Customer Service Standards. A comparative survey of standards applying to selected water businesses

Transcription

1 Customer Service Standards A comparative survey of standards applying to selected water businesses Final QCOSS Report, April

2 Contents Introduction... 3 Summary of advice from QCOSS... 3 Method... 4 Rationale for customer service standards and GSL schemes... 5 Issues in determining customer service standards and service levels... 6 National frameworks... 6 Code obligations versus service standards... 7 Legislative and regulatory framework for customer service standards... 7 Queensland... 7 Other jurisdictions... 8 Analysis of existing customer service standards in Queensland and selected jurisdictions... 9 Frequency and duration of interruptions... 9 Response time for incidents Water quality Lost or unaccounted for water Infrastructure failures, such as breaks, chokes, and sewerage overflows Water pressure or flow Customer service Effectiveness of GSL schemes Options for setting customer service standards in Queensland Compliance, Reporting and Enforcement Language used to describe service standards Conclusion and Recommendations Appendix 1: Characteristics of selected water entities Appendix 2: Legislative and regulatory frameworks for customer service standards and GSLs Appendix 3: Comparison of customer service standards and GSLs... Attached Appendix 4: Comparison of GSL schemes

3 Customer Service Standards: A comparative survey of standards applying to selected water businesses Introduction In September 2011, the Queensland Water Commission (QWC) asked the Queensland Council of Social Service (QCOSS) to undertake a review of customer service standards for the supply of water and wastewater. The purpose of the review was to provide the QWC with advice on an appropriate set of service standards that might be applied in South East Queensland (SEQ). This report provides a response to this brief, also considers where service standards might fit within the broader regulatory framework applying to SEQ, and looks at what other mechanisms might be required to support improvements and maintenance of standards in customer service provision. At the further request of the QWC, a specific discussion of Guaranteed Service Level (GSL) schemes, evidence as to their effectiveness, and advice on whether GSL schemes might be applied in SEQ is also included. In this report QCOSS does not provide advice on the level of service standard or target that might be applied in SEQ. This is a complex and technical area, with variations likely between the entities. Rather, we consider the type of service standards that might apply to the entities. We also make observations about standards and broader regulatory arrangements that appear to us to have prima facie merit. We understand that any steps to introduce a different framework or set of service standards from what currently exists in SEQ would take place with full consideration of the issues and with involvement and input by all relevant parties. Summary of Advice from QCOSS there is a good rationale for including customer service standards in the regulatory arrangements for the distributor-retailers in SEQ customer service standards have been applied to a range of service areas either in SEQ or in other jurisdictions, and the adoption of common service standards appears achievable for the SEQ businesses there is also evidence that GSL schemes are an effective complement to service standards, and have the benefit of clear communication to individual customers on the level of service they should expect from a business GSL schemes for water already operate in other jurisdictions and in the energy sector in SEQ a common set of customer service standards and an accompanying GSL scheme can and should be applied in SEQ at a minimum, the common set of customer service standards should address o frequency of unplanned interruptions per year (including standards for both average frequency per customer and frequencies per km of main) o duration of unplanned interruptions (including standards for both a target duration for supply resumption and a target for average minutes off-supply) o frequency and duration of planned interruptions, since these are in the control of the businesses and strategies can be developed to reduce customer impacts o response time to incidents, with higher standards for urgent incidents 3

4 o water quality (the standards are currently unique to the SEQ entities) o system water loss o infrastructure failures for water and waste water, including sewerage overflows o water pressure and flow, and o customer service (including standards around complaints, call response, and response times by businesses) while there are several options available for setting customer service standards and for introducing a GSL scheme, the preferred option would be to o specify a common set of customer service standards to apply to all the SEQ entities in the Customer Water and Wastewater Code (the Code) o require each SEQ entity to develop service level targets appropriate to the specific circumstances facing each entity and o establish an external process for approving these service level targets. a GSL scheme can be introduced under the current legislative framework, however this option would require amendment to a Regulation to set out a process for setting service levels, consultation with stakeholders and approval establish a process for public reporting of the performance of each entity in meeting the customer service standards and in the number of GSL payments made, and consider the introduction of an enforcement mechanism for any breaches of regulatory obligations by the businesses. As a basis for this advice, QCOSS provides in this report: a rationale for customer service standards and a discussion on issues in setting customer service levels a general analysis of how service standards operate within and are integrated into the broader regulatory frameworks of Queensland and the other jurisdictions an analysis of existing service standards for the SEQ entities and selected entities from other jurisdictions a specific examination of the effectiveness of GSL schemes and GSL payments to customers a discussion of options for adopting a common set of customer service standards in SEQ given the existing legal framework, and commentary on the importance to customer service standards of compliance, public reporting and enforcement, and the language used to describe standards. Method A key part of the method was to first identify water and wastewater entities in other jurisdictions that are similar to those in SEQ, and to then compare the current service standards in SEQ to those that apply to these similar entities. To identify similar entities we searched for key data on the characteristics of water entities across NSW, Victoria, South Australia, WA, ACT and Tasmania. The characteristics we considered included the customer numbers, length of pipelines, asset value, geographical coverage, and ownership arrangements. The data used for this comparison is provided at Appendix 1. While all the entities are unique, we were able to isolate a number of entities that we felt were comparable on these parameters. The entities we chose to compare with SEQ businesses were from NSW (Hunter Water), Tasmania (Southern Water) and Victoria (Yarra Valley water, South East Water, City West Water). 4

