MD 153: Compensation for customers - review of the guaranteed standards scheme
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MD 153

TO MANAGING DIRECTORS OF ALL
WATER AND SEWERAGE COMPANIES
AND WATER ONLY COMPANIES

COMPENSATION FOR CUSTOMERS:
REVIEW OF THE GUARANTEED STANDARDS SCHEME

I am grateful for the comments received from individual companies, as well as Water UK, on the Consultation Paper "Compensation for Customers" and proposed amendments to the Guaranteed Standards Scheme. Comments were also received from each of the Customer Service Committees and other consumer and business organisations. In all, 46 organisations responded.

My recommendations include making payments automatically for all service failures except low pressure, unless the company is genuinely unable to identify whether a customer was affected. In the case of low pressure, where it can be difficult to identify who is affected, companies should treat telephone contacts from the customer as a claim.

My recommendations also include increasing the level of payment from £10 to £20 for household customers and, for those standards relating to supply interruptions, to £50 for business customers.

The consultation paper proposed a new standard for compensation in the event that a company is convicted of supplying water unfit for human consumption. The responses received confirmed that this is a complex issue, and indicated such a standard would not fully meet customers' expectations and would be difficult to administer in practice. After careful consideration, I have decided not to recommend the original proposal, but that the issue is best pursued outside the GSS through a Code of Good Practice, to be agreed with the industry.

All the comments received were considered carefully and I have taken these into account when formulating my recommendations. I enclose a copy of my Application to the Deputy Prime Minister and to the Assembly Secretary for the Environment and Local Government for Wales.

I C R Byatt


Proposed revisions to the Guaranteed Standards Scheme

Application tothe Secretary of State for the Environment, Transport and the Regions, and the Welsh Assembly Secretary for the environment and Local Government

September 1999


TO

RT. HON. JOHN PRESCOTT, MP
Deputy Prime Minister and
Secretary of State for the Environment,
Transport and the Regions

PETER LAW, AM
Welsh Assembly Secretary for the
Environment and Local Government

I hereby apply under Sections 39 and 96 of the Water Industry Act 1991 (as amended by the Competition and Service (Utilities) Act 1992) for amendments and extensions to the existing Water Supply and Sewerage Services (Customer Service Standards) Regulations 1989 (the Guaranteed Standards Scheme or GSS) as amended. In accordance with the requirements of the Act I include a summary of the reasons for the proposals made.

The proposals relate to all undertakers appointed to provide water and sewerage services.  

 

I C R BYATT
Director General of Water Services

CONTENTS

Summary of Draft Provisions (Proposals)

Proposed revision to the existing Guaranteed Standards Scheme

1.  Proposed changes to the existing Guaranteed Standards Scheme2.  New Standard - Drinking water quality

3.  Other Issues

Appendix - Respondents to the Guaranteed Standards Scheme Consultation Paper

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SUMMARY OF DRAFT PROVISIONS (PROPOSALS)

Appointments - Regulation 3 be modified to have the following effect:

    • to allow appointments made by the company over the telephone to be brought within the Guaranteed Standards Scheme (GSS);
    • customers are offered a morning or afternoon appointment unless they request a more specific appointment, in which case they should be offered an appointment within a two-hour time-band.
Responding to Billing Queries - Regulation 4 be modified to have the following effect:
    • the time for responding to requests to change payment methods, which cannot be met by the company, should be five working days;
    • the time for responding to written queries about the correctness of the account should be ten working days.
Responding to Written Complaints - Regulation 5 be modified to have the following effect:
    • the time for responding fully to all written complaints (including those involving a visit or a third party) should be ten working days.
Warning Notice of Planned Supply Interruption – Regulation 6 be modified to have the following effect:
    • that companies must give at least 48 hours' written notice for planned supply interruptions likely to last more than 4 hours.
Restoring Supplies following Unplanned Interruptions – Regulation 7 be modified to have the following effect:
    • the standard for restoring supplies after an unplanned interruption (except on a strategic mains burst or leak) should be reduced from 24 hours to 12 hours.
Sewer Flooding – Regulation 7B be modified to have the following effect:
    • an amount equivalent to a refund of the sewerage bill should be paid for each internal flooding incident inside a customer's building up to a maximum of £1,000 per incident.
Meter Installation – Regulation 7A be modified so that the existing standard will continue to apply until the provisions regarding free meter options in the Water Industry Bill are implemented (from 1 April 2000). After that provision will be made for protecting customers' interests through Ofwat's approval of each company's charging scheme.

Amount of Payment – Regulations 3, 4, 5, 6 and 7 be modified to have the following effect:

    • the level of payment for household customers for standards relating to appointments, billing queries, complaints, warning notices, planned and unplanned interruptions, should be increased to £20. For subsequent periods of 24 hours without water (under the standards relating to restoring the supply after an interruption ie those under Regulation 7) the payment should be £10 as now;
    • all business customers should be entitled to a £50 payment in respect of those standards relating to supply restoration ie those standards governed by Regulations 6 and 7. For subsequent 24 hour periods the level of payment should be £25.
Automatic Payment – Regulations 6, 7 and 7B be modified to have the following effect:
    • companies should make payments automatically where they can identify customers affected by the standards relating to supply interruptions (planned and unplanned) and warning notices and sewer flooding;
    • where it is not possible genuinely to identify all the customers affected, the company should accept claims/notification by telephone. This should also apply to Regulation 7AA concerning low pressure;
    • if a payment is not made automatically within 20 working days of the incident and the company should have known the customer was affected, then the company will have to make an additional penalty payment to customers of £20 (£50 for business customers) in the event of a claim.
Compensation in the event of emergency restrictions – Subject to changes being made to primary legislation that a new Regulation be included within GSS to have the following effect:
    • that compensation is payable to customers where essential supplies are interrupted as a result of emergency restrictions authorised by drought order.

