COMMITTEE FOR REGIONAL DEVELOPMENT
OFFICIAL REPORT
(Hansard)
Northern Ireland Water: Update Briefing
22 October 2008
Members present for all or part of the proceedings:
Mr Fred Cobain (Chairperson)
Mr Jim Wells (Deputy Chairperson)
Mr Cathal Boylan
Mr Allan Bresland
Mr Willie Clarke
Mr John Dallat
Mr John McCallister
Mr Raymond McCartney
Mr George Robinson
Mr Alastair Ross
Mr Brian Wilson
Witnesses:
Mr William Duddy ) Northern Ireland Water
Mr Eddie McGoldrick )
Mr Chris Mellor )
The Chairperson (Mr Cobain):
Good morning.
Mr Chris Mellor ( Northern Ireland Water):
We have two presentations for the Committee. The first is an update on our change programme. I believe that members have a copy of that presentation. I will explain the efficiency target and how we will attempt to meet it. I also want to talk about what lies beyond that. Page 3 shows the current efficiency target for operating costs. Northern Ireland Water must achieve a 26·5% saving by 2009-10. Do members have that information?
The Committee Clerk:
I draw members’ attention to tab 5 of their packs. Item C is the item to which the executives are speaking. An additional presentation has been tabled. The executives will speak to that presentation after they have addressed item C.
Mr Mellor:
I will begin by explaining the pie chart on slide 3 of our presentation. We must achieve a 26·5% operating-expenditure reduction by the end of 2009-10. That is mandated by the shareholder — the Department for Regional Development — and the Minister. The Utility Regulator is currently conducting another review of next year’s target. We do not have information on that at present.
The pie chart shows that total operating costs are £223 million at present. People costs make up the largest element of that, amounting to £79 million. This year’s original budget for power costs of £26 million has resulted in recent price increases. That is likely to go up by £6 million in 2008-09 and, probably, £12 million in a full year’s time. Of the other £70 million, £11 million is paid in local-authority rates each year, which we can do little about. Similarly, we pay £5 million in regulatory costs. Therefore, one way or another, anything that we do to try to significantly reduce efficiencies will have an impact on people.
The targets are shown on page 4. Originally, we were due to save £5·8 million in 2008-09 and £9·4 million in 2009-10. However, following the Independent Water Review Panel’s report in 2007, the Minister, acting on advice from the Utility Regulator, increased that target by an extra £3·5 million in 2008-09, and £7 million in 2009-10.
Therefore, cumulatively, over the three years, we must take over £30 million out of our operating cost base. As I said, as a result of the recent price increases, power costs are rising, which causes a problem. However, on 1 September, we launched an initiative called “seven in seven” to try to remove an extra £7 million of costs in the remaining seven months of the current financial year. We hope that achieving that goal will offset the increase in power costs.
In considering how to achieve that 26·5% saving — over £30 million in costs — we identified four key enablers: our customer strategy, which we call “Service First”; mobile work management; our “Super Bundle” contract; and capital expenditure, which, as members will know, is huge.
I turn to our customer strategy, which is broken down into three categories: yesterday, today and tomorrow. Yesterday, we were very reactive in our approach to failure. We got it right eventually, but not always first time — we often went back to jobs three or four times. There was no real focus on the root causes of problems. Today, we aim to get it right first time when reacting to failure, when that failure is due to the poor condition of the asset base. We increasingly seek to schedule maintenance of that inadequate asset base so as to be more efficient. Tomorrow, we will aim to identify and eliminate the causes of failure, as well as reacting to failure. We need more capital expenditure, which we are investing all the time to improve the asset base. We need a single centre of control for consistency and efficiency, and we must move to a proactive maintenance regime and continued investment in automation and innovation.
I now turn to mobile work management. Quite a few people ring our call centre about the same incidents, so we must group those calls. We create a work order for our workforce, which goes to the work control centre. From now on, those work orders will be dispatched to the field crews, who will be equipped with a Toughbook, which is a personal computer that is wrapped in rubber to prevent it from getting damaged. That work order schedules the maintenance task.
