My annual report to Parliament sets out our work on behalf of customers during 1997 and allows me to highlight the key issues for the year ahead.

This year's report shows that most water companies have made considerable progress in improving their services to customers during the past year. The industry has also shown its willingness to work with the new Government in implementing its Ten Point Plan.

I believe that the industry and its regulation have turned a corner. The Windfall Tax addressed the mistakes made at the time of privatisation. We can now look ahead. The Government, in its Green Paper, A fair deal for customers: modernising the framework of utility regulation, has put forward its proposals for strengthening and developing regulation. A new approach to water charging has also just been published. This will also provide a challenge to the industry. Companies will need to translate proposals into practice.

Supply and demand for water has had a higher profile since the drought of 1995. Customers need security of supply. It is important to ensure that the environment is protected and that excessive abstraction is avoided. Companies should balance new resources against lower leakage - both by companies and customers - and also give proper attention to the role of tariffs (such as seasonal tariffs), prices and metering in influencing demand. The increases in demand should be paid for by those using the water, not by the generality of customers.

We will work closely with Ministers and officials to ensure that we have an effective framework that will allow both government and regulator to discharge their respective responsibilities.

Competition has advanced during the year. Looking ahead, the Competition Bill may strengthen general competition powers, to give the regulator increased powers to deal with companies who obstruct developments. The Government has indicated that it would like to look at ways in which competition could be developed. I look forward to working with the Government to explore these possibilities.

Changes to regulation

The Government has endorsed RPI-X as the basic system of utility regulation where regulators consider this to be the best approach. I agree. It protects customers while providing incentives for companies to make savings that can be passed to customers at the next price review.

The Green Paper emphasised greater consistency of approach and regulatory best practice. Last year I reported that my fellow regulators and I met regularly, in a structured way, to discuss issues of common interest. This co-working extends throughout our regulatory offices. The emphasis in the Green Paper will reinforce this.

The Green Paper also proposes the setting up of independent consumer councils. I am pleased that the Government's proposals recognise the value of close working between the regulator and consumer bodies and the need for consultation between the two. The integrated system of representation has served customers well. It has evolved over time and the Ofwat National Customer Council already operates independently of the regulator. Since last year I have treated the Council as if it were a statutory body, in the absence of any legislation to that effect. The Council will play a major role in advising me of customers' views at the next price review.

The challenges ahead - the Periodic Review

We have a big task ahead. In 1999 I will reset price limits for all 28 companies in England and Wales. The new price limits will take effect from 1 April 2000 for five years. Our strategy is:

• to ensure that customers benefit, and are seen to benefit, as soon as possible from the achievements of the companies in reducing their costs;
• to preserve incentives for the companies to maintain long-term serviceability of their assets and to act efficiently;
• to conduct a process which is well informed and transparent, so that our final decisions are publicly credible and defensible.

Valuing and developing Ofwat staff

Our success depends on committed and motivated staff. During the year we formally committed ourselves to reaching the Investors in People standard. We aim to be ready for formal assessment in September next year. This initiative has my full support.

I C R BYATT

Director General of Water Services

Assessing company performance

We operate an incentive-based regulatory regime with emphasis on outputs. This means making sure the companies deliver a good quality and efficient service to their customers at a fair price, and giving them incentives to make efficiency savings - which is good news for customers too.

This involves annual scrutiny of each company's progress in meeting its quality obligations and its performance in delivering services to customers. It requires close working relationships with both the Drinking Water Inspectorate (DWI) and the Environment Agency (EA).

Capital investment up

Last year the Director was concerned about the level of the industry's capital investment. He wanted to ensure, together with the quality regulators, that companies were properly carrying out their functions and meeting their legal obligations. He also did not want companies to benefit from re-phasing or delays in their investment programmes at the expense of customers. The Director, therefore, secured the agreement of a number of companies not to take up their full price limit during 1997-98, saving customers some £34 million.