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Proposed Revision to the existing Guaranteed Standards Scheme

Background

When they were first introduced in 1989, the Water Supply and Sewerage Services (Customer Service Standards) Regulations were intended to establish a simple no-nonsense compensation scheme to protect customers who suffer a particularly poor standard of service. The Regulations set out common minimum statutory standards which companies must meet – the Guaranteed Standards Scheme (GSS). If a company fails to meet a guaranteed standard it must make a specified payment to the customer(s) affected; in most cases the payment is £10.

The GSS is not intended to cover every situation where financial redress may be appropriate. Nor does it preclude payment of further compensation by companies. Many companies now have customer charters, which go beyond the existing GSS (either by paying higher compensation for GSS service failures, by making payments automatically or by introducing new or tighter standards). The GSS does not prevent a customer from taking other action, including legal action, to secure redress. However, the advantage of GSS is that the standards of service are clear and the compensation is guaranteed.

The GSS Regulations provide a financial incentive for companies to provide minimum acceptable standards of performance. The GSS should not, however, be equated with the higher standards of service which customers should - and generally do - receive. Ofwat monitors each company's performance in terms of its service to customers and compares it with the rest of the water industry and comparable services elsewhere in the economy. Where companies' overall service levels are considered unsatisfactory, I will take action to ensure service is improved.

Reasons for Review

The GSS was introduced in 1989 and revised in 1993 (with one further amendment in 1997 to reflect low-pressure problems). In the six years since, significant improvements in service standards have been made both within the industry and outside it.

Particular factors supporting my proposals for revisions to the existing GSS include:

    • the significant improvements in service which mean that the GSS may seem to be unacceptably low in relation to current service levels;
    • GSS continues to be less effective where customers need to make a claim;
    • many companies operate schemes, known as Customer Charters, which go beyond the requirements of the GSS;
    • the Ofwat Customer Service Committees (CSCs) and other consumer groups, support a tightening of the existing scheme.
In reviewing the existing GSS I have addressed:
    • the level of payment (and whether different levels should apply for household and business customers for some standards);
    • automatic payment by companies without the need for customers to make a claim;
    • the need to tighten existing standards in light of those operated by companies under their own voluntary customer charters, and in light of customers' increased expectations on service levels; and
    • the need for a new GSS standard to cover compensation for poor drinking water quality.
The criteria I have used in deciding what recommendations to make are, that the scheme should be simple to operate; have a clear and precise standard of service which both the companies and customers can understand; and, that the costs of administering the scheme should be in proportion to the compensation payable.

The consultation paper "Compensation for Customers – A Review of the Guaranteed Standards Scheme" invited views from the water industry, the Customer Service Committees and the Ofwat National Customer Council, consumer and business groups, local authorities, environmentalist, trade bodies and associations, MPs and other Regulators.

Responses

In all 46 responses were received including the Ofwat National Customer Council and the ten Customer Service Committees, the ten water and sewerage companies and 11 water only companies, and from some consumer groups and business customers. Comments were also received from the Drinking Water Inspectorate, the Office of the Rail Regulator and the Office of Fair Trading and Water UK. Nil returns were received from Hartlepool Water (who said Anglian Water would reply on its behalf), the National Consumer Council, and the Welsh Consumer Council. A full list of respondents is at Appendix 1.

Under the Competition and Service (Utilities) Act 1992, I must take appropriate steps to discover the views of a representative sample of those likely to be affected by revisions to the scheme. I have considered research conducted by, among others, Offer (customer survey published in 1998), the Consumers' Association (in their report Troubled Waters) and by those water companies which included relevant questions about services covered by the GSS standards in their recent research for the 1999 Periodic Review. I have also listened to views of the ten regional CSCs based on their daily experience of dealing with customers, and to all the other views expressed in response to the consultation paper.

The recommendations set out below have been made after careful consideration of all the responses and the experience Ofwat has had in dealing with customers. This consultation paper sets out for each standard, the reasons behind the proposal, a brief summary of the responses received and my conclusions and recommendations. Revisions to the existing standards are dealt with first followed by the proposal in respect of the standard on drinking water.

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1. Proposed Changes to the Existing Guaranteed Standards scheme

1.1 Appointments

This standard is covered in the existing scheme under Regulation 3 and refers to appointments to visit the customer at his/her premises. There are two parts to the current standard, which applies only to appointments made in writing:

    • companies must specify a morning or afternoon appointment (before or after 1.00 pm);
    • companies must keep to that appointment or give 24 hours' notice of cancellation.
Specifying the appointment

Two water companies offer more specific time slots than morning or afternoon. In the electricity industry companies offer am/pm appointments but the customer may request a two-hour time-banded appointment. In Offer's customer survey, when they were asked what constitutes an acceptable minimum level of service, 47% of customers said morning or afternoon; 20% said within a two-hour time band; and 19% preferred a definite date and time.