5 Having isolated these entities for comparison, we then sought to understand the key elements of the legislative and regulatory frameworks that supported the development and use of service standards in each jurisdiction. A summary of the jurisdictional frameworks is contained in Appendix 2. This step proved to be very important in considering the practical operation of service standards and how these are communicated or not with the customer. We then undertook a detailed scan of the service standards that had been adopted by or had been applied to each of the selected entities, including those in SEQ. It was then possible to group these standards into logical headings that reflect the key areas where service standards currently apply. The details of these standards are outlined in Appendix 3. The logical groupings identified are: Frequency and duration of unplanned and planned interruptions Water quality Lost or unaccounted for water Response times Infrastructure failures, such as breaks, chokes, and sewerage overflows Water pressure or flow Customer service In addition to identifying the relevant service standards for each of the entities, we also examined any performance reports or annual reports to consider actual performance against the nominated service standards. This detailed information is not reviewed in this report, but was sought in order to understand more broadly the standards the water industry is meeting in Australia before making specific recommendations in relation to SEQ. We also considered some of the available literature including reviews of service standards by regulatory bodies in order to better understand the rationale for service standards and the issues in setting customer service levels. Finally, we considered the role of GSL payments to customers, indicated where they were applied to the entities we selected for comparison (Appendix 4) and reviewed the available evidence as to their effectiveness. Rationale for customer service standards and GSL schemes Customer service standards are commonly found in regulatory instruments in both the water and energy industries. The purpose of setting targets or minimum standards for these regulated entities is to ensure that they provide an acceptable level of service in situations where competition does not exist (such as energy and water delivery) or does not act as an incentive to improve service levels (often occurs with energy and water retail services). Customer service standards are seen as significant in driving improvements in performance by entities and reducing complaints. Each jurisdiction, including Queensland, has introduced and supports customer service standards. As an example, the Energy Industry Ombudsman of South Australia (EIOSA) observes that the basic customer service standards retailers have to comply with have assisted in reducing the number of matters referred to EIOSA that directly relate to access to retailers and response to written enquiries April 2008, Energy Industry Ombudsman South Australia. Submission to the Australian Energy Market Commission. Downloaded 1 December

6 However, QCOSS is aware that the potential benefits to consumers from regulated standards should be balanced against the costs of the proposed standards. We agree that it is "valuable to make decisions on the level at which future standards will be set within a framework that evaluates both the benefits (from the customers' perspective) and costs of the proposed higher standards: higher standards can then be adopted when it is clear that the benefits outweigh the costs. 2 GSL schemes are also found in regulatory environments where the provision of an essential service is mandated by the government (especially water, sewerage, electricity and gas services). The imperative with a GSL scheme is not the maximisation of profit but the universal and equitable delivery of service within government guidelines for the provision of this service. A GSL scheme in relation to water businesses means that customers who experience pre-determined and defined poor levels of service are entitled to financial payments or rebates from their water service providers. Events that may trigger GSL payments include things that directly impact on consumers such as water supply interruptions or sewage spills. The cost to water businesses of any GSL payments is typically counted against the regulated amount of revenue that businesses can recover from water consumers. This provides an incentive on the businesses to meet the designated service standards and avoid the GSL payment. Issues in determining customer service standards and service levels Considerations that may be relevant in setting service standards and service levels include: Whether the service standard is of high importance to consumers and what consumers are willing (or able) to pay for those standards. Whether particular service standards are likely to drive increased infrastructure costs and therefore higher costs to consumers. Whether there are additional and specific resource requirements to implement standards (such as geography, population density, technical capacity of systems etc). Whether meeting a particular standard is likely to be driven by factors other than a service standard scheme (i.e. asset management planning or maintenance regimes). Whether there is a lack of sufficient incentive within a business for a specific service (i.e. customer service for a monopoly or where competition is ineffective) and whether the introduction of such a standard is required to achieve a shift in the culture of a business. National Frameworks We note the existence of national frameworks and guidelines such as the National Performance Report for urban water supply (Urban NPR) and the Water Services Association of Australia Industry Codes of Practice 3. These may be a factor in decision-making on water service standards. We support national consistency and removal of duplication in reporting as far as practicable, but have not specifically considered any national frameworks, guidelines, indicators or national industry standards in this report. 2 Speers, A., Burn, S., MacDonald, D.H., Nancarrow, B., Syme, G., Young, M. Determining Customer Service Levels Development of a Methodology Overarching Report. CSIRO