The latest reports showed that capital investment during 1996-97 had recovered and was 22% up on the previous year. Infrastructure renewals expenditure also increased by 29% in real terms compared with 1995-96 and was at its highest level since privatisation. The quality regulators were also able to confirm that they were content with the performance of the companies in 1996-97. Early indications for 1997-98 are that capital investment has continued at very high levels, with a number of companies exceeding our expectations for the year.

The sustainable and efficient use of water

An important challenge facing both Ofwat and the companies at the forthcoming price review is to ensure that sufficient supplies can be secured for customers in the longer term.

Leakage levels falling - with the biggest drop yet to come

Water companies have reduced leakage considerably. It fell between 1995-96 and 1996-97 by 475 million litres a day. We expect to see further reductions reported for 1997-98. The biggest fall should, however, come during 1998-99.

At the Water Summit in May 1997, the Director announced his intention to set mandatory leakage targets for all companies. The targets for 1998-99 were published in Ofwat's new annual report, 1996-97 Report on leakage and water efficiency. They will deliver savings of 700 million litres a day - enough to supply all of the households served by Yorkshire Water. They are 16% tighter than the targets companies set for themselves for 1997-98.

We are monitoring progress against these targets and regulatory action will be taken where companies fail to meet them.

Most companies have made good progress in reducing leakage, but there are still some signs of complacency, notably among the water only companies.

In preparation for the 1999 price review, companies are preparing assessments of their economic levels of leakage. Where such analyses are sufficiently robust, these will be used to set targets for 1999-2000.

The Water Summit and water efficiency

At the Water Summit, the Government set out what it expected of the water companies. The industry has demonstrated its willingness to meet the Government's wishes at no additional cost to the customer.

Companies have a duty to promote the efficient use of water by their customers.

At the Water Summit, companies were asked to review their water efficiency plans in line with the Government's Ten Point Plan. Companies continue to develop their strategies, so that all now:

• offer a free leakage detection and repair scheme for supply pipes to households (except Mid Kent);
• provide water saving devices, usually cistern devices, free of charge (over four million have been distributed).

Customer service improving overall

The overall performance of companies in delivering water and sewerage services continues to improve. In some areas the improvement is very marked. For example, the number of properties affected by sewer flooding has halved since 1992-93, and for the seventh successive year the industry registered an improved performance in the speed with which it responds to billing contacts.

For a small group of companies, Ofwat required targets to be set for 1998-99. Details of companies' compliance with these targets will be published in Ofwat's 1997-98 Report on levels of service for the water industry in England and Wales.

There have, however, been some instances where we have required companies to set quantitative targets for improvements.

We are looking afresh at service standards and targets in the light of the Government's Green Paper and the National Audit Office's (NAO's) report into our customer protection work. We have an action plan to consider and take forward the NAO's recommendations.

The 1999 price review

During 1997 we consulted on how we were going to carry out the review.

Establishing the framework

In February 1997, the Director set out his objectives, the key principles and a draft timetable. This was followed in June and July 1997 by two consultation papers:

• the methodology for setting prices (The proposed framework and approach to the 1999 Periodic Review, June 1997); and
• the business planning process (The business planning process, customer consultation and information requirements for the 1999 Periodic Review, July 1997).

In April 1998, we published a paper about the scope for the companies to achieve further capital and operating efficiencies. This will be a key issue when setting price limits. To advise the Director on this, and on wider strategic aspects of the price review, we appointed a panel of five senior industrialists.

The Director has decided when setting price limits to reward, or penalise, companies offering good, or poor, service to their customers. A technical paper issued in March 1998, explains his proposed approach for identifying companies who have performed well or badly.

Exposing the issues

Having established the principles, the next stage of the review is to expose and consult on broad ranges for the price limits for 2000-05.