Appointments made by telephone

Of more concern perhaps is the fact that the vast majority of customers contact their companies by telephone (Offer's research showed 90% of customers prefer to do so). If, as a result of this call, an appointment for the company to visit is arranged, this is not currently covered by the GSS scheme. 21 water companies apply the same standard to appointments made by telephone as to those made in writing and 18 will compensate the customer if they fail the standard.

The consultation paper proposed two improvements:

    • to bring within the GSS scheme telephone appointments;
    • to allow two-hour time-banded appointments but only at the customers' request, otherwise a morning or afternoon appointment would remain.
Responses

None of the respondents disagreed with the proposal to include appointments made by telephone within the GSS.

Only one CSC suggested that the current standard of a morning or afternoon appointment is satisfactory and one other suggested that customers should be offered a specific timed appointment. All other CSCs, consumer groups and business customers supported the proposal to offer time-banded appointments at the customer's request. Two water and sewerage companies disagreed suggesting either that the costs of introducing such a system would not reflect the customer benefits or that time-banded appointments should be phased in because they might reduce operational efficiency. Three water only companies also commented: two suggested that the proposal should be phased in and one felt the existing standard is acceptable.

Conclusion

There is unanimous support for bringing appointments made by telephone into the GSS and over two-thirds of companies already operate in this way. Comments on more specific time-banded appointments are mixed but the majority agreed with the proposal. Arguments that the industry would be unable to cope with the change were not sufficiently persuasive, since a two hour time band will only be provided if the customer specifically requests it.

Draft Provision: That Regulation 3 be modified to have the following effect:

    • to allow appointments made by the company over the telephone to be brought within the GSS;
    • customers are offered a morning or afternoon appointment unless they request a more specific appointment, in which case they should be offered an appointment within a two-hour time-band.
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1.2 Responding to billing queries

There are two parts to the current standard which is covered under Regulation 4:

    • if a customer writes in to ask the company to change the method of payment and the company is unable to do so, it must respond to the customer within 10 working days;
    • if a customer queries in writing the accuracy of his account the company must reply within 20 working days.
Companies responded to most billing contacts within five working days. Billing contacts includes telephone calls (which account for three-quarters of all contacts), personal visits made to company premises and written contacts from customers. Although the companies deal with some 17.5 million billing contacts, the vast majority are relatively straightforward. Only a small proportion of total billing contacts fall into the two categories identified in the current GSS standard above. In light of this and the improvements in company performance, and the support from consumer groups, it seemed appropriate to consider reducing the statutory GSS response time.

Accordingly, in the consultation paper I proposed that the standard for responding to both types of GSS billing queries should be reduced to five working days.

Responses

Seven CSCs, and business and other consumer groups generally supported the proposed standard. However, three CSCs and ONCC expressed concern that a reduced response time, in particular for the second part of the standard, may diminish the quality of the response. These respondents suggested that the response time for queries about the correctness of the customer's account should be ten working days rather than five as proposed.

Four water and sewerage companies and five water only companies generally supported the reduction in response time for refused payment arrangements however, almost all of the companies argued that ten working days is a more realistic standard for responding to queries about the customer's account.

Conclusion

Requests to change payment methods (which cannot subsequently be met by the company) tend to be more straightforward than other account queries and can probably be dealt with comfortably within five working days. In 1998-99 almost 98% of all billing contacts were responded to within five working days. As only a small proportion will have been refused payment arrangements, it should be possible for companies to meet the proposed five working day timescale.

In deciding what is an appropriate response time for the other account queries (ie written queries about the correctness of the customer's account) it is sensible to consider the appropriate timescale for responding to written complaints. Otherwise both customers and the companies may be confused and may rightly dispute why a query about the correctness of a customer's account must be dealt with in a shorter time, than a complaint about the correctness of the customer's account. It is also probably fair to assume that such queries are likely to be less straightforward than requests to change payment methods. On balance, it seems reasonable to propose a ten working day limit for responding to customer queries about the correctness of their accounts.

Draft provision: That Regulation 4 be modified to have the following effect:

    • the time for responding to requests to change payment methods, which cannot be met by the company, should be five working days;
    • the time for responding to written queries about the correctness of the account should be ten working days.

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1.3 Responding to written complaints

This standard is covered by the existing scheme under Regulation 5. Currently a company must reply substantively to written complaints within 10 working days or, if further investigation such as a visit or enquiries of a third party are required, within 20 working days. In the latter case the company must also send a holding reply within 10 working days.

In 1997-98 all but six companies dealt with 98% of complaints within ten working days and less than half of 1% of complaints were outstanding after 20 working days. There is limited evidence from some companies' research and the Consumers' Association that the current GSS standard may be too long and that, ideally, some customers expect their companies to reply within a week.

In their customers charters, 13 companies have made a commitment to respond to written complaints within ten working days, including one company which aims to reply within five working days. In the electricity industry, the standard for responding to complaints ranges from either a substantive reply within five working days for straightforward issues, or within seven working days where a visit is required, or within 15 working days for more complex issues.