7 Code obligations versus service standards In this report we have tried to distinguish between direct obligations on the distributor-retailers as expressed in codes and other instruments, and service standards which set a benchmark for performance. For example, it is an obligation for distributor-retailers in SEQ to have a hardship policy under the relevant code. However, there are no benchmarks for performance set in relation to this obligation, and in that sense no specific service standard. This is a false distinction in one regard, because the code obligation in this example sets a standard in which compliance must be absolute the number of customers where the standard is not met would be zero. But the distinction is still important because a service standard goes further than a code obligation by seeking to measure the performance of a business in some way. While obligations such as having hardship policies or providing payment option arrangements for customers are rightly absolute obligations, it is difficult to measure or ensure compliance without further regulation. Noncompliance is unlikely to be self reported by the entity and while it can be picked up through customer complaints to ombudsman schemes, most customers are unaware of code requirements and are unlikely to complain. Because of this distinction, we have not included code obligations in our comparative table of service standards. However we believe that in some situations a GSL payment to customers could be an appropriate mechanism to assist with both monitoring and enforcing the absolute level of compliance required for obligations under the code. Legislative and regulatory framework for customer service standards Queensland The South-East Queensland Water (Distribution and Retail Restructuring) Act 2009 (the DR Act) provides for the development of minimum and guaranteed service standards for water and wastewater services, and provides for compensation for failure to comply with the service standards. The mechanism for delivering service standards and compensation is the Customer Water and Wastewater Code (the Code). However the specific requirements under the Code at the present time are quite limited. Currently the Code requires that distributor-retailers have customer service standards that specify at a minimum: The extent of unplanned interruptions Time for restoration of service after an unplanned interruption Response or reaction times for incidents Minimum flow or pressure However, actual levels of service are not specified for these standards and the Code does not currently provide for compensation for failing to meet service standards. The Code also notes that most distributor-retailers will have other standards in place, but this is not framed as an obligation. A further mechanism for the development of service standards is under Chapter 4B of the DR Act which requires distributor-retailers to develop water netserv plans by 1 July These water netserv plans replace other plans required under the Water Supply (Safety and Reliability) Act 2008 and must state the desired standard of service for infrastructure used to provide services, how the distributor-retailer will meet these standards, and measures proposed to minimise water losses 7

8 caused by leakage from infrastructure and sewerage overflows. Section 99BR of the Act requires distributor-retailers to follow the process prescribed under a regulation for making or amending a netserv plan, while section 99BS allows the regulation to make provision for components of the plan to be approved by a stated public sector entity. However, the South-East Queensland Water (Distribution and Retail Restructuring) Regulation 2010 (the Regulation) does not contain any provisions regarding netserv plans, and therefore there are currently no provisions for approval of plans or for reporting against the standards contained within them. Queensland Urban Utilities and Allconnex Water have already started drafting netserv plans. The Code and requirement to have a netserv plan applies to the three water entities Queensland Urban Utilities, Unitywater and Allconnex Water. Under legislation currently before the Queensland Parliament, these provisions will apply to Gold Coast City Council, Logan City Council and Redland City Council following the dissolution of Allconnex. Other Jurisdictions Other jurisdictions examined as part of this work have taken varying approaches to setting customer service standards. In New South Wales, the individual operating licences of the government water utilities set out standards for water pressure, continuity, and sewage overflows on private property. The operating licences also require the entities to report annually on their compliance with these standards, and on a range of broader performance indicators in relation to standards that are determined by the regulator, the Independent Pricing and Regulatory Tribunal (IPART). Compensation for breaches of these standards and other occurrences, in the form of rebates applied to the water usage component of the customer s bill, are set out in customer contracts. In Victoria service standards and GSLs may be either developed by water businesses and approved by the Essential Services Commission (ESC), or specified in a code. When setting their own standards, water businesses are required to submit a water plan to the ESC before the start of each pricing regulatory period, outlining service standards the business intends to deliver. Performance reporting occurs annually against these services standards, but also includes a broader range of performance indicators. The ESC monitors the performance of the water supply industry and undertakes audits of compliance with standards and conditions of service and supply. A GSL scheme applies in Victoria with compensation payments to customers for failure by businesses in relation to frequency and duration of interruptions, timeframe for containing sewage spills, and management of customer hardship. Tasmania is currently undergoing a water reform process similar to that in Queensland, with three council-owned water businesses taking over delivery of water and sewerage services in As part of this process the Tasmanian economic regulator developed a customer code with minimum service standards specified in a schedule to the code. However, the Tasmanian water businesses are not required to comply with these standards before 1 July In the meantime they are required to develop transitional standards to apply from 1 July The regulator also will review the current minimum service standards set out in the code in Tasmania does not currently provide compensation payments to customer in relation to breaches of standards. However, the code does provide for GSL schemes to be approved by the regulator. Despite the significant differences in the way these jurisdictions regulate in relation to service standards, we note that there are some common elements that do not currently operate in 8