At the end of April 1998 the Director sought guidance from the Secretary of State for the Environment, Transport and the Regions and the Secretary of State for Wales, in an open letter, Setting the quality framework, on the size of, and timetable for, environmental improvements to be met by the companies. The work done so far shows the great uncertainties in this area, and we need strong guidance from Ministers if environmental improvements are to proceed at an affordable rate. The Director will receive the advice of Ministers later this summer. He will take that advice into account in preparing the initial consultation on possible price limits in October, when he will publish Prospects for prices: strategic options and issues. This will draw together his understanding of the issues, the results of consultations which the companies are conducting with their customers, the advice of the EA, views of other environmental and consumer bodies on national objectives and Ofwat's own work on the efficiency of the companies. The paper will set out possible price limits and will set the scene for further consultation. This leads up to decision making in 1999, when the companies' boards will submit their draft business plans for discussion with the Director, who will then determine price limits for each company.

Working with the standard setters

We have seen that a major factor in the review is the environmental and quality obligations that may be placed on the companies by the Government or the European Community. Ofwat is not responsible for setting those standards: this falls to the Secretaries of State, who take advice from the DWI and the EA. Ofwat is working with them to clarify the likely size and timing of future environmental improvements that the companies will be required to make.

The role of Reporters

The Director consulted during 1997 on proposals to develop the independent reporting process for the review. The Reporters' role is critical and has been strengthened following this consultation to assist the Director in meeting his statutory duties. We published details of a protocol which will be incorporated in their existing contracts.

In January 1998, the Director appointed a team to carry out the first external review of Reporters. The team published its findings in April 1998. It stated that "the Director can have confidence that the process of using the Reporters to audit water companies' submissions will help Ofwat to arrive at an understandable and reliable basis for establishing the total cost of quality improvements for the industry".

Paying for water

Charges for 1998-99

The last price limits, set by the Director in July 1994, continue to lead to smaller increases in bills for most customers. Customers of some water only companies saw their water bills fall in real terms again this year. The average household bill in 1998-99 for combined water and sewerage services will be £242 before rebates (given by some companies to their customers) have been deducted. This is an increase of £3 (1.4%) in real terms compared with the average bill for 1997-98.

In the four years since Ofwat set price limits, average household water bills have increased by 4.5% in real terms (17.8% taking inflation into account). In the same period, average household sewerage bills have increased by 10.5% in real terms (24.6% with inflation). The bigger increase in sewerage bills reflects the greater investment necessary to meet legal standards for wastewater treatment.

Household bills vary across England and Wales. For water, South East Water has the highest average bill at £158 and Portsmouth Water the lowest at £73. The level of average sewerage bills ranges from £102 for Thames Water to £229 for South West Water.

Tariffs should reflect long-term costs of supply

Ofwat has asked companies to gain a better understanding of the long-term cost involved in providing services to various classes of customers and to set charges to reflect them. Companies have provided initial estimates of the long run marginal cost. Ofwat is reviewing these estimates and the outcome will be discussed with companies.

Metered charges

In the past, households with a meter generally paid considerably more than unmetered customers for the same service. We believe that any difference in price should be no more than the extra cost of providing a metered service. For 1998-99, the Director's target level for this is £29. Most companies are within that target.

Standing charges

The Director persuaded many companies to reduce standing charges to recover only customer-related costs (such as sending out bills, dealing with queries etc).

Most companies now have metered household standing charges within the Director's target - no more than £24 for water and £11 for sewerage.

Large user tariffs

Twenty-two of the 28 companies now have a more cost-reflective tariff for large industrial users of water, and three of the ten water and sewerage companies have them for sewerage. Large user tariffs should be based on a robust estimate of the continuing costs of supply (or treatment for wastewater).

In the past, when a company introduced these tariffs, they could increase bills for other customers as a result of reducing charges for large users. We have published proposals to remove large users of water from the tariff basket to limit the ability of companies to do this.

Charges for receipt and disposal of waste from cesspools and septic tanks

Following complaints from owners of cesspools and septic tanks about increases in the charges they pay to tanker operators, Ofwat investigated the level of charges. Some customers were found to be likely to be paying more, or less, than the strength of their waste would warrant, because most sewerage undertakers do not separate the different types of waste before treatment.