The consultation paper proposed that companies should respond fully to all written complaints (regardless of third party involvement) within 10 working days.

Responses

Eight CSCs, business and other consumer groups supported the proposal; although ONCC and two of the CSCs expressed concern that reducing the response time may have an impact on the quality of the response. Seven water and sewerage companies and eight water only companies either agreed with the proposal or made no comment about the timescale: the remainder said that ten days may be impractical for some complaints and that a reduced time limit may affect the quality of the response.

Conclusion

In considering what is an acceptable time period for responding to customers, it is important to ensure that a shorter response time does not lead to deterioration in the quality of a company's response. Customers must have meaningful replies to their complaints that answer the points they have raised. Ofwat's Customer Service Committees regularly monitor the quality of the companies' replies to customer complaints. In 1998-99 over 98% of written complaints were responded to within 10 working days. On balance there does not appear to be convincing evidence that the industry would have difficulty in coping with a reduced response time.

In their responses Water UK and some of the water companies raised a further point supporting the inclusion within GSS of telephone responses from companies to customers' written account queries and complaints. At the moment the regulations assume a written reply from the companies. In 1996 Ofwat provided guidance to the companies on how to respond to written billing queries and written complaints for the purposes of the Levels of Service Performance Indicators (DG6 and DG7). The advice stated that a telephone response is acceptable provided there is a full auditable record of the conversation on the file and that a confirmatory letter is sent. In practice such letters are more likely to be dispatched where the customer requests one although companies are aware that in the event of a subsequent GSS dispute the lack of a written response would go against the company. There is no evidence from GSS disputes received that there are problems with the way that the scheme currently operates, and on balance no evidence to suggest a change is necessay.

Draft Provision: That Regulation 5 be modified to have the following effect:

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1.4 Warning notice of planned supply interruption

This standard is covered by Regulation 6. Under the current standard the company must tell the customer in writing about any planned interruption, including when the supply will be restored and it must keep to that time. If the supply interruption is likely to last more than four hours it must give at least 24 hours' notice. Compensation is payable either, if the supply is not restored by the time specified in the notice or, if the company fails to give at least 24 hours' notice of an interruption likely to last more than four hours.

Companies are required by statute to give reasonable notice of all planned interruptions to supply. However, under the original scheme, no compensation was payable for failure to do so. The 1992 revision introduced a payment where companies failed to give adequate notice of significant planned supply interruptions, ie those lasting more than four hours. The standard recognised that customers need to make appropriate arrangements for these interruptions and that a company's failure to warn, could cause them inconvenience. It also recognised that in the course of their maintenance work, companies need to interrupt supplies, but often for relatively short periods at a time.

The consultation paper referred to research which suggested that customers would like to be given more notice of planned interruptions; ideally as much as a week's notice in one study and two days' notice in another study. It also suggested that if customers are told too far in advance, they may forget when their supply is to be affected. In the electricity industry the standard is for five days' notice.

The consultation paper proposed a revised standard of three days' notice for interruptions likely to last more than four hours.

Responses

Seven CSCs were broadly supportive of the proposal including two which said that this is particularly important for business customers (one of which suggested seven days' notice for these customers). Of the remaining CSCs two felt that 48 hours' notice is probably adequate and one said that notice should be given for any interruption. Other business customers and consumer groups generally supported the proposal.

Nine water and sewerage companies and nine water only companies disagreed with the proposal which they said would create artificial delays, and reduce flexibility for work plans. They said costs would increase because it would be more difficult to fit in jobs, in the event of an unforeseen gap in the workload. Some respondents suggested that customers would forget a warning notice given 72 hours in advance. Where companies suggested an alternative, most thought two days' notice would be more appropriate, although a few preferred the current 24 hours' notice. Water UK referred to some UKWIR research suggesting that 75% of customers think that up to 24 hours' notice is acceptable. However respondents were not provided with an option between a whole day and one week, and the two most popular categories were a whole day 44.2%; 1 week 21.8% so it is difficult to draw that conclusion.

Conclusion

In the interests of operational efficiency, companies should not be discouraged from rearranging planned work where the opportunity arises, because of the need to give warning notices too far in advance. However, customers must be given the adequate time to make appropriate arrangements when their water supply is to be cut off. A notice period of 48 hours would give customers the benefit of additional time to plan for the supply interruption and at the same time allow the companies sufficient flexibility in their operations.

Draft Provision: That Regulation 6 be modified to have the following effect:

    • that companies must give at least 48 hours' written notice for planned supply interruptions likely to last more than 4 hours.

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1.5 Restoring supplies following unplanned interruptions

This standard is covered under the existing GSS scheme by Regulations 6 and 7. Where a company has to turn off the water supply to carry out emergency work it must restore the supply within 24 hours, or within 48 hours in the case of a burst or leak in a strategic (trunk) main.

Offer's customer survey showed that 75% of customers felt it was important to reduce the maximum repair time to 12 hours, but when asked if it would be fair to impose the standard on all companies in all situations, 34% had reservations. Ofwat's consultation paper suggested that an interruption to the water supply causes customers more inconvenience, but observed that there is already a sensible distinction within the current GSS between leaks and bursts on ordinary water pipes and those on strategic mains.