9 Queensland. While service standards are rarely comprehensively prescribed, there is generally a requirement for an authority to approve standards set by businesses, a link to business planning and pricing determinations, provisions for reporting by entities, monitoring and compliance by a regulator, and with the exception of Tasmania, a compensation scheme for failure to meet particular standards that impact on customers. Analysis of existing customer service standards in Queensland and selected jurisdictions The types of service standards that apply to water entities and how these standards are measured vary between states and between service providers. Appendix 3 provides details of the customer service standards for each of the service providers reviewed. Observations on some of the similarities and differences between service standards are provided below. Frequency and duration of unplanned and planned interruptions Given that water is an essential commodity and any break in supply continuity is likely to result in varying levels of inconvenience to consumers, it is reasonable to assume that customer service standards should include a suite of measures around continuity of supply. As part of a report into determining a methodology for establishing customer service levels, the CSIRO surveyed customers in relation to aspects of supply continuity. While they found that respondents could generally cope with short interruptions, the components of interruptions that were deemed to be important were: The duration of the interruption if they are notified of the interruption the time of day the interruptions happened; and the number of interruptions per year (both planned and unplanned though there was a greater tolerance for planned interruptions) 4. All of the entities examined had service standards relating to the frequency of unplanned interruptions. However, these were expressed in quite different ways and in varying levels of detail. In Queensland, Victoria, and Tasmania, standards for frequency of interruptions are based on the proportion of customers affected by interruptions, expressed either as the number of customers affected per 1000 properties or connections (Queensland) or an average per customer (Victoria and Tasmania). Hunter Water s operating licence specifies a limit on the number of properties per year experiencing unplanned interruptions of more than five hours, or three or more unplanned interruptions of more than one hour duration. Since the number of customers affected by any particular incident is likely to vary depending on population density, these targets have limited meaning on their own. For example, a water provider such as Queensland Urban Utilities has a service area that covers metropolitan and rural areas. For the same number of interruptions in each area, an inner city suburb interruption is likely to result in a larger number of customers being affected, and therefore a higher average frequency, than one occurring in an agricultural area. Having a service standard for interruption frequency based only on the number of customers affected may therefore create an incentive to prioritise work on infrastructure in more highly populated areas over maintenance of rural infrastructure. 4 Speers, A., Burn, S., MacDonald, D.H., Nancarrow, B., Syme, G., Young, M. Determining Customer Service Levels Development of a Methodology Overarching Report. CSIRO

10 Victoria and Tasmania also have service standards setting targets for the frequency of incidents of unplanned water supply interruptions, expressed as a frequency per 100km of water main. Considered alongside figures on average frequency per customer, this gives a better picture of performance. While Allconnex Water has included a target for water main breaks in its customer service standards, this may include bursts and leaks that do not result in an interruption to customers supply. Queensland Urban Utilities and Hunter Water do not have any service standards relating to the number of incidents. Unitywater has not specified standards relating to either frequency of interruptions in terms of the number of incidents, or frequency of water main breaks in its customer charter. However, the customer service standards set by Sunshine Coast and Moreton Bay Regional Councils include targets for bursts and leaks. The frequency of water supply interruptions is clearly an important indicator of a water entities performance and any set of customer service standards should include targets for interruptions, with the aim of ensuring the number of customers affected by a loss of supply is minimised. However from a customer s perspective, how long they are without supply is also an important issue. All entities examined in our comparison (other than Hunter Water) have duration standards for unplanned interruptions, however there is considerably more detail and nuance in the standards set for the Victorian and Tasmanian entities compared to those adopted by Queensland entities. In addition to standards on unplanned water supply interruptions, Victoria and Tasmania also have targets for the average frequency and duration of planned interruptions. The reason given by the ESC of Victoria for including planned interruptions in the core service standards for Victorian water businesses was to provide incentives for businesses to minimise the inconvenience to customers caused by planned water interruptions. It noted that whereas unplanned interruptions are largely out of the control of water businesses, in the case of planned interruptions it is possible to develop strategies to mitigate the impact on customers. 5 None of the Queensland service providers have adopted standards for the frequency of planned interruptions, although Allconnex Water has set a target of less than 5 hours for average duration of planned interruptions. This is much weaker than the targets for duration of planned interruptions applying to the Victorian water businesses examined, which range from to minutes (roughly between 2 and 3.5 hours). In addition, other service standards in Victoria set targets of between 78.5% and 99.6% for the proportion of planned water interruptions restored within 5 hours. Transitional service standards proposed by Southern Water are also stronger than that set by Allconnex Water, with an average duration of 280 minutes proposed for , reducing to 250 minutes by Like the Queensland service providers, Hunter Water in New South Wales does not have any customer service standards relating to planned interruptions. Response times for incidents Standards for response times for attending to incidents are not only likely to be of considerable interest to consumers, but the service levels need to be communicated to customers in some way. 5 Essential Services Commission (2005). Water Price Review Volume 1: Metropolitan and Regional Businesses Water Plans Draft Decision to Available at: Accessed 18 November