The Director believes it to be more appropriate for undertakers to offer separate charges for septic tank and cesspool waste. Ofwat is discussing its findings with the Office of Fair Trading. The Director may consider referring non-compliant sewerage undertakers to the MMC. In the longer term, he intends to seek a legislative change to bring the activity within his jurisdiction.

Optional metering schemes

All companies operate meter option schemes which allow customers without a meter to switch to a measured tariff at any time. These schemes need to be attractive to customers. Since 1992, the cost to customers of installing a meter has fallen. Companies now also allow customers a wider choice in the location and fitting of meters.

The Government has proposed that, in future, any household customer who wants a meter should have one installed free of charge. In 1998-99, 13 companies (out of 28) offer a free meter installation scheme.

The average cost of installing a meter in the company's preferred location has fallen from £53 to £44. However, installation costs in most other locations have risen. This is largely because several companies now allow customers a wider choice of location, but set installation costs above the Ofwat benchmark of £150.

The Director is disappointed that, for the industry as a whole, there has been little progress in the development of optional meter schemes.

Disconnections

For every year since 1991-92, when Ofwat issued guidelines setting out the essential elements of practice expected of companies, the number of disconnections has fallen. In 1997-98 domestic disconnections fell to 1,907 (or one in 10,000 households billed), a reduction of 39% from 3,148 in 1996-97. Seven companies made no disconnections in the year.

Budget payment units

Budget payment units (BPUs) are electronic devices, similar in design to those used extensively by the regional electricity companies, allowing customers to pay their water bills by charging a smart card or water key.

Despite safeguards and evidence that customers found BPUs to be a convenient method of payment, six local authorities objected to their use and sought Judicial Review in the High Court of the Director's decision not to prevent water companies offering this payment option.

In February 1998, Mr Justice Harrison delivered his Judgement. The use of BPUs was held to be contrary to the provisions of the legislation governing the water industry, although their usefulness as a payment method and popularity among customers was acknowledged.

Ofwat decided not to appeal against the Judgement. It is appropriate for Parliament to decide whether the benefits to customers warrant a change in the law.

The Director has written to companies which operate BPUs asking what steps they are taking to comply with the Judgement. We expect that companies will allow customers to continue using BPUs if they wish, with the disconnection element removed. The Government has said that it does not object in principle to the continued use of these devices as long as they cannot sever the water supply.

Developments in competition

There have been a number of important developments. The first two successful inset appointments were granted this year: Buxted Chicken and RAF Finningley. Both involved varying Anglian Water's licence. A third application which will involve a new entrant, Albion Water Ltd, as undertaker has been approved. The customer, Shotton Paper, which is currently supplied by Dwr Cymru (Welsh Water), is still considering whether it wishes to change its supplier. The Director has also announced the prices he is minded to determine for eight sewer connection agreements and has published proposals for determining bulk supply and sewer connection prices.

We hope to speed up the process on inset appointments by opening up the exchange of information between parties. We have established a register, held in the Ofwat Library, of special agreements made by water companies with their large customers. This will also aid transparency. We would like to see the arrangements for trading abstraction licences improved.

Most applications for inset appointments rely on bulk supplies or sewer connection agreements, with a middle man acting as a broker between an existing water supplier and a customer. The Director would prefer to see inset applications that involve new sources of water or new methods of treating and disposing of effluent, but these have not been forthcoming.

Complaints, disputes and appeals

Complaints/disputes to HQ

In total, Ofwat HQ dealt with 450 complaints and disputes in 1997-98 and obtained compensation and refunds of charges amounting to £182,480.

The Director dealt with 110 cases in 1997-98. Apart from complaints against the Customer Service Committees (CSCs) and unresolved complaints dealt with below, 48 of these were alleged breaches of statutory duty or an alleged failure to comply with the requirements of a company's licence.

Although he did not conclude that any companies were in breach of statutory requirements, the Director did require several companies to correct service failures and in some cases to compensate complainants.

The Director considered 14 complaints referred to him by the CSCs. These were complaints which they had been unable to resolve with the companies. The Director supported or partially supported the CSC's recommendation in seven cases.

