (such as that provided by CSCs) we now validate it by looking at an additional set of related outputs. Examples of this are the use of both CSC complaint audit and CSC complaint data to derive a complaint handling result; and the use of disconnection and summons statistics to qualify CSC debt and disconnection audit assessments. These elements, in any case, are only a small element of the overall assessment. Audit guidelines are currently being reviewed in order to standardise the approach used by CSCs and improved consistency of assessment.

• Improvement scores

  In general companies thought that current performance was the most important output and that any assessment it should be based on the latest available data. Some companies were concerned that their poor starting position had limited their current performance and wanted early improvement to be recognised.

  We will assess performance in respect of each of the years 1996-97 to 1998-99. Any adjustment to prices will be based on a combination of these scores. The separate analysis of improvement will be taken into account only exceptionally.

• Score weighting

  The relative weighting of scores was raised by many respondents. No one suggested the proposed broad weighting system should be radically reviewed. There was, however, some consensus that the assessed service score was too highly weighted when compared to the customer contact score; and some concern as to how leakage was weighted. Respondents thought that in general weighting should reflect customer concerns, and some suggested carrying out market research or formal consultation with the industry. No one, however, indicated how this might alter the proposed weighting. One company suggested a new structure but did not develop the weighting issue beyond saying that it should reflect customer concerns rather than investment value. A number of respondents outside the industry thought that the environmental assessment should be accorded more importance.

  Selection of a system for weighting for the individual outputs and the key areas is difficult, although changes in the weighting system make little difference to the identification of those companies performing particularly well or poorly. The initial weighting had been developed primarily with regard to the balance of customer concerns and has been adjusted slightly in the light of comments made. It differs from the previous example in that there are now only four key areas, and the relative weighting of water supply has been increased to reflect the inclusion of water quality. The measures formerly in the water resources area are now in water supply (hose-pipe bans) and environmental impact (leakage). The two parts of the customer service area have had their weighting equalised.

• Current performance

Key area	Sub-area	Weight	Total
Water supply	Water pressure	0.75	2.5
	Unplanned interruptions	0.75
	Hosepipe bans	0.5
	Water quality	0.5
Sewerage service sewer flooding	Incidents due to sewer capacity	0.5	1.5
	Incident due to blockages etc	0.75
	Risk of flooding	0.25
Customer service	Customer contact	0.75	1.5
	Assessed service	0.75
Environmental impact	Sewage treatment works in breach of consent	0.5	2.5
	Unsatisfactory combined sewer overflows	0.25
	Major and serious pollution incidents	0.25
	Bathing water compliance	0.5
	Unsatisfactory sea outfalls	0.25
	Unsatisfactory sludge disposal	0.25
	Leakage and resource position	0.5

Table 2 - Output measures for assessment of current performance

Output	Source	Description	Scoring criteria
Water pressure 1996-97	Company data	Company assessment of properties at risk of receiving low pressure	Percent at risk figure scored from 5 (poorest performance) to 50 (best)
Unplanned interruptions to water supply	Company data	Properties affected by unplanned interruption to supply greater than 6 hours	Comparison of interruption scores as used in the Ofwat Levels of Service Report. Interruption scores scored from 5 (poorest performance) to 50 (best)
Water quality 1996 – Iron failures	DWI Information letter 6-98	Percent determinations for Iron in water supply contravening prescribed concentration or value	DWI produce results in three bands, best scored 50, middle 27.5, and bottom 5.
Sewer flooding incidents due to overloaded sewers	Company data	Properties flooded internally by sewage as a result of an overloaded company sewer	Excludes extreme weather events. Percent figure scored from 5 (poorest performance) to 50 (best)