11 In relation to water bursts and leaks, standards are usually based on different timeframes for different levels of urgency. One utility further distinguishes between rural and urban areas within its territory. It is notable that the SEQ entities have adopted service standards that specify response times as being "within" or less than a specified time, with a compliance rate (i.e. 80 or 90%) also included. By contrast the non-queensland entities examined all reference the standard as an average of time taken to respond to an incident. It is arguable that this more accurately captures the overall performance of an entity, and provides more nuanced data that is sensitive to changes in performance over time. On the other hand, customers are more likely to want to know how quickly the can expect an incident to be responded to, and service standards expressed in average minutes may not communicate this information as successfully. This is a situation where a GSL payment based on responding within a given timeframe would complement service standards based on average response time. Water quality While water quality is generally measured by specific testing regimes under the National Health and Medical Research Council drinking water guidelines, there are some specific measures of performance that have been adopted by SEQ entities that appear to be unique to the Queensland jurisdiction. These include measures around the number of complaints and the number of actual incidents of poor water quality, both expressed as a rate per thousand properties per year. These standards define an acceptable level of complaints or incidents at rates between 0.5 and 1% of the total customer base. QCOSS has no concerns with this approach, but notes that Allconnex water does not appear to have standards in relation to incidents which mean it is slightly out of step with the other entities. Adopting a common standard in relation to this area should not be difficult. Lost or unaccounted for water All entities other than Queensland Urban utilities have service standards for system water loss, with most expressed as "unaccounted for water" and benchmarks set as a percentage of total water purchased. Allconnex and Unitywater in the Moreton region set their benchmark as a number of litres per connection per day. QCOSS does not have a view as to the importance of this service standard to consumers, nor as to the best measure of performance in this regard. While water loss is no doubt ultimately paid for by consumers and is therefore of concern, unless there appeared to be a significant problem driving prices up for consumers this would not be considered a priority service standard. Infrastructure failures, such as breaks, chokes, and sewerage overflows Standards in relation to water main breaks and to wastewater mains breaks and chokes are generally defined as a maximum number per kilometre of pipeline. However, both Hunter Water and Queensland Urban Utilities do not currently have standards in this area. We also note that standards adopted by Unitywater and Allconnex water are more stringent than Victoria and Tasmania in relation to water mains breaks, but more relaxed in terms of the waste water mains breaks and chokes. In relation to sewage overflows, most non Queensland jurisdictions set targets around the number of customers affected by more than 3 blockages or service interruptions in a year (from 0-15), while Queensland entities Unitywater and Allconnex refer to the number of sewage overflows on customer properties and set targets per thousand connections per year. Hunter Water has both 11