The Director dealt with 48 complaints alleging that CSCs had not investigated customer complaints properly, of which 43 were not upheld.

Complaints to the CSCs

The ten CSCs deal with the majority of customers' complaints received by Ofwat. After four successive years in which the number of complaints received by the CSCs has fallen, the number in 1997-98 was up 10% to 11,123. Most of the increase was accounted for by a sharp rise in complaints received in March 1998. This rise coincided with, and may be explained by, higher than normal media coverage of the industry that month. In addition to the BBC's Water Week, the government reviews of water charging and utility regulation, and the Director's work on the price review, were all in the news.

Over the year as a whole the number of complaints about charges, water supply and sewerage increased, while those about water pressure and water quality fell. The number of complaints about billing was almost unchanged.

Compensation for poor service

The Guaranteed Standards Scheme (GSS) lays down statutory standards of service that must be met by companies. If the company fails to meet the standard, it must make a compensatory payment to the customer affected. The amount payable is normally £10 per failure, with rebates for sewer flooding up to a limit of £1,000.

Overall, the number of payments made to customers under the GSS fell during 1996-97, from 37,458 in the previous year to 22,159. More payments were made in 1995-96 as a result of interruptions to supply caused by the winter freeze/thaw, but the underlying trend is still upwards. This is not, however, a consequence of more failures to meet the minimum guaranteed standards, but a reflection of companies operating the GSS in an active way.

Many companies have enhanced their schemes voluntarily. This is a welcome development, demonstrating that improvements do not always have to be prompted by changes to the Regulations.

Several companies now operate compensation schemes, sometimes called customer charters, which go beyond the requirements of the GSS.

All of the companies have now agreed to change their licences to ensure that customers would receive compensation if their essential water supplies are interrupted under a Drought Order. Household customers will receive £10 per day up to a maximum of the company's average household bill for the previous year in these circumstances. Commercial customers will be entitled to £50 per day up to the amount of water charges paid by the customer in the previous financial year, or £500 if they are not liable for the charges.

Connection charge disputes

The Director has powers to settle disputes about the cost of making a connection to the mains for the supply of water for domestic purposes.

During the year, the Director determined 52 disputes. In 47 of these, the determination was in favour of the customer.

The Director is also keen to encourage competition in service delivery to new development sites, such as a new housing estate. He is concerned that existing water companies should not take advantage of their ability to prevent competition by refusing to adopt pipes laid by others. He has sought legislation. In the meantime, we are pleased to note that this year several companies have introduced new schemes which allow developers, or other contractors, to lay mains and services on these sites.

Mergers and the regulation of multi-utilities and companies within groups

Multi-utilities

Some water and sewerage companies are now part of multi-utility groups. These include United Utilities plc - North West Water Ltd, Hyder plc - Dwr Cymru (Welsh Water) and ScottishPower Ltd - Southern Water Services Ltd, which have each been formed by the joining of a regulated water and sewerage business and a regulated electricity business. These companies are also moving into other competitive utility businesses, such as telecoms and gas. A number of the smaller water only companies have also entered into the competitive gas business.

Each company is under a duty to operate at arm's length from its associates and without cross-subsidy. This is a particular concern where, as in the case of water, some parts of the business are monopoly service suppliers but with other associates moving into competitive service areas. Ofwat intends to prevent this being subsidised by captive water and sewerage customers. Where dominant local suppliers exist, regulators also need to guard against them abusing their market power.

The Government's Green Paper charged the regulators to undertake a joint study into the regulatory implications of the multi-utilities. Ofwat took the lead on this study.

Ofwat has undertaken investigations at North West Water and Dwr Cymru (Welsh Water) to examine the trading relationships between the regulated business and the respective common service companies. A key finding was the need for further developments of the market testing of services provided by the common service companies.

In the year ahead an investigation will be undertaken at Southern Water Services. The investigation team will also return to both North West Water and Dwr Cymru (Welsh Water) to examine progress.

Transfer pricing

Ofwat's transfer pricing guideline helps companies comply with their duty to conduct transactions at arm's length. The aim is to ensure that the regulated business pays a fair price for services and products received from associate companies.