As with most modern utilities, field crews will, in future, start from home, rather than the depot. They will finish at home, which gives them a wider working window — they will not be wasting time travelling to and from depots. The Toughbook records progress en route and on site, the length of time that it takes to do the job, and when the job has been completed. It also includes online maps, worksite identification and materials management, so that we improve our assets records over time. We are able to update the call centre on what is happening, so when the customer calls to ask whether an employee is on his or her way, we can tell them.
I must reinforce the point that the business is large and complex. It is probably one of the 10 largest businesses in Ireland. We maintain 26,500 kms of water mains, and we have 44 major treatment works and 490 service reservoirs. I will not go through all the details. We have over 1,000 wastewater treatment works — probably the second-largest number in the UK. We maintain 14,500 kms of sewer. It is a big operation by any standard.
The second area in which we are seeking to improve efficiency is the “Super Bundle” contractor strategy. We inherited a system wherein there were 10 framework contracts with 31 suppliers. One can imagine the cost of managing all that, and the hand-offs and trade-offs between them. We had poorly structured contracts, and the incentives were all wrong: the more sewer blockages contractors dealt with, the more they got paid. We had high total costs and repeat work, which resulted in customer complaints, and there was minimal opportunity for cost and service improvement. As from 1 August, that has all changed. We awarded the contract to one service provider — a local provider, as it happens, Meridian Utilities Ltd. All the big companies from the rest of the UK submitted a bid, but I am pleased to say that a local consortium was successful.
The contract is designed to deliver up to £9 million or 16% in operational expenditure efficiencies over the four-year life of the contract, which started on 1 October.
To put the people reductions into perspective: on April 2007, when the company was first vested, we had 1,850 employees. One year later, that number had reduced to 1,720, and by the end of this year, we are aiming to reduce that number to just over 1,400. That is a reduction of 308 this year. We expect around 100 of that number to be natural leavers, leaving just over 200 employees to go, through various schemes. Where possible, we are trying to reduce contractor numbers in favour of our own employees. That is often more efficient and cheaper than employing consultants or contractors.
We are seeking to redeploy people within the business, and have agreed an early retirement scheme. We are currently finalising a voluntary severance scheme with the unions. We aim for the reduction to be completely voluntary, but we cannot guarantee that. Compulsory redundancy will very much be a last resort.
That gives you some background, and I would like to introduce you to Eddie McGoldrick. Eddie has been with the company for around 18 months. He was formerly with Northern Ireland Electricity and has been through a similar exercise. He will take you through our proposals for the central operations service, and what we propose to do on depots.
Mr Eddie McGoldrick ( Northern Ireland Water):
I will take the Committee through the central operations support services, which provides the administrative functions to support field operations.
We recognise the need for the new approach because we have changed the way in which we serve customers in order to deliver a better service. We have introduced mobile work management, which Chris has outlined. We have moved work control from 17 locations to two locations. We have been restructuring the operations business into the network sewerage and water businesses, and have been able to offer customers more ways to pay. That reduces the need to have the public counters that have been maintained in depots. We have, therefore, a new approach to supporting field operations.
We are aiming for a single site, rather than the current 17 sites. That would improve processes within that site and job roles for staff within those new processes, and would reduce the number of roles required from 50∙5 full-time equivalents to 22. We propose to site that depot in central Belfast.
We have provided the Committee with an indication of sites that we currently have, and those staff who carry out administrative support functions at those sites. That is 50∙5 full-time equivalents — 55 people across 17 locations. Our proposal is to move to one single operation sited in central Belfast. One of the issues that we faced was whether we could site the depot in a place where the maximum number of existing staff would find it reasonable to travel to. The new posts will be offered in central Belfast, because that cushions the impact for the greatest number of affected staff, as shown in the catchment-area diagram. There are more flexible and efficient commuting options into central Belfast than to the other sites that we considered. That is the proposal in central operational support.
To set the depot strategy in context: in 2005, the water service, as was, had 24 depots. Seven of those were closed in an exercise that ran from 2005 to 2006, and we currently have 17 depots. Depots comprise both field operation and administrative support staff, with various other functions. Running a dispersed utility network — as we do — requires an appropriate regional presence. It cannot all be centralised into Belfast, nor would we aim to do that.
The material that we have provided includes a chart that illustrates the location of NIE depots. In comparison, we propose to implement a system comprising five hubs. I will explain what I mean by the word “hubs” later.