12 service standards with no more than 5000 properties per year to experience one overflow and no more than 45 properties per year to experience three or more uncontrolled sewage overflows. Unitywater and Allconnex have additional standards relating to sewage overflows per 100km of main per year as well as the number of Odour complaints. We note that Queensland Urban Utilities has not adopted service standards in relation to sewage overflows although their netserv plan identifies this as an area where a reduction in the impact on customers is being sought. 6 Water pressure or flow In relation to minimum range of water pressure all Queensland entities have set standards, but only Hunter Water outside of Queensland has done similarly. These are set per meter head (or by kpa) with ranges generally consistent between meters of head. Minimum flow has been used as a service standard in Victoria, set according to pipe width. Queensland Urban Utilities and Unitywater also outline a minimum water flow, with no specific reference to pipe length. Properties with deficient pressure or flow are also measured in the Moreton Bay area of Unitywater (less than 0.1% of connections) and by Hunter Water (no more than 4800 properties per year). It is notable that Hunter Water also has a water pressure rebate to compensate those customers who experience inadequate water pressure. Customer service Customer service standards in non Queensland jurisdictions are based on the proportion of customer calls answered within 30 seconds, and the rate of customer complaints made to ombudsman schemes. Tasmania has also set a standard relating to the total number of complaints made by customers to capture complaints made directly to the businesses. This seems a sensible measure given that ombudsman schemes generally do not resolve an issue unless the customer has already tried to resolve the matter with the business concerned. Measuring total complaints at the same time as complaints to Ombudsman schemes would allow some analysis of the level of success businesses are having in resolving complaints internally, and also the level of complaints being generated against them whether or not they are resolved. While SEQ entities (other than Allconnex) have standards around call answer time, the standard adopted is at the lower end of the scale compared to other similar entities (80% as compared with 94% at the highest level), and no SEQ entities currently have standards around complaints. However, customer service standards that are unique to SEQ entities are Allconnex s response time to resolve complaints (90% within 20 working days), and Queensland Urban Utilities and Unitywater s standards around timeframes for new connections. 6 Queensland Urban Utilities. Water Netserv Plan: Plan for Consultation. Available online at: Accessed 4 January

13 Effectiveness of GSL Schemes In undertaking the assessment of the customer service standards applying to selected water entities we discovered that a number of the entities were also subject to GSL payments. A detailed table outlining the GSLs that apply in each jurisdiction is contained in Appendix 4 to this report. Victoria currently operates a GSL scheme for water within its urban water services. This scheme covers service areas including frequency and duration of planned and unplanned interruptions, timeframes for containing sewage spills, as well as a GSL that is unique to Victoria in relation to customer hardship. Financial payments are specified in the GSL and these are mandatory without the requirement for customer application. 7 Similarly Hunter Water is required to compensate customers in relation to breaches of standards for unplanned interruptions, water quality incidents, sewage overflows and water pressure. The GSL scheme applied in this context provides a rebate defined as a number of kilolitres of water, rather than as a cash payment as in Victoria. Tasmania is operating one single GSL payment to customers for sewage overflows that are not restored within 4 hours ($50 payment). The Victorian ESC states that with regard to water There is strong evidence to suggest that GSLs are effective in reducing the incidence of customers affected by poor service. 8 They take the stance that with utilities because the cost of an assumed level of GSL payments is reflected in the business revenue requirement, there is an incentive to minimise the number of events that give rise to payments. 9 Ron Ben-David, Chairperson of the ESC, also argues that in the relationship between water retailers and customers There is a major power imbalance. The coercive options available to the water provider eclipse the retaliatory sanctions available to the water customer. How can a customer demand value from a provider under such circumstances? 10 We note that GSLs can also be used to compensate customers for accepting a lower level of service. This could apply when it is to the benefit of a business to pay compensation rather than deliver the required service level, for example, because it allows them to defer more costly investment in the short term. The Victorian hardship GSL, which also operates for electricity, has been strongly supported by consumer groups and has been the subject of more extensive research and review than most other GSLs. The ESC suggests that the function of the hardship GSL is to promote reasonable endeavours by a business to communicate with customers on issues of non-payment; thereby helping to ensure that restrictions or legal actions are used by an authority as a last resort. 11 Research by Hall & Partners Open Minds suggests that customers who have a negative experience with a business on non-payment issues are more likely to put off further contact with the business; 7 April 2009, Essential Services Commission, Water Price Review Draft Decision Fact Sheet, Part 2. Guaranteed Service Levels, ADF7E9/0/Fact_Sheet_2.pdf. Downloaded 30 November Essential Services Commission, 2009, Water Price Review Draft Decision Fact Sheet. 9 Essential Services Commission, August 2011, Service Standards Seminar, Downloaded 30 November Ron Ben-David, February/March 2011, Water governance. Are good intentions a good thing? p E09EF86988ED/0/WatergovernanceAregoodintentionsagoodthing.pdf. Downloaded 30 November ESC, June 2010, Discussion Paper Developing a Hardship Guaranteed Service Level Measure, p.7. Available at: Accessed 1 December