Ofwat has been checking compliance with the guideline since September 1995. This year, transfer pricing investigations have been undertaken at Bristol Water, Mid Kent Water and Bournemouth & West Hampshire Water. The investigation team found a good level of compliance at Bournemouth & West Hampshire. A number of issues were identified at both Mid Kent Water and Bristol Water that required remedying.

Remedying the loss of stock market information

When ScottishPower took over Southern Water plc, it gave an undertaking to the Director that it would make reasonable efforts to reinstate a listing for the water utility on the London Stock Exchange before the end of 1997. This was in response to the Director's concerns that the loss of the Southern Water listing would deprive him of stock market information when setting price limits and would reduce transparency of the company's financial performance.

In March 1998, Southern Water Services Ltd listed a variable coupon bond on the Stock Exchange. This met the undertaking given to the regulator.

The role of company Auditors

During the year Ofwat, with the Auditors, has developed a process for improving the examination of compliance with the transfer pricing guideline.

Customer representation

Protecting customers' interests

The Director relies on the Ofwat National Customer Council (ONCC) and the CSCs to keep under review issues of concern to customers and to provide him with advice on matters affecting customers. The activities of the ONCC and the CSCs are set out in a separate annual report, Representing water customers 1997-98.

ONCC: chairmen and members

The Council's members are the ten CSC chairmen. The Council Chairman is appointed by the Director, in consultation with the other Council members. Jim Gardner (Northumbria CSC Chairman) completed his final year as Council Chairman and was succeeded on 7 April 1998 by Sheila Reiter (Wessex CSC Chairman). The Council Chairman is supported by two Deputy Chairmen, Maurice Terry (North West CSC Chairman) and Clive Wilkinson (Central CSC Chairman).

CSC members' appointments.

The Director appoints members for up to three years and on expiry members are eligible for re-appointment. At the April 1997 review, 30 members were re-appointed and 15 new members appointed. During the year, 20 new appointments have been made. A review was also carried out of the 42 members whose appointments were due to expire in April 1998. Of these members, 24 were to be re-appointed.

As at 31 March 1998, CSC membership has grown since the CSCs were established in 1990 from 103 to 127.

Operating openly and transparently

Ofwat's External Relations Division plays a key role in keeping customers and all interested parties informed about the regulatory scene, as well as helping provide feedback to the regulator on how well Ofwat's policies are being received. The Director intends to conduct an open and transparent price review process. This involves considerable consultation and contact with many interested parties.

Ofwat issued 50 national news releases this year and dealt with 3,200 press calls. We contributed articles for publication in journals and magazines and the Director and his staff gave a range of interviews for TV and radio programmes.

The Library acts as the public enquiry unit and also as the publication sales and distribution point. Approximately 12,000 enquiries were answered and about 32,700 publications were issued. The public correspondence unit answered 640 written enquiries.

As last year, the companies' July Returns for 1997 were put in the public domain and are available for sale on CD-ROM.

Open government

Ofwat received four requests under the Code of Practice on Open Government.

The Director General's Register is maintained by, and housed in, the Library and is freely available for consultation by the public. Determinations made by the Director are also available for inspection.

On the Net

All Ofwat's press notices can be found on a Website operated by the Central Office of Information at http://www.coi.gov.uk/coi/depts/GS/GWS.html. Ofwat's own Website has been expanded and developed during the year. We are at www.open.gov.uk/ofwat.

The Ofwat Customer Charter

The Ofwat Customer Charter came into effect on 1 April 1997. The Charter is important not only to let customers know what they can expect from us, but also to let our staff know what we expect from them.

We want to give customers an effective and efficient service. And we measure our performance against standards and targets. Most of the targets have been fully achieved. Where we have failed we are working hard to put things right.

This year we introduced a customer satisfaction survey. A short questionnaire is sent to members of the public who have contacted us, to ask what they think of the service we provide. The response rate so far has been relatively low at around 17%. The feedback, however, though limited, is positive - 88% are very satisfied with the outcome of their enquiry; 98% think our answers are helpful.