We will maintain a presence in the main urban areas, in Belfast and Altnagelvin, and, regionally, in Seagoe, Omagh and Ballymena. The dispersal of those centres is sufficiently wide to enable us to manage major incidents wherever they occur. In addition, that arrangement will give us access to sufficient numbers of staff in order to manage such incidents. Furthermore, the distance that those staff will be required to travel to those locations is reasonable. A chart illustrating that arrangement is in our submission.
The word “hub” reflects the fact that the vast majority of staff will work according to the mobile-work management strategy — which was explained to members earlier — whereby staff will be able to travel directly from their homes to incidents, assets that require maintenance, or customers who have a problem that must be resolved, and, throughout the day, they will be able to follow up on jobs sent to their Toughbooks. In addition, at the end of the day, members of staff will be able to return directly from their last jobs to their homes. Periodically, staff members will have to call into the hub in order to meet their manager or pick up materials from the stores, which, incidentally, have recently been revamped. That is why we use the term “hub”, rather than “depot”, to which, traditionally, people travelled at the start of the day and returned at the end of the day.
Following rationalisation, and having reduced staff numbers in previous years, the remaining sites will have extra capacity. In addition, some waste-water and water-supply-activity staff who are now sited in depots will be transferred to office accommodation at treatment works. Furthermore, at the beginning and end of each day, it will be feasible to park company vehicles in any of the treatment works that are widely dispersed throughout Northern Ireland. For example, if a member of staff lives in Newry, there are several treatment works in the locality that are suitable for parking vehicles. Consequently, such people will not be required to travel excessively, and that is what we mean by mitigating the impact of travel.
We are in discussions with the trade unions about our intention to offer members of staff a package of mitigation measures, including lump-sum mobilisation payments for those who adopt the mobile-work management system and, for a period of time, payments to cover the additional costs that will be incurred when people travel to new locations.
We are not designated under section 75 of the Northern Ireland Act 1998 to carry out equality impact assessments (EQIAs); however, as a good employer and corporate citizen, we considered the customer-service and efficiency impacts that the equality agenda might have had for stakeholders. Moreover, we adopted the aims and policies of the EQIA framework when assessing our proposals. Having conducted that exercise, we conclude that our proposals have no major detrimental impact on the equality agenda.
Mr Mellor:
I will address capital efficiency. This year, we will invest £280 million, so it is important that we consider efficiency. A table summarising capital efficiencies is contained in the material that we have provided for members.
Based on some fairly sophisticated research, compared to median efficiencies achieved by companies in England and Wales in 2008, Northern Ireland Water is efficient. For example, with regard to water infrastructure — the water mains — we are 1·6% less efficient than the median efficiency achieved by water companies in England and Wales. Waste-water non-infrastructure — sewage treatment works — is the area in which we have the most work to do. That data is based on figures from 2007-08, and we expect to make significant gains this year and next year. By the end of 2009-10, we anticipate that our efficiency figures will not be too far below at least the average efficiencies achieved by companies in England and Wales, and that would indicate significant progress.
I re-emphasise that the big task is to reduce operating costs and increase customer services to levels that are enjoyed by customers in England, Wales and Scotland. Therefore, the section of the presentation entitled “Beyond SBP 2009-10 Onwards” breaks down in simple terms the approach to people, process and technology.
In brief: Northern Ireland Water wants to employ the right people, equipped with the appropriate skills and motivation, to do the job. That requires upskilling and better performance management.
Process involves designing out the cost drivers. There must be a lean and appropriate headquarters structure. The business operating model and the way in which Northern Ireland Water works with contractors and partners must be reviewed. A key element of that involves further investment in technology, such as the mobile-work management system that has already been discussed. More can be done through automation, control and predictive maintenance to reduce the cost of maintaining the existing very extensive networks and works, and to even further improve capital investment.
Therefore, Northern Ireland Water is centralising its support services in Belfast. It has not been talked about in the Committee, but the two big PPP wastewater works — “Alpha” and “Omega” — have just been commissioned. Mobile work management has been introduced, and there is a depot strategy. Therefore, by the end of March 2009, the company expects to achieve efficiency targets set out in the original strategic business plan, as well as making the £3·5 million saving that was asked of it last year.