14 with potentially adverse outcomes for the customer (for example, through further accumulation of debt) and the business (for example, through ongoing debt recovery costs and reduced cashflow). 12 The researchers found that the main issues for customers experiencing energy and water hardship in Victoria were: Lack of skills among customer service staff in sensitively handling hardship customers and an associated lack of knowledge about options available for these customers. Inflexible setting of payment terms by businesses. Lack of customer awareness of impending water restriction or energy service disconnection. 13 The research concludes that a hardship GSL is beneficial both for customers and for water businesses. A 2010 ESC review of Victoria s water GSL scheme concluded that the scheme met its intended purpose and only required some adjustments to ensure that compensation to customers was commensurate with the impact of their water restriction or legal action. It also found that while there was some discussion around the amount of payment and the type and timing of event triggers for GSL payments, distributors, retailers and consumer advocacy groups favoured the use of GSL schemes. 14 Most states in Australia, including Queensland, also have some form of GSL scheme for electricity and gas, and there have been a variety of reviews and discussion papers canvassing issues in relation to the effectiveness and operation of these schemes. A 2003 issues paper from IPART suggests that GSLs are vital in the field of energy because the need for service quality regulation is particularly important in regulatory regimes where the form of regulation creates strong incentives to cut costs, potentially at the expense of service quality. 15 This could easily be applied to the provision of water. There are also several examples of GSL schemes operating internationally. In the United Kingdom, the Ofwat (The Water Services Regulation Authority) since April 2008 has regulated water and sewerage provision to customers through a Guaranteed Standards Scheme (GSS). The GSS applies to all customers, both business and residential and tenants as well as owners. It explicitly covers customers in debt. It mandates minimum payments for service interruptions though companies may pay amounts in addition to these minimums and publishes the amounts paid out by companies each 12 Hall & Partners Open Minds, June 2011, Customers of Water and Energy Providers in Financial Hardship: A Customer Perspective, p.4. Available at: F54BF9600D9A/0/CNPCommissionresponsetohardshipreportMay pdf. Accessed 24 November Hall & Partners Open Minds, June 2011, Customers of Water and Energy Providers in Financial Hardship: A Customer Perspective, p.4. Available at: F54BF9600D9A/0/CNPCommissionresponsetohardshipreportMay pdf. Accessed 24 November ESC, June 2010, Discussion Paper Developing a Hardship Guaranteed Service Level Measure, p.7. Available at: Accessed 1 December April 2003, Independent Pricing and Regulatory Tribunal of New South Wales, April 2003, Review of Guaranteed Customer Service Standards and Operating Statistics Issues Paper, p.4. Downloaded 29 November See also April 2004, Independent Pricing and Regulatory Tribunal of New South Wales, Review of Guaranteed Customer Service Standards and Operating Statistics, Final Recommendations, Report to the Minister, 22.pdf. Downloaded 30 November

15 year on its website ( The GSS covers failure of the water or sewerage business to meet the following areas of service standard: Appointment not properly made Appointments not kept Incidences of low water pressure Incorrect notice of planned interruptions to supply Supply not restored (within time notified) Supply not restored (each additional 24 hours) Written account queries and requests to change payment arrangements not actioned on time. Written complaints not actioned on time. Properties sewer flooded internally. Properties materially affected sewer flooded externally. 16 In British companies paid 4 million in compulsory payments and 2.3 million in voluntary payments 17. The Ofwat identifies the benefits of a GSS as being a Clear link to poor service to customers, which has a reputational impact. All companies are required to collect the same information and identify payments to customers. However it identifies the GSS as only one of a range of financial, reputational and procedural incentives. 18 Ofwat itself says that We can show that customer service has improved over the years, but it would not just be as a result of the GSS Regulations, other Ofwat incentives would also have played a part such as the previous Overall performance assessment (OPA) and current Service incentive mechanism, (SIM). 19 Information about these mechanisms and about British water company performance in general can be found below. 20 A list of regulatory environments for energy in general as well as water in the UK can be found on the BBC Watchdog website. 21 Jamaica s National Water Commission sets Guaranteed Service Standards and lists compensation for each as either four times the associated service charge or twice that. Customers are required to submit claims within 60 days of the perceived breach. No information is available as to the efficacy or payouts on these standards. 22 Other countries that have legislated Guaranteed Service Levels include the Emirate of Abu Dhabi. 23 In Northern Ireland, where a GSL scheme for water is currently being considered, such regulation of water supply is seen as part of efforts to encourage and incentivise... to achieve the highest possible service for customers in terms of both quality and 16 Downloaded 29 November October 2010, Ofwat -The Water Services Regulation Authority, The role and design of incentives for regulating monopoly water and sewerage services in England and Wales a discussion paper, p.30. Available at Downloaded 29 November Ibid. 19 Personal correspondence, 5 December 2011 with Paula Bennett, Information Rights Lawyer, Ofwat. 20 Service and Delivery and Levels of Service: Overall Performance Assessment: Service Incentive Mechanism: /National%20Water%20Commission-%20Guranteed%20standards.pdf