In 1997-98 half of 1% of properties experienced supply interruptions lasting more than six hours. Of these less than one third lasted more than 12 hours. Two companies aim to restore supplies within 12 hours unless the burst is on a strategic main. One company will give a 10% reduction off the water bill if a customer experiences three or more interruptions totalling more than 15 hours.

The Ofwat consultation paper proposed to reduce the time for restoring supplies on ordinary mains and pipes to 12 hours; but to leave the time for restoring supplies in the event of work on the strategic main at 48 hours.

Responses

All but one of the CSCs, other business and customer groups supported the proposal, although the Consumers' Association suggested that there should be a special standard for vulnerable customers, for example to provide bottled water to them in the event of a supply interruption. Ofwat already expects companies to identify customers with special needs affected by a cut off and to provide them with an alternative supply. The remaining CSC disagreed with the proposal, stating that the standard should remain at 24 hours but that an alternative supply should be provided after 12 hours with compensation payable if the supply is not provided.

Most of the companies either agreed with the revised timescale or made no comment. Two of the water and sewerage companies felt that the standard for restoring supplies following an emergency should stay at 24 hours, stating that whilst the majority of interruptions last 12 hours or less, those exceeding this are mostly due to unforeseen circumstances often beyond the company's control. Two water only companies' also disagreed with the proposal: one said that no new technology exists to ensure speedier response times; the other suggested that customers are normally tolerant of unplanned interruptions which exceed 12 hours provided they are given adequate information and proper backup of alternative supplies.

Conclusions

In 1998-99 one third of 1% of properties experienced supply interruptions lasting more than six hours and of these less than one sixth lasted more than 12 hours. In view of the majority of support for the proposal, which will not affect bursts or leaks on a strategic main it is proposed that the timescale for restoring the supply in the event of an unplanned interruption be reduced to 12 hours.

Draft Provision: That Regulation 7 be modified to have the following effect:

    • the standard for restoring supplies after an unplanned interruption (except on a strategic mains burst or leak) should be reduced from 24 hours to 12 hours.

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1.6 Sewer flooding

This standard applies only to the ten water and sewerage companies and is covered by Regulation 7(B). Currently where waste water from a company sewer enters a customer's building the customer is entitled to a refund of his sewerage charges for the year up to a maximum of a £1,000.

Foul flooding is probably the most unpleasant event a householder can experience. The water and sewerage companies provide a clean-up service for customers who have experienced internal flooding. In addition, more customers are now receiving payments without having to make a written claim and some companies have schemes that go beyond the current GSS.

Three companies will refund the annual sewerage charge for each flooding incident and four companies will pay automatically once they are aware of an incident without waiting for a written claim from the customer. The existing bill refund is simple to operate and recognises that a customer should not pay sewerage charges for a service which he did not receive.

The consultation paper proposed that the limit of one payment per year be removed so that compensation equivalent to a refund of charges would be payable for each incident up to a maximum of £1,000 per incident.

Responses

The CSCs broadly supported the proposals although four suggested there should be no upper limit on the level of compensation, and one proposed a standard payment of £1,000 per incident. One also said that external flooding should be brought within the GSS and another said that companies should also cover uninsured losses. ONCC said that compensation should reflect the distress and inconvenience caused to the customer and be sufficient to restore the property to its former condition. Other business and consumer groups supported the proposal although two also supported compensation for external flooding. Seven water and sewerage companies either agreed with the proposal or made no comment. Of the remaining companies, two suggested that the level of payment should be standardised and one also suggested that payments for subsequent incidents should be standardised and that a customer's home insurance should be taken into account.

Conclusion

Most of the respondents supported an enhancement to the existing standard to reflect the unpleasantness and inconvenience caused by sewer flooding, although respondents were mixed as to the nature of the enhancement in terms of level of payment. On balance, it is simplest to remove the existing limit which currently means that a customer can only receive one payment per year regardless of how often his house/building is flooded.

Sewer flooding on a customer's land or garden can also be unpleasant and a number of companies will make ex-gratia payments to customers in some circumstances as well as providing a clean up service. However, it would be difficult to define clearly within the GSS, a standard to cover all of the circumstances when a payment should be made for external flooding, including the appropriate level of payment. This is best dealt with as now under companies' voluntary schemes which are continually kept under review by the ten Ofwat Customer Service Committees.

Draft Provision: That Regulation 7B be modified to have the following effect:

    • a refund of the sewerage bill should be paid for each internal flooding incident inside a customer's building up to a maximum of £1,000 per incident.

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1.7 Meter installation

This standard is covered by Regulation 7A. Currently where companies charge for a meter installed at the customer's request they must install the meter within 15 working days of receiving payment from the customer (or the first instalment if the customer is paying this way).

This standard was originally introduced in 1993 to ensure that, having asked customers to pay in advance for a meter, companies did not unduly delay putting one in. 12 companies currently offer free meters to their customers, as a result of which the standard no longer applies.

The consultation paper proposed that with the implementation of the Water Industry Bill and the requirement on companies to provide the meter option free of charge to customers, the existing standard will be obsolete and should therefore be removed.

Responses

Eight CSCs expressed concern that customers should not face unreasonable delays in moving onto the measured tariff simply because the meter will be installed free of charge by the company. They suggested a time limit should still be imposed, either to begin charging on a measured basis, or to trigger a payment. There were few comments from other business and customer groups although the Consumers' Association suggested there should be a new standard for reading meters twice yearly. Two of the water and sewerage companies and one water only company shared the CSCs' concerns.