The further £7 million incorporated in the operating plan for 2009-10 is not yet in the bank. That is a gap that has yet to be filled. The depot strategy will probably save at least £1 million next year. Therefore, that amounts to a contribution over and above the SBP that will, in the fullness of time, release more than £10 million of capital receipts from the sale of various sites for which Northern Ireland Water no longer has any use. All those factors will be incorporated in an operating plan to be submitted to shareholders later this year.
Under the existing timetable, the business plan for the price-setting process, BC10, that the Utility Regulator will put in place, must be submitted by June next year. Northern Ireland Water regards itself as responsible for taking the lead in delivering what I hope is a shared agenda — to have a highly efficient water and waste-water undertaking in Northern Ireland that offers excellent customer services. NI Water must anticipate and understand the impact of a chain that affects a lot of people. The company must treat its staff fairly and with respect — something that is being attempted. It also has a responsibility to keep key stakeholders informed every step of the way, which is the point of this presentation.
In relation to other factors, it is hoped that political and other key stakeholders will help set the tone. The business is under a huge strain at the moment, given everything that it is attempting to do. Northern Ireland Water believes that achieving the ultimate benefit for customers and taxpayers is a shared challenge.
I will halt there, but I am happy to take questions.
The Chairperson:
The Committee is happy to hear the second presentation now.
Mr Mellor:
That is an update on billing and revenue issues. As soon as the issue came to my attention last week, I wrote to the Committee. Page 1 of the submission before members puts it into the context of my instituting an:
“Ongoing drive to improve information systems and data quality within organisation”.
That is not just financial information, but all data used by Northern Ireland Water.
I repeat that I have given a personal commitment to openness and transparency with all the company’s key stakeholders. I wrote to the Committee last week in an effort to share potential issues as early as I became aware of them.
I saw that as a part of our effort to try to build trust. We have problems, we are working very hard to fix those problems, and we want to make sure that all our stakeholders are aware of what the issue is, and what we are doing about it.
I will hand over to William Duddy, the director of our customer services, who will take members through the issues relating to those standing charges that we have, in some instances, contrived to get wrong.
Mr William Duddy ( Northern Ireland Water):
As director of customer services, since 2004 I have been responsible for the introduction of the new billing system, and the subsequent operation and extension of it. Last year, as a headline number, we were handling 300 monthly accounts and 64,000 six-monthly accounts. Large consumers are billed on a monthly basis, and others, including businesses, farms, etc, are charged on a six-monthly basis.
In February 2006, preparations for the new billing system commenced, and, in October 2006, we transferred from the old Water Service legacy system to the new billing system. In December 2006, the first bills were issued on the new system and, at that time, we were in the run up to the anticipated introduction of domestic charging.
In February 2007, partly due to queries from customers, the problem with standing charges was raised. At that time, the 300 monthly accounts were fixed, the standing charges were corrected, and the accounts were amended accordingly. Of the 64,000 six-monthly accounts, there were a potential 15,000 that could have been affected by that error in the standing charge calculation. Subsequently, that has been narrowed down to 8,500 accounts, which is approximately 12% of the six-monthly bills. From January 2008, those bills were corrected.
We are left with the need to make retrospective adjustment to those 8,500 bills, of which 5,350 customers will have been overcharged by approximately £1∙2 million, and 2,850 customers will have been undercharged by approximately £500,000. Following the resolution of that, there will be a £700,000 shortfall on the previously stated position.
Moving on, essentially this is, and always has been, a four-stage process. Stage 1 is identifying the problem, in this case the problem relating to the calculation of the standing charge. According to our scheme of charges, the standing charge on metered bills is based on the diameter of the pipe, and not the diameter of the meter. What happened, in the case of those 8,500 bills, was that, wrongly, the diameter of the meter was used as the basis for the charge. Where there is variation between pipe size and meter size, customers are wrongly overcharged or undercharged accordingly.
The Chairperson:
Can you explain that further?
Mr Duddy:
Under the scheme of charges for metered customers, we have a standing charge and a variable charge, according to how much they use. The standing charge is based on the diameter of the supply pipe.
The Chairperson:
How many different sizes of pipe are there?
