1.1. Background To The Research

As part of Periodic Review process Ofwat collected a large body of information regarding customers' views on prices, and improvements to water and sewerage services and the environment. Water companies were asked to ensure that their strategies for investment and improvement over the five years from April 2000 reflected customers' views. The results of the market research they had undertaken formed part of their Customer Consultation and Strategic Options Submissions. The DETR, Environment Agency, Drinking Water Inspectorate, Water UK and the Consumers' Association also published research to be used in the debate.

The publication of Prospects for Prices by Ofwat in October 1998 set out the key issues which the Director General of Water Services will take into account when setting price limits. It presented a framework of a potential initial reduction in bills, followed by the price rises which would be necessary to meet the Government's proposed package of environmental and quality improvements for the period 2000 to 2004.

While it was clear that many companies had identified their customers' priorities for improvement in their region, it was not always possible to ascertain how far customers would like to see each aspect improved, or how much they would wish to spend on each area of investment. The bill profiles highlighted in Prospects for Prices had not been tested in packages put to customers, who had only been consulted on price reductions of up to £20. In some cases lower bills had been linked to reduced services. It was felt that the possibility of environmental and service improvements combined with price reductions such as those set out in Prospects for Prices had not been put to customers.

The range of possible bill reductions and subsequent effects on bills varied between companies. In some areas the scope and size of the quality programme could raise bills back to the current level within five years. In other areas, they could remain below current levels.

The purpose of Ofwat's research was to explore further customers' views on water charges and improvements in the context of the issues considered in Prospects for Prices. The research was expected to supplement and be informed by the work already carried out by the water companies and other bodies.

Four water company regions were chosen with a variety of bill levels and differing environmental and quality programmes. These were North West Water, Severn Trent Water, Dwr Cymru/Welsh Water and South West Water.

1.2. Importance of Improvements And Responsibilities Of The Water Companies

1. In all four regions over 95% of customers were able to name the correct company responsible for providing their water and sewerage service, or the parent company. Interestingly, 10% in Wales named Hyder.

2. Over 95% of respondents understood some of the companies' responsibilities for water services; nearly 90% understood responsibilities for sewerage services. However, across all four regions around 40% believed, incorrectly, that companies were responsible for keeping beaches and river banks litter free.

3. Consistent with other survey findings, slightly fewer respondents rated protecting the environment as important as improving healthcare, reducing crime and improving education, except in the South West, where the environment came second only to crime.

4. 90% or more of the respondents in all the regions rated improvements that could be made to protect the environment as important. Reducing pollution in seas and rivers and air pollution were generally seen as equally important although there was some variation in ranking across the four regions. Protecting important areas of wildlife and plants was consistently seen as slightly less important.

5. The following four charts look at the possible improvements that could be made to water and sewerage services. Without reference to costs or outputs, reducing lead in drinking water and reducing the risk of homes being flooded by sewage were consistently rated the most important with 75% or more saying that they were extremely important.

6. Reducing pollution in seas and rivers, improving drinking water quality and reducing the risk of discoloured or cloudy water were ranked next in importance, although the order varied slightly between regions.

7. Protecting wetlands and coastal habitats and wildlife was slightly less important in most regions although over 70% still thought that this was either extremely or very important.

8. Reducing the risk of low pressure and reducing the risk of a hosepipe ban were consistently much less important than the other options, especially the latter.

1.3   Water Prices and Compulsory Improvements

9. When customers were told about the compulsory elements of the Government's proposed quality programme, almost all customers in each of the regions felt that some of these were needed and over one half felt that all of them were necessary.

10.On being told the potential impact of the improvements on bills there was considerable variation between the regions as to the acceptability. Around three fifths of customers in the North West and Severn Trent thought the impact was acceptable. This fell to around one half in Wales and less than a third in the South West, where the impact was significantly greater (£35 in Wales and £60 in the South West compared to £15 in the North West and Severn Trent).

1.4     Water Prices and Further Improvements

1. Customers were told that further improvements in services could be made as follows:
• Pipes could be replaced more quickly to reduce problems of discolouration and cloudiness in drinking water
• Companies' lead pipes could be replaced more quickly to reduce the lead in drinking water
• More bathing waters could achieve Blue Flag standards, which are 20 times tougher than the minimum European standards
• Fewer rivers and sea waters could be affected by occasional releases of sewage at times of high rainfall
• Fewer homes could be at risk of being flooded by sewage
• More rivers could meet minimum water quality targets set to meet local community and environment needs
• The taste and smell of drinking water could be improved
Almost all customers in each region thought that some of the improvements should be carried out and between 40% and 50% thought all should be carried out.

2. Customers were then presented with a range of possible costed improvements. These included the option of no further improvement beyond that required under the compulsory programme, or beyond the level of service achievable under the current maintenance programme. This was Option 1. For all improvements, except sewer flooding and taste and smell of drinking water, Option 3 on the scale was broadly equivalent to the outputs assumed in Prospects for Prices for the £8.5bn quality programme. Option 2 fell between the two. Option 4 went beyond the £8.5bn programme.

3. For each region, the scale of improvement for each of the options varied and illustrative associated costs were provided, consistent with those contained in Prospects for Prices. Customers were also provided with contextual information about each issue, including the current level of service, and what would be achieved by the compulsory quality programme. Attached in appendix 2 is a summary of the structure of each of the options.