Conclusions

The introduction of a free meter option in 2000 means that the current standard will no longer apply. However, customers should not be disadvantaged as a result of lengthy delays by companies in installing the free meter. When submitting their Charging Schemes for my approval, companies must set out the basis on which the customer will be compensated in the event that the stated timescale for installing the meter is exceeded. This will ensure that customers are not disadvantaged.

Draft Provision: That Regulation 7A be modified so that the existing standard will continue to apply until the provisions regarding free meter options in the Water Industry Bill are implemented (from 1 April 2000). After that provision will be made for protecting customers' interests through Ofwat's approval of each company's charging scheme.

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1.8 Condition Q

Currently the companies have agreed under their licences to pay compensation to customers where essential supplies are interrupted as a result of emergency restrictions authorised by drought order.

This was proposed as a GSS standard in 1996 but was not included in the amendments to the GSS because it required a change to primary legislation. Following the Water Summit in 1997, the Government said it would bring in appropriate legislation to enable this obligation to be brought within the GSS.

The consultation paper proposed that this standard be brought within the revised GSS scheme.

Responses

Respondents either agreed with this or made no comment.

Conclusion

There was unanimous support for the proposal.

Draft Provision: That subject to the appropriate changes being made to primary legislation a new Regulation be made within GSS to have the following effect:

    • that compensation is payable to customers where essential supplies are interrupted as a result of emergency restrictions authorised by drought order.

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2. New standard – drinking water quality

There is currently no GSS standard for compensation in the event of poor quality drinking water. The consultation paper proposed that customers should be compensated where their water company is convicted of supplying water unfit for human consumption and that this should be extended to include prosecution for breach of the proposed standard for cryptosporidium oocysts when this is introduced.

The consultation paper proposed the inclusion of a standard within GSS to reflect the fact that customers see safe, good quality tap water as one of the most important aspects of service delivery and they support compensation in the event of poor water quality. A number of potential triggers for compensation were considered including a conviction for supplying water unfit for human consumption; enforcement action under the new regulatory system for drinking water; or the issue of advice to boil water. The paper also considered the possibility of defining a GSS standard in relation to the Water Supply (Water Quality) Regulations.

However, the paper recognised that water quality is not a straightforward issue and that it is difficult to set a clearly defined standard with a fixed payment which is appropriate for all situations. On balance the consultation paper proposed as its preferred approach that customers should be compensated where their water company is convicted of supplying water unfit for human consumption. Respondents were also invited to comment on the other issues identified above.

Responses

The responses were mixed and confirmed that this is a complex area. The CSCs and business and customer groups generally welcomed the proposal as a positive step but at least four CSCs, ONCC and the Consumers' Association felt it did not go far enough. There was some concern about the significant delay between an incident for which the company is likely to be prosecuted and receipt of the compensation payment following conviction (of around 12-18 months, or longer in the event of an appeal.)

The water industry almost unanimously disagreed with the proposal for a variety of reasons including the following:

    • customers may not connect the payment with the incident some 12 months or more ago and may view the companies as extremely inefficient;
    • there are significant practical difficulties and administrative costs associated with companies having to collate information on every incident and identifying customers potentially affected just in case a prosecution is subsequently brought and is successful;
    • compensation will rapidly become positive if it is a large incident and this may put companies in financial jeopardy;
    • any standard proposed should recognise the inconvenience caused to customers by payment at the time of an incident.
Ten of the companies supported the introduction of a standard to compensate customers in the event of a Boil water/Do not drink/Do not cook notice and said they already make provision for this under their customer charters.

The Chief Inspector of Drinking Water supported compensation in the event of conviction for supplying water unfit for human consumption. He recognised the understandable support from customers for compensation in respect of Advice to Boil Water, but opposed it strongly on public health grounds. He expressed concern that if faced with a financial penalty, companies may be inhibited from issuing such notices or from leaving them in place beyond a certain date and that this may put customers at greater risk. The Office of Fair Trading also expressed concern that no standard should be introduced which might jeopardise public health interests.

Conclusion

The comments suggest that although the original proposal (for compensation in the event that a company is convicted of supplying water unfit for human consumption) is a positive step it does not appear to meet customers' expectations. Most of the responses focused on compensation in respect of Boil Water notices and those companies that currently voluntarily operate such a scheme do not feel that the concerns of the Drinking Water Inspectorate are justified in practice. The overwhelming support was for a standard that provided immediate payment where customers experience poor quality drinking water.

The companies' arguments in respect of the proposed standard are persuasive, but equally persuasive are the arguments put forward by the Drinking Water Inspectorate. In these circumstances it does not seem sensible to draft regulations at this stage, and in any event it is difficult to envisage how to do so in a way which would be clearly defined and would meet customers' expectations.

On balance, I do not propose to recommend a new regulation to cover poor drinking water quality; the issues will be taken forward in discussion with other interested parties with the aim of producing a voluntary Code of Best Practice.