Mr Duddy:
There is a banded standing-charge system, which goes up in steps from up to 20 mm in diameter, to over 100 mm in diameter. To give an example, the standing charge for a supply pipe up to 20 mm in diameter is £63. For a supply pipe over 100 mm in diameter, or 4 inches, in old money, the standing charge is £1,600. There is a wide variation through the bands.
Stage 2, which was completed in January 2008, was to amend the billing system and fix future bills. Stage 3 examined the extent of the problem. Having identified that 8,500 customers were affected, stage 3 examined how each one of those is affected by the difference between the meter size and the pipe size. We have done that, and we have a list of the affected customers. Stage 4 is to agree the refund-and-recovery process.
The timeline that I described earlier indicates that the process went on for a long time. We started the work in February 2006, we issued the first bills in December 2006, and we fixed the system in January 2008. I accept that a clearer picture on that should have emerged sooner.
Given that the financial difference was around £700,000, there is no impact on domestic customers, and there will be no requirement to seek additional funding from the Department. As we move forward to retrospectively amend the bills, we will talk to the Consumer Council, in the first instance, and to the regulator. We will consult groups with which we have regular contact, including the Federation of Small Businesses, the Institute of Directors and the Ulster Farmers’ Union.
Mr Mellor:
We are seeking to get much better and more proactive in our revenue forecasting. Our latest position, based on data that we received a few weeks ago, is that there will be a shortfall of between £5 million and £7 million. Reasons for that include: the economic downturn has resulted in a significant downturn in consumption; last summer was unseasonably wet; and building of new houses has declined.
Sewerage charges have been reduced. You may know that the standard assumption in the water industry is that 95% of the water that is charged for that goes into a property comes out again as sewerage, and it is paid for on that basis. However, in the case of, for example, a bread manufacturer, 20% of the water that goes into the factory does not come out again through the sewer. Businesses that have their own recycling facilities would not meet the industry’s assumption. On a case-by-case basis, if a business can substantiate that 95% of the water does not go back to the sewer, we agree an alternative charge. During 2008, more and more companies have agreed such reductions with us, and it is their right to do that.
As part of the process of data cleansing and improving our systems, which I mentioned earlier, there is no question that we have improved our data quality. That is more due to economic factors that data reasons.
Our initial estimate is that our revenue will be between £5 million and £7 million — between 7% and 10% lower than expected. In my experience, that is unusual, but not unprecedented. I can think of at least two occasions in the water industry when income and consumption has been down by between 5% and 15%. The latest information, which we have received in the past few weeks, suggests that the shortfall will not be as bad as we fear. For the moment, it is right to be pessimistic. I always prefer my finance directors to be pessimistic, but the shortfall may not turn out to be as bad as that.
We do not anticipate any impact on domestic customers this year, nor do we forecast any predicted requirement for additional funding this year. We will work with the regulator during the autumn to consider whether there is any long-term impact, for example, between industrial customers and domestic customers. There may not be, because if overall water consumption is down there is not necessarily any reason to reapportion costs between the two classes of customer. That is something that we must examine with the regulator.
Looking forward, we are continuing our focus on establishing the full extent of issues. To reiterate, there is no question but that the error on standing charges should, and could, have been identified earlier. I have redoubled my efforts to ensure that there is an appropriate escalation process, within the company and without, so that there is early warning of such issues. The reason those errors have been discovered is because of our ongoing efforts to improve information systems and data quality. Data quality is absolutely critical to the company’s delivery of sustainable efficiencies and improved customer service.
Finally, I cannot give any guarantees that this is the last data-quality issue that will arise. I hope that in about 12 months’ time the vast majority of the issues will have been buttoned down, but, frankly, it may well be unlikely that this is the last data-quality issue that we will face. It is essential that we are able to surface developments in a responsible and transparent way, and I would also like the problems to be seen in the context of the scale of change that is taking place at NI Water. As I said, we are taking out £30 million from our cost base over three years, reducing manpower by 400 people, and managing a £280 million capital programme this year — and actually managing it very well. With regard to our performance this year, the quality of drinking and waste water is probably going to turn out the best it has ever been; so far we are hitting all our targets. A huge amount of effort is going in. At the end of the day, sustainable efficiency and improved customer service is, I hope, our shared agenda. Thank you.
The Chairperson:
I am disappointed that you have come to tell us that this may not be the last issue to arise involving data. The problem has been going on since 2006; it is now 2008, and there are still substantial billing discrepancies.