Output	Source	Description	Scoring criteria
Sewer flooding incidents with causes other than capacity	Company data	Properties flooded internally by sewage – caused by blockages, sewer collapses, equipment failure etc.	Percent figure divided into ten bands and scored from 5 (poorest performance) to 50 (best)
Properties at risk of sewer flooding	Company data	Properties at risk of internal flooding from sewers more than once in ten years	Sum of properties at risk of flooding more than once in ten and twice in ten years expressed as a Percent. Percent figure scored from 5 (poorest performance) to 50 (best)
Company contact score	Company data	Speed of response to billing contacts	Percent substantive replies dispatched within 5 working days. Percent figure scored from 5 (poorest performance) to 50 (best)
		Speed of response to written complaints	Percent substantive replies dispatched within 10 working days. Percent figure scored from 5 (poorest performance) to 50 (best)
		Meter reading performance	Percent bills based on actual meter readings during the year. Percent figure scored from 5 (poorest performance) to 50 (best)
		Ease of telephone contact	Calls answered within 30 seconds as a percent of all calls received. Percent figure scored from 5 (poorest performance) to 50 (best)
Other customer service score (previously assessed service)	Ofwat and CSCs	Payment options available to customers	Five areas assessed: information on bills and in other literature, range of options, instalment options, payment locations and counter fees. Numerical assessment resulted in a 3-band output.
		Services provided for customers with special needs	Nine key areas assessed and numerically scored resulting in a 3-band output.
		Company meter option schemes	Based on data contained in Ofwat report on tariffs. Three-band output (>£75,<£75, free)
		Compensation for poor service	Assessment of company policies and charters. Three band scoring – basic (GSS only), some enhanced areas, and enhanced in many areas.
	Ofwat	Complaint handling procedures	CSC audits qualified by comparison of proportion of complaints referred to CSC that receive an additional remedy to that offered by company
		Unsolicited information provided to customers	Information assessed into three categories for ease of understanding and use, resulting in a final score from 1 – 3.
		Company policies in respect of supply pipes	Policies banded into three categories (no universal free repairs, free repairs and some free replacement, free replacement for all)
	Ofwat and CSCs	Debt and disconnection policies	CSC assessment qualified by summons and disconnection statistics
	Ofwat	Customer access to company by telephone	Hours of opening assessed and graded from 1 to 3 (basic, enhanced, 24hrs)

Output	Source	Description	Scoring criteria
Pollution incidents	Environment Agency	Category 1 & 2 pollution incidents	Major and significant sewerage related incidents only expressed per million equivalent resident population. Calendar year 1997. Scored from 5 (poorest performance) to 50 (best).
Sewage treatment works breaching consent	Environment Agency	Sewage treatment works failing consent parameters	Percent equivalent populations served. Scored from 5 (poorest performance) to 50 (best)
Bathing waters non-compliant	Environment Agency	Designated bathing waters failing to comply	% of designated bathing waters failing to comply. Companies without data given average score. Scored from 5 (poorest performance) to 50 (best)
Unsatisfactory sea outfalls	Company	Sea outfalls operating in an unsatisfactory way	Unsatisfactory sea outfalls a % of equivalent population. Scored from 5 (poorest performance) to 50 (best)
Unsatisfactory sludge disposed to land	Company	Sewage sludge disposed to agricultural land	Unsatisfactory sludge disposal as % of industry worst result since 1994-5. Scored from 5 (poorest performance) to 50 (best)
Unsatisfactory combined sewer overflows	Company	Percent sewer overflows operating in an unsatisfactory manner	Percent total combined sewer overflows unsatisfactory. Percent figure scored from 5 (poorest performance) to 50 (best)
Total hosepipe bans since 1992-93	Company	Average person weeks as percent of winter pop	Percent figure compared and scored from 5 (poorest performance) to 50 (best)
Leakage	Company	Leakage and resources	Five performance bands scoring 10 (high leakage- tight resources), 20 (high leakage – marginal resources, medium leakage – tight resources), 30 (low leakage – tight resources, medium leakage – marginal resources, high leakage – adequate resources), 40 (low leakage – marginal resources, medium leakage – adequate resources), 50 (low leakage – adequate resources)