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3. Other Issues

3.1 Amount of payment

Currently most GSS standards attract a £10 payment (apart from low pressure and sewer flooding which attract a £25 payment and a refund of the sewerage bill respectively). When the scheme was first introduced in 1989, compensation payments were £5. In 1993 they were increased to £10 and the scheme was extended to include business customers as well as household customers.

The consultation paper proposed that the existing level of compensation for the majority of standards (apart from low pressure and sewer flooding) should be increased to £20. Payments of £50 should be made to business customers affected by those standards relating to supply interruptions (including warning notices), and for drinking water quality.

£20 for Household Customers

Responses

The CSCs, ONCC, business and customer groups were broadly supportive of the level of payment proposed, although some stressed this should be a minimum. The National Federation of Consumer Groups suggested that compensation for household customers should be £30; Consumers' Association suggested that compensation levels for standards relating to the restoration of supply following an interruption should be £50 for household customers. ONCC also suggested that there should perhaps be greater differentials between the level of payment for different standards because the level of inconvenience for a customer suffering poor pressure is significantly greater than for a customer receiving one day's delay in response to a billing query.

The water and sewerage companies generally agreed with the proposal or made no comment, although one suggested that £20 is not warranted for standards in respect of billing queries and written complaints; and another proposed a graduated scale of £10 compensation for these standards. All but one of the water only companies disagreed with the proposals for higher payments. They felt that £20 is too high and represents more than 10% of the average bill for a water only company, which therefore faces a larger financial burden than water and sewerage companies.

Conclusion

Many companies already pay £20 under their own customer charters and it seems reasonable to expect other companies to do likewise. The water only companies' arguments do not appear to be sufficiently persuasive: they are not affected by payments in respect of sewer flooding (which can be considerable); their performance in responding to billing queries and written complaints is comparable with the water and sewerage companies; and the proportion of billing contacts and complaints received by water only companies compares with that for the water and sewerage companies.

It could probably be argued that some GSS standards are more important to customers than others. However, in the interests of a scheme that remains simple, straightforward to administer and can be easily understood by customers, a standard payment for most service failures is probably appropriate. £20 is probably of the right order, representing a reasonable level of compensation for the customer without being excessively penal on the companies.

£50 payments for Business Customers

Responses

Two business customers suggested that the cost implications of interruptions to supply and drinking water for business customers are usually greater than £50. Three CSCs and ONCC suggested that business customers (particularly those requiring water for their business) should perhaps receive a higher level of payment – compensation being based on a percentage of their bill or on their dependence on water. All other consumer and business groups supported the proposal.

Six water and sewerage companies disagreed with the higher payments proposed for business customers under the standards relating to supply interruptions and drinking water quality. One suggested compensation should be £20 for all customers and the others suggested that £50 should be payable only for those businesses who are dependent on water. At least three water only companies concurred with this view. These views were echoed by some of the CSCs.

Conclusions

There is a distinction between those businesses that use water primarily for domestic purposes and those which use water in connection with their business. It could be argued that the former, are no more disadvantaged by supply interruptions than household customers. However it would be difficult to distinguish clearly between different classes of business customer without generating more disputes about which customers are entitled to a higher payment.

Draft Provisions: That Regulations 3, 4, 5, 6 and 7 be modified to have the following effect:

    • the level of payment for household customers for standards relating to appointments, billing queries, complaints, warning notices, planned and unplanned interruptions, should be increased to £20. For subsequent periods of 24 hours without water (under the standards relating to restoring the supply after an interruption, ie those under Regulation 7) the payment should be £10 as now;
    • all business customers should be entitled to a £50 payment in respect of those standards relating to supply restoration, ie those standards governed by Regulations 6 and 7. For subsequent 24 hour periods the level of payment should be £25.

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3.2 Automatic payment

Currently only half of the standards under the existing GSS attract automatic payment; the customer must claim other payments in writing. Automatic payments are made for standards relating to making and keeping appointments, responding to account queries, written complaints and installing meters. Under these standards if the company fails to make an automatic £10 payment to the customer within ten working days of the incident, it must pay an additional £10. For the remaining standards the customer has three months in which to submit a formal written claim.

The consultation paper proposed that payments for all standards (with the possible exception of low pressure where it is difficult to identify those affected without a contact from the customer), should be made automatically to customers. This would mean that payments in respect of supply interruptions (planned and unplanned), warning notices of supply interruptions, and sewer flooding would qualify for automatic payment without relying on the customer to make a claim. It also suggested that where it is genuinely impossible to identify those customers affected, claims or customer notification by telephone should be allowed.

Finally, the consultation paper proposed that if, following consultation, it is decided to make payments automatically, then as in the current scheme, those companies who fail to make such payments will have to make additional penalty payments to customers of £20 and £50 respectively.

Supply Interruptions and Warning Notices

In the past companies have argued that they are unable to identify automatically those customers affected by service failures relating, for example, to supply interruptions and would, therefore, be unable to make automatic payments. However, it should be possible for companies to identify those customers likely to be affected by an incident. For planned interruptions they are required to notify customers likely to be affected in advance of doing the work. For unplanned interruptions they are required to notify relevant customers as soon as practicable that their supply has been interrupted, and to give details of alternative supplies together with a contact number.

Responses

The CSCs, business and consumer groups supported the proposal for automatic payments under these standards.