Mr Mellor:
One billing mistake has certainly been made, but the other problems involve forecasting our income on a more accurate basis.
The Chairperson:
It is the same thing.
Mr Mellor:
Not really, they are two different things. One is an error; one is getting better at our forecasts. Those forecasts happened to produce the wrong result, but it is —
The Chairperson:
So it is not an error to produce the wrong result?
Mr Mellor:
No. Better forecasting is in all our interests, because going forward we are better able to deal with it.
The Chairperson:
The issue of data has been raised on numerous occasions since 2006. In fact, the Committee has been raising it for over a year in relation to the strategic business plan, and yet mistakes are still being made. There are 8,000 customers in 2008 who are still receiving erroneous bills.
Mr Mellor:
The bills are not wrong now, but they —
The Chairperson:
I do not know whether the bills are wrong now or not, but they were wrong.
Mr Mellor:
They were, you are quite right, and that is inexcusable.
The Chairperson:
That is OK.
Mr Mellor:
I have to put my hand up and say that that should not have happened.
The Chairperson:
But there is no guarantee it will not happen again.
Mr Mellor:
I hope that all the work that we have done on billing ensures that there are no similar billing errors. However, on the issue of the quality of both financial and non-financial data, until we have completely buttoned down the databases and carried out an analysis — which is a big exercise — and have put in place a corporate management system — which will not be until around this time next year — I cannot give any guarantees that something else will not appear. I think I can say with certainty that we are gradually reducing the risk of error.
The Chairperson:
I should like to think so, after three years. I should like to think that the risk is being reduced, as it is supposed to be a commercial business.
Given the economic downturn, and the £5 million to £7 million that you are going to be short —
Mr Mellor:
We might be.
The Chairperson:
Will the company be short some amount of money?
Mr Mellor:
Yes, almost certainly. At the half-year stage, we are approximately £2 million below where we expected to be when we set the budget. If that situation continues, we might be in the £5 million to £7 million territory. However, as I said, that may prove to be a pessimistic forecast. Evidence gathered in the past month or so suggests that the situation is, perhaps, not quite as bad as we feared. It is difficult to predict some of those numbers, because we deal with so many accounts, as Mr Duddy said.
The Chairperson:
Where will the money come from?
Mr Mellor:
All else being equal, if the company is unable to make further cost savings, it will make a net loss on its bottom line. However, we will try to offset that. Making a loss would not require us to borrow any more money; we are well within our borrowing estimates. Customers would not be affected. We will consider in the autumn whether we think that trend is likely to continue in 2009-10. It might not. If the economy picks up, the company’s income could increase. However, if the economy does not pick up, we will have to think long and hard about what we can do to try to offset that.
The Chairperson:
Is this situation purely due to the economic downturn?
Mr Mellor:
It is mostly caused by the economic downturn. However, those people I mentioned who sought and proved that they were owed a refund on their sewerage charges also had a role to play.
The Chairperson:
Did you get those wrong?
Mr Mellor:
No, absolutely not. Let us get this nailed. All water companies legitimately assume that 95% of the water that people use comes out again as sewage. That is a standard assumption. The onus throughout the UK is on the customer to prove that that is not the case. For most people that is the case, but for some businesses it may not be.
The Chairperson:
What percentage is wrong here?
Mr Mellor:
What do you mean by “wrong”?
The Chairperson:
You forecast that 95% —
Mr Mellor:
Do you mean how much of the £5 million to £7 million is attributable to that?
The Chairperson:
No. You made an assumption that 95% of the water that people use goes back into the system as sewage. What percentage of that is wrong, and how many bills have been wrongly estimated as a result?
Mr Mellor:
It is not wrong; it is simply a question of people saying that that is not the case for them.
The Chairperson:
How many people have said that their bill is wrong?
Mr Duddy:
No one has said that their bill is wrong as a result of overcharging for sewerage. Some customers have enquired about the arrangement whereby they can apply for an allowance if they can prove that they use lots of water on site.