• Performance improvement

Key area	Sub-area	Weight	Total
Water supply	Pressure problems solved by company action	0.75	2.5
	Unplanned interruptions – improvement since 1992	0.75
	Water quality improvement (Fe)	1
Sewerage service – sewer flooding	Problems solved by company action	0.75	1.5
	Reduction in incidents due to blockages etc since 1992	0.75
Customer service	DG6 (billing contacts) improvement since 1992	0.75	1.5
	DG7 (written complaints) improvement since 1992	0.75
Environmental performance	Major and serious pollution incidents improvement since 1994	0.5	2.5
	Sewage treatment works in breach of consent	0.5
	Unsatisfactory combined sewer overflows	0.25
	Total leakage – improvement since 1992-93	0.5
	Bathing water improvement	0.5
	Unsatisfactory sea outfall improvement	0.25

Table 4 - Output measures for assessment of performance improvement

Output	Source	Description	Comments
Water pressure problems solved since 1992	Company	Properties removed by company action from risk of receiving low water pressure since 1992	Change in at risk figure since 1992 after changes brought about by new information Percent figure scored from 5 (poorest performance) to 50 (best)
Unplanned interruption	Company	Change in level of unplanned interruptions over 12 hours	Comparison of 1992-95 average with 1995-98. Percent figure scored from 5 (poorest performance) to 50 (best)
Water quality since 1991 – Iron failures	DWI information letter 6/98	Improvement in the compliance rate with the standard for iron in water supply	Three-band output based on DWI analysis. Scored from 5 (poorest performance), 27.5, 50 (best)
Sewer flooding problems solved since 1992	Company	Reduction by company action in number of properties at risk	Properties removed from at risk categories as % of the 1992 figure after changes brought about by new information. Percent figure scored from 5 (poorest performance) to 50 (best)
Sewer flooding incidents due to blockages etc since 1992	Company	Change in the number of sewer flooding incidents caused by blockages, collapses, equipment failures, etc	Comparison of 1992-95 average with 1995-98. Figure scored from 5 (poorest performance) to 50 (best)
Speed of response to billing contacts	Company	Change in percent billing contacts answered within 5 working days since 1992	Comparative figure scored from 5 (poorest performance) to 50 (best)

Output	Source	Description	Comments
Speed of response to customer complaints	Company	Change in percent complaints answered within 10 working days since 1992	Comparative figure scored from 5 (poorest performance) to 50 (best)
Reduction in pollution incidents	Environment Agency	Category 1 & 2 pollution incidents	Major and significant sewerage related incidents only. Calendar year 1997. Improvement ratios scored from 5 (poorest performance) to 50 (best).
Reduction in sewage treatment works breaching consent	Environment Agency	Sewage treatment works failing consent parameters	Comparison of equivalent population served. Improvement ratios scored from 5 (poorest performance) to 50 (best)
Designated bathing water failures	Environment Agency	Improvement since 1994-95	Reduction in number of designated failures since 1994-95 scored from 5 (poorest performance) to 50 (best)
Unsatisfactory sea outfalls	Environment Agency	Improvement since 1994-95	Comparison of equivalent population served. Improvement ratios scored from 5 (poorest performance) to 50 (best)
Unsatisfactory combined sewer overflows	Company	Sewer overflows operating in an unsatisfactory manner	Comparison of number of combined sewer overflows operating unsatisfactorily. Improvement ratios scored from 5 (poorest performance) to 50 (best)
Total leakage	Company	Change in total leakage since 1992-3	Comparison of leakage levels. Improvement ratios scored from 5 (poorest performance) to 50 (best)

ORGANISATIONS RESPONDING TO ASSESSING PERFORMANCE PAPER

WaSCs

Anglian Water

Dwr Cymru

North West Water

Northumbrian Water

Severn Trent water

South West Water

Southern Water

Thames Water

Wessex Water

Yorkshire Water

WOCs

Bournemouth & West Hampshire Water

Bristol Water

Folkestone & Dover Water

Mid Kent Water

North Surrey Water

Portsmouth Water

Saur Water

South Staffordshire Water

Sutton & East Surrey Water

Tendring Hundred Water

Three Valleys Water

York Waterworks

CSCs

Eastern CSC

South West CSC

Thames CSC

Wessex CSC Yorkshire CSC South West CSC CSC for Wales North West CSC Central CSC

Others

British Waterways

Halcrow Management Services

Surfers Against Sewage

The Institute of Plumbing

The Institution of Civil Engineers

Water News (published review)

Water UK

World Wide Fund for Nature