Half of the water and sewerage companies and water only companies did not support automatic payments, stating although they can identify customers potentially affected by the service failures (especially for warning notices and planned interruptions), this includes those who do not actually suffer the inconvenience because they are at work, on holiday, etc. The companies believe that in the case of unplanned supply interruptions it is more difficult to identify those affected. The other companies supported automatic payments and a few said they pay following contact from the customer notifying them of an incident. They also felt that where they genuinely cannot identify those affected they should not be penalised with a double payment.

Conclusion

It is clear from some of the companies' responses that a number do already make automatic payments where they can identify those affected. All companies supported the inclusion within the GSS of telephone claims/notification by customers and a number already accept these without experiencing significant administrative difficulties in doing so.

It is also clear that where they have to make a written claim, customers are less likely to apply for a payment either because of ignorance of the GSS scheme or because it requires more effort to formally apply. Automatic payments would act as an incentive to the industry and ensure that customers affected by a supply interruption are compensated.

Sewer Flooding

The consultation paper proposed automatic payment in respect of sewer flooding.

Responses

Only one CSC qualified its support of the proposal for automatic payment "if practicable". All other CSCs, business and other customer groups, supported the proposal or made no comment. Five water and sewerage companies suggested payment should continue to rely on the customer's notification, including one that suggested claims may have to be relied on where the company is uncertain as to whom is affected.

Conclusion

It is accepted that in certain cases it is the customer who will notify the company of an incident. However, there is also scope for an active approach from the company, eg to investigate whether adjacent properties have been affected, once they are notified of an incident and if so offer compensation to them as well.

Low Pressure

This standard introduced in 1997 states that where a company fails to maintain a minimum water pressure in the customer's communication pipe and the customer suffers more than two incidents in one month, the company must pay £25.

The consultation paper proposed no revision to the existing standard except to suggest that companies make payments automatically to customers affected rather than waiting for a claim from them.

Responses

Only one business customer suggested there might be difficulties with automatic payments in respect of low pressure although they did not specify why. Four water and sewerage companies supported the proposal although one suggested it would need to rely on claims when uncertain of those customers affected. The remaining water and sewerage companies suggested it would be very difficult to identify those customers affected in practice since normally it is the customer who contacts the company to report low pressure problem. Five water only companies also said that they normally rely on customer notification and that not all areas are monitored for low pressure.

Conclusion

The industry argued persuasively about the difficulty in identifying customers affected by low pressure; although they tend to know the properties which may be at risk they will not know if they have suffered unless the customer contacts the company. On balance it is probably appropriate to rely on telephone claims.

On balance, companies should be expected to actively identify customers affected by supply interruptions and sewer flooding and to pay them automatically. Where they are genuinely unable to identify all of the customers affected it is acceptable to rely on telephone notification.

In recognition of the larger numbers of customers which may be affected by a supply interruption and in view of the companies' representations that it may take longer to process automatic payments, it is acceptable for payments to be made within 20 working days of the incident.

Draft Provision: That Regulations 6, 7 and 7B be modified to have the following effect:

    • companies should make payments automatically where they can identify customers affected by the standards relating to supply interruptions (planned and unplanned), warning notices and sewer flooding;
    • where it is not possible genuinely to identify all the customers affected, the company should accept claims/notification by telephone. This should also apply to Regulation 7AA concerning low pressure;
    • if a payment is not made automatically within 20 working days of the incident and the company should have known the customer was affected, then the company will have to make an additional penalty payment to customers of £20 (£50 for business customers) in the event of a claim.

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Appendix: RESPONDENTS TO THE GUARANTEED STANDARDS SCHEME CONSULTATION PAPER

Water and Sewage Companies

Anglian Water Services Ltd
Dwr Cymru (Welsh Water)
North West Water Ltd
Northumbrian Water Ltd
Severn Trent Water Ltd
South West Water Ltd
Southern Water Services Ltd
Thames Water Utilities Ltd
Wessex Water Services Ltd
Yorkshire Water Services Ltd

Water only companies

Bournemouth and West Hampshire Water Plc
Bristol Water plc
Essex and Suffolk Water plc
Folkestone and Dover Water Services Ltd
Hartlepool Water plc (
no comment)
Mid Kent Water plc
North Surrey Water Ltd
Portsmouth Water plc
Sutton and East Surrey Water plc
South East Water plc
South Staffordshire Water plc
Three Valleys Water plc
Water UK

Quality Regulators/Environmentalists

Drinking Water Inspectorate
Country Landowners Association

Other Regulators

Office of Fair Trading
Office of Rail Regulator

Organisations Representing Customer Interests

Central Customer Service Committee
Eastern Customer Service Committee
Northumbria Customer Service Committee
North West Customer Service Committee
Southern Customer Service Committee
South West Customer Service Committee
Thames Customer Service Committee
Wales Customer Service Committee
Wessex Customer Service Committee
Yorkshire Customer Service Committee
OFWAT National Customer Council
Consumers' Association
National Consumer Council (No comment)
National Federation of Consumer Groups
Welsh Consumer Council

Trade Bodies, Suppliers and Contractors

Federation of Small Businesses
McKinnon & Clarke Limited (European Utilities Specialists)
North West London Chamber (Brent & Harrow Chamber of Commerce Ltd)

Local Government Organisations

Welsh Local Government Association

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