That 95% figure is clearly stated in our scheme of charges. That is a stated assumption for the measured sewerage charge. That is the basis on which the bills are charged. If bills are based on that assumption, they are correct. Under the arrangements that are set out, if a customer, such as Kilroot power station, uses lots of water and discharges less, we will examine that on a case-by-case basis. That is not because their initial bill was wrong, but because we operate under the arrangement put in place —
The Chairperson:
What percentage of customers have had their bills changed?
Mr Duddy:
We fixed 300 monthly accounts.
The Chairperson:
What percentage is that?
Mr Duddy:
We fixed 300 out of a total of 64,000 —
The Chairperson:
Three hundred companies out of 64,000.
Mr Duddy:
We always get queries about bills — I do not have the statistics with me. Some customers query their bills on a monthly basis. Perhaps their meter is not working properly — customers have all sorts of reasons for querying bills. Sometimes customers seek to have a bill reduced because they have a leaky water supply.
Between December 2006 and February 2007, some 300 monthly-account customers who are major users contacted us to say that their pipe diameters were incorrectly stated on their bills, and, therefore, their bills were wrong. However, the bills were all put right by February 2007
Mr Wells:
Does the world end at Glengormley?
Mr Mellor:
Sorry?
Mr Wells:
Does the world end at Glengormley, or Carryduff? Perhaps you have never heard that Northern Irish phrase being used before.
Mr Mellor:
No, I have not.
Mr Wells:
The phrase is used in an accusatory manner to describe the thinking of people who believe that there is no life beyond the greater Belfast area — that, if offices are being relocated or centralised, they must remain in the Belfast area, because there is no civilisation, no roads, electricity or sewers, outside Belfast.
Here we have yet another example of a Government agency taking the decision to centralise, and, blinkered, it goes to Belfast, adding to the congestion and the carbon emissions and all the other associated problems. There is absolutely no reason why the new centralised depot could not have been in Lisburn, Banbridge, Downpatrick, Carrickfergus, Newtownards, etc. It is about as daft as the Forest Service having its headquarters in Dundonald House when there is no forest anywhere near there. In fact, most of the forests are located in the west of the Province.
You have taken the decision to further congest Belfast, and the only reason why you seem to be doing that is because it suited a few people who quite fancied continuing to commute to Belfast. On the basis of your sustainability programme, where can that be justified?
Mr Mellor:
Needless to say, we see things differently. We approached the matter from the point of view of operational efficiency. As we indicated in our presentation, we believe that the central control is correctly placed in Belfast. When it comes to other issues, the Bain Report was recently published, and we take it very seriously. As you know, we are seeking to consolidate all our various offices in Belfast into one place, and we will need to take into account the Bain Report when we finally decide how best to do that. However, from an operational point of view, we believe that what we have done is the correct thing to do.
Mr Wells:
With modern technology and the way that NI Water delivers its service, there is no reason why its headquarters had to be located in the centre of Belfast.
Mr McGoldrick:
We tried to minimise the disruption for the staff who currently work for us. Locating the headquarters in Belfast allowed the largest number of staff to be eligible and available to apply for the posts.
Mr Wells:
The headquarters could have been located in Banbridge, Newtownards or Carrickfergus, for example.
Mr McGoldrick:
It could indeed, but there would not have been as many of our staff in any of those catchment areas, and it would not have been as easy for them to travel to those locations. We recognised that there is more flexible public transport and car-sharing options into central Belfast than in some of the locations that you mentioned.
Mr Wells:
I sat for 55 minutes waiting to come into Belfast, so I am not sure that I agree on that point. It is a done deal, but, yet again, it is a missed opportunity to do something radical. You have to think of future workers who may be perfectly happy to commute to Banbridge, Carrickfergus, or anywhere else. Yet again, it is a blinkered viewpoint. However, I accept that the world seems to end at Glengormley.
Mr McGoldrick:
Our staff work in the locality, starting from home, and are available to go directly to the problem. The people who attend to customer issues, networks and plant maintenance are still spread right across Northern Ireland.
Mr Wells:
On a totally different issue, you are quite right that if you are going to make the savings that are required, you have to target people. That is unfortunate, but there are so many other costs that are fixed. We have met the unions about the matter, and we have been told that there has been no dialogue between directors and unions. You, as directors, are refusing to meet the unions, but if you are going to achieve cuts, they must be done quickly, efficiently and with as much co-operation with staff as possible. Therefore, why are you refusing to meet the unions directly to discuss the issue? Why is the human resources man the direct link there?