Reducing the risk of sewage flooding homes

Consistently this, with lead in drinking water appears to be the highest priority with over 50% of customers in all regions wanting the risk of being flooded by sewage twice in every ten years to be removed (option 4). This is perhaps not surprising given the comparatively low impact on bills and the general priority afforded to this area.

Reducing the amount of lead in drinking water

A similar picture to sewer flooding with over 50% of customers choosing to replace all the necessary pipes to meet the 10µg limit within the next five years (option 4), even where the impact on bills is more significant than sewer flooding (North West Water and South West Water).

Improving the unsatisfactory overflows to rivers and seas

Generally the impact on bills of improvements to overflows is much higher than lead or sewer flooding. Nevertheless in all four regions over 50% selected to improve about two thirds or more of those overflows causing visible sewage in rivers or seas. In Severn Trent where the impact on bills is relatively small over 50% of customers chose to improve all of them (option 4).

More bathing waters achieving 'excellent' standard

The position is much more varied and would seem to reflect the different impacts on bills. In the South West nearly 50% of customers chose to stay at option 1, the current standard, whereas in Wales where the impact on bills is small, over 50% selected option 4, virtually all bathing waters to meet guideline standards. In the North West, the median selected was between options 2 and 3, above the current programme but below the discretionary programme.

Improving river water quality

The median point across the three relevant regions is between options 2 and 3, that is, above the current standard but below the discretionary programme. This is despite only small impacts on bills in the Severn Trent and South West regions.

Reducing water discolouration

Customers' views on the rate of progress on removing discolouration are clearly influenced by the impact on bills. More customers chose to reline or replace one half or more of the problem pipes in the North West and Severn Trent areas, where the impact on bills is moderate. However, there was little support for improvements in Wales and the South West where the impact on bills is much more significant.

Improving the taste, smell and hardness of drinking water

Options to improve the taste, smell and hardness of water were offered in the Severn Trent region and the taste and smell in the South West Water region. 58% of Severn Trent's customers chose option 3 or 4, the treatment of water in problem areas to reduce the smell and taste of chlorine or, additionally, to treat hardness. 43% of respondents in the South West chose to remain at the current standard.

 

Illustrative bill impact:	Option 1	Option 2	Option 3	Option 4
Sewer Flooding	£0	£0.80	£1.10	£1.60
Lead	£0.20	£0.60	£1.20	£1.70
Sewage in Rivers & Seas	£0.40	£0.70	£1.00	£1.50
River Water Quality	£0	£1.30	£2.60	£4.60
Taste, Smell and Hardness	£0	£0.20	£0.90	£1.30
Discolouration	£0	£10.00	£15.00	£30.00

Illustrative bill impact:	Option 1	Option 2	Option 3	Option 4
Sewer Flooding	£0	£0.40	£0.80	£1.60
Bathing Waters	£0.05	£0.10	£0.15	£0.20
Lead	£0.20	£1.60	£3.00	£4.70
Sewage in Rivers & Seas	£0.25	£3.00	£6.00	£9.00
Discolouration	£0	£4.60	£7.00	£26.00

Illustrative bill impact:	Option 1	Option 2	Option 3	Option 4
Sewer Flooding	£0	£0.15	£0.30	£0.60
Lead	£2.70	£1.80	£3.60	£5.40
Sewage in Rivers & Seas	£0.30	£0.60	£2.50	£3.70
River Water Quality	£0	£0.50	£0.90	£1.70
Taste & Smell of Drinking Water	£0	£0.20	£0.50	£1.00
Bathing Waters	£1.20	£8.20	£11.50	£14.00
Discolouration	£0	£10.00	£15.00	£30.00

5. The average amount customers chose to spend on improvements in addition to the cost of the compulsory quality programme is set below. Consideration, however, must be given to the impact of the compulsory programme and customers' inability to influence the improvements within it.

	Impact on bills of compulsory improvements	Additional impact on bills of customers' choices
North West	£15	£27.20
Severn Trent	£15	£7.40
Dwr Cymru/Welsh Water	£35	£15.00
South West	£60	£19.60

6. Customers were then advised of the impact of the improvements they had chosen when possible efficiency savings are taken into account. They were given the choice of spending some more money on improvements or reducing their bills with all the remaining savings. In the Dwr Cymru/Welsh Water, Severn Trent and North West Water regions about 3 in 10 customers wanted all the remaining savings returned to them in bill reductions. In the South West region, this was over 40% (almost 50% of the customers who had savings left to spend).

 

The proportion of remaining efficiency savings which customers wanted to spend on further improvements varied between the regions.  In the North West and South West Water regions 23% and 12% of customers respectively wanted to invest 50% or less of the remaining available savings.  In the Severn Trent and Dwr Cymru/Welsh Water regions while about a quarter of customers were willing to spend more than 50% of the remaining available savings, about three in ten customers wanted to spend less.

1.5   Bill Profiles

1. Customers were offered the choice of two bill profiles – the 'V' and 'L' shapes set out in Prospects for Prices. They were given information about the issues surrounding each profile. When asked to express a preference only 19% (South West) to 31% (Severn Trent) expressed a preference for stable prices. Overwhelmingly in all regions the preference was for a 'V' shaped profile.

2. However, it does not appear that customers feel particularly strongly on this issue. When asked how upset they would be if they did not get the profile they had chosen, between 29% and 37% of customers stated they would not be upset, and nearly half either had no preference or no opinion on this matter. On average a quarter stated they would be upset.

 

 

Research carried out by:

Research by Design

78 Heaton Road, Solihull

West Midlands,  B91 2DZ

Tel: 0121 711 1495