Communicating in more languages

Ofwat produces a limited amount of information for customers whose first language is not English.

We are also producing a Welsh language scheme in accordance with the Welsh Language Act. Public consultation on the scheme started in March 1998. The final scheme will be submitted to the Welsh Language Board for approval.

Parliamentary scrutiny

Since July 1996 Ofwat has given evidence to nine Parliamentary Committees. 1997 was another busy season.

The Director appeared before two inquiries of the Environment Committee: on water management in July 1997 and on sewage treatment and disposal in December.

The Director and others appeared before the Committee of Public Accounts' hearing into regulating and monitoring the quality of service in January. This hearing, yet to report, was based on the NAO's report of the same name. The NAO concluded that, "to the extent that Ofwat's aim has been to secure an improvement in the quality of service, their regulation of the industry has been a success". Ofwat produced an action plan to consider/implement the NAO's useful recommendations.

Ofwat sent written evidence to the House of Lords Sub-Committee on the Framework Directive; and to the Committee for Public Administration on the Government's White Paper, Your right to know: freedom of information.

The Director and an Assistant Director appeared separately before the UK Round Table on Sustainable Development to assist its study into economic regulation and sustainability.

Improving contacts with MPs and Peers

The Director wrote to all new MPs in October explaining Ofwat's work and the timetable for the 1999 Periodic Review.

Briefings were also sent to Lords and MPs.

Ofwat's resources

Ofwat's budget

Ofwat's estimated outturn on running costs for 1997-98 is £9.9 million. The costs of running and supporting the CSCs and the ONCC in 1997-98 are estimated at £2.2 million.

Financial management

Ofwat is a non-ministerial central government department with its own vote. The finances of the office are accounted for in accordance with government accounting requirements and are reviewed on a regular basis by HM Treasury. The Director carries the responsibilities of the Accounting Officer. The internal audit service is currently held by KPMG. As a government department, the external audit function is carried out by the NAO under the direction of the Comptroller and Auditor General who reports to the Public Accounts Committee. Ofwat's costs are entirely covered by the licence fees levied on water companies, apportioned on the basis of the turnover of the appointed business.

Ofwat's staff

Ofwat has a total of 206 staff:

• 152 work at headquarters;
• 54 work in the CSCs;
• eight are members of the Senior Civil Service;
• 58% are women, of whom 15% work part-time;
• 16% are from ethnic minority groups;
• 21% are employed on fixed-term, part-time or casual contracts.

Because of our specialist role, Ofwat's staff have particular skills, knowledge and expertise. We are committed to developing every member of staff to achieve our objectives. Last year, approximately 4% of the pay bill was invested in the training and development of staff.

We have also developed a special course in conjunction with the University of Warwick to help increase understanding of the broader issues involved in the regulation of utilities at home and abroad. The first ten staff have completed this one year course, which began in May 1997.

Fourteen per cent of staff are currently studying for qualifications through the Further Education Scheme.

Ofwat's senior management team

Ian Byatt - Director General

Roger Dunshea - Assistant Director and Head of Operations

Bill Emery - Assistant Director and Chief Engineer

Michael Saunders - Assistant Director and Head of Consumer Affairs

Tony Ballance - Chief Economist

Allan Merry - Legal Adviser

Dilys Plant - Head of External Relations

David Rees - Corporate Finance Adviser and Head of Financial Affairs

Roy Wardle - Head of CSC Appointments and Performance

For further information.

This leaflet is a summary of the Director General's Annual Report 1997, which is available from the Stationery Office, price £13.50. ISBN number 0 102972982

You can obtain all Ofwat publications from the Ofwat library. Call our public enquiry unit on 0121 625 1373.

Ofwat also offers several services to customers to make it easier and cheaper for you to call us:

• each CSC has a 'Lo-call' telephone number. Your call to that number will be charged at the local rate;
• a free telephone interpreting service;
• callers with a textphone can contact us on minicom number 0121 625 1422.