16 value. 24 As part of their considerations, the regulator in Northern Ireland has commissioned research into consumer views and preferences in relation to service standards and compensation payments. 25 This brief overview of the use of GSLs for the provision of water services illustrates that the use of GSL schemes is an important tool to ensure customer access to high quality water service, and to provide compensation when standards are not met. Although it is difficult to link improved service levels to the existence of a GSL scheme alone when there are other regulatory mechanisms to promote improved performance in place, such schemes are generally considered of value by regulators and do appear to play an important role in customer service. Options for setting customer service standards in Queensland Possible arrangements for setting customer service standards in Queensland include: Specifying in the Code a common set of customer service standards and levels of service to apply to all SEQ service providers. Specifying in the Code different sets of standards and levels of service for each SEQ service provider. Requiring SEQ service providers to develop their own customer service standards and target levels of service as part of their water netserv plans, and also establish an external approval mechanism (such as the QWC or another responsible body). Specify a common set of customer service standards in the Code, require service providers to develop their own target levels of service under these standards, and establish an external mechanism for approval of these target levels of service. Under any of these four options, include a GSL scheme in the Code. Specifying a common set of customer service standards and service levels to apply to all SEQ service providers may not be feasible. With the dissolution of Allconnex Water the entities to be covered by the Code are likely to include three individual councils as well as two distributor-retailers. There are also distinct differences between the two continuing distributor-retailers, with Queensland Urban Utilities providing services to a population approximately twice that of Unitywater, over an area that includes both metropolitan and agricultural areas. There would be a risk that, in order to achieve equivalent standards for all entities at reasonable cost, the standards and target levels would need to be reduced to match the capacity of the worst performer. Such an approach would not be in the best interests of consumers overall. Specifying unique customer service standards and levels of customer service for each SEQ service provider in the Code would overcome this problem, but would require the QWC to have access to information that would enable it to determine appropriate standards for each entity. It may also result in less clarity for consumers about what is an acceptable level of service. However, it has the advantage that legislation already provides for minimum and guaranteed service standards to be 24 Utility Regulator, Northern Ireland, Accessed 30 November Personal correspondence, 15 December 2011 with Caspar Swales, Head of Comparative Efficiency & Performance (Water), UTILITY REGULATOR Northern Ireland. 16

17 included in the Code, and the amendment process required under the DR Act would ensure that both service providers and consumer representatives had the opportunity to comment on proposed service standards. If this approach were taken the areas that the standards cover and the measurement of the standards could still be common between entities. Although the DR Act provides for a regulation to require that components of netserv plans are approved by a public sector entity, such arrangements are not currently included in the Regulation. A third option for setting customer service standards and levels of service would be to require the water entities to set their own standards and target levels through water netserv plans and to establish an external approval mechanism to ensure the appropriateness of the standard. This option would require amendments to the Regulation to set out a process for developing and approving customer service standards, including consultation with stakeholders. There would also need to be some guidance provided about how standards were to be measured and what aspects of service provision they should cover, in order to facilitate monitoring of compliance and performance. The need for sufficient access to information to determine appropriate standards would also apply to this option, in order to make an informed decision about approving the standards set out in the netserv plan. A fourth option would be a hybrid of the others. Namely: specify a common set of customer service standards to apply to all the SEQ entities require each SEQ entity to develop service level targets appropriate to the specific circumstances facing the entity, and establish an external process for approving these service level targets. Introducing a GSL scheme could be done in conjunction with any of the four options discussed above. Section 94(1)(c) of the DR Act provides for compensation for failure to comply with service standards to be set out in the Code. A GSL scheme would appear to be valuable for both consumers and regulators. Importantly, a GSL can supplement and enhance customer service standards. For example, it would be difficult to express performance targets associated with minimum customer service standards in a way that is meaningful to customers while still allowing for the performance of SEQ service providers to be monitored by regulators. On the other hand, a GSL scheme is focused directly on consumers and the service levels actually need to be expressed in a way that is meaningful to consumers. A GSL scheme would therefore assist in informing consumers about the level of service they are entitled to expect from their water provider, and also provide an incentive to SEQ service providers to improve their service levels. Another issue for consideration is whether customer service standards or a GSL scheme should apply immediately or whether there should be a transitional period similar to the arrangements in Tasmania. Comparison of the limited performance data available suggests that the recent performance of the SEQ distributor-retailers or their participating councils is similar to the comparable water businesses in New South Wales and Victoria. In Tasmania, Southern Water s draft price and service plan summary notes that its service levels are poor compared to similar sized service providers in other states and this provides the justification for a transitional period. Although there were some areas where the performance of Queensland service providers was worse than in other states, in other areas performance was comparable to or better than that of other water entities. Therefore there does not appear to be any need to delay the introduction of customer service standards in the Code. 17