Mr Mellor:
A number of union representatives have made that point. In fact, I met John Corey from the Northern Ireland Public Service Alliance (NIPSA) this morning, and I am meeting Albert Mills this afternoon. I have also met a number of other representatives. I am prepared to say that we need to have more of a partnership arrangement with the trade unions than we currently have. We tried to put in place an escalation process whereby our director of operations and our director of human resources were available, but were one step removed from the process that they were trying to negotiate on. We felt that we were dealing at the right level with the unions, but we left space for escalation.
However, in the past couple of months, I have given instructions to try to improve relations with the trade unions. I was encouraged to hear NIPSA say this morning that there has been improvement in the last few months. It is hugely important that we get the process right. I will continue to work to improve our relations with trade unions. I prefer to view trade unions as partners rather than adversaries.
Mr G Robinson:
Allan, Jim and I met the trade unions on Monday. I discount what you have said today, because the trade unions gave a completely different version of events. The trade unions are very frustrated and the workforce’s morale has never been lower, because they are not being allowed to communicate with the human resources department. They have a lot of concerns, but the situation is at a complete standstill.
Mr Mellor:
I have spent a lot of time going around the business. Given the amount of change that is happening, it is not surprising that a lot of people are disaffected. Equally, a lot of people are embracing the change. I have related a comment that I heard first-hand from a NIPSA representative this morning. I have made it my task to address the matter since I took over as chief executive about four months ago. I have met trade-union leaders to try to change their attitudes and perceptions, and I will ensure that we try to improve relations with trade unions. However, trade unions also have a part to play. You have obviously heard one side, but there are two sides to every story. We have tried very hard to negotiate with the trade unions, and we meet them on a weekly basis.
Mr G Robinson:
That is definitely not what the trade unions have been telling us.
Mr McGoldrick:
For the purposes of clarification, I can confirm that I and other managers of Northern Ireland Water meet trade unions on a weekly basis to discuss this topic and related matters. We receive their questions and requests for clarification and provide them with the relevant information.
Mr Wells:
Negotiations regarding a fundamental change in the structure of Northern Ireland Water should be directly between the executive board of directors and the trade unions, but that is not happening.
Mr Mellor:
It will happen in future.
Mr Wells:
That is good to hear.
Mr Duddy:
There has been no refusal to meet trade unions. Over the years, I have had formal and informal discussions with trade unions. We are talking to them now about changes in meter-reading practice and other aspects of customer-service field activities. As a director, I am not reluctant to speak to trade unions.
Mr Mellor:
We must do better, but I can assure you that we are working very hard on the issue.
The Chairperson:
At what level of management do the discussions with trade unions about relocation and depot closures take place?
Mr McGoldrick:
Those discussions are led by the manager who heads up employee relations and pay. The heads of function from water networks, sewerage, and leakage, and the various affected business units, meet on a weekly basis. The meetings typically last between four and six hours, and we conduct a line-by-line consideration of each item of business. Clarification questions are raised in person and supplemented in writing, and we reply to those. The next meeting is tomorrow at 10.00 am.
The Chairperson:
Can you make decisions on those issues?
Mr McGoldrick:
No. As a team, we respond to those issues to clarify the proposals that we are making.
The Chairperson:
You cannot make decisions?
Mr McGoldrick:
No. The whole operations management team meets to review the issues weekly, and there may be issues that go back to what is known as the change programme board, which is chaired by the chief executive, and major strategic issues are decided there.
The Chairperson:
We are talking about major strategic issues. How often have you met the heads of the trade unions to discuss the matter?
Mr Mellor:
I have not discussed this matter with them at all, but I have met a whole range of union representatives over the past few weeks.
The Chairperson:
Why have you not met?
Mr Mellor:
There is no reason for me to meet them, because the issue has not got to that level on the trade union side. If it did, and we were not able to conclude the discussions at the right level, I would be very happy to meet the trade unions.
The Chairperson:
What level of officials are you meeting?
Mr McGoldrick:
We are meeting lay officials — with the exception of NIPSA, which brings along a full-time official.
The Chairperson:
Is the full-time official not at your level?
Mr McGoldrick:
Full-time officials have not attended those weekly meetings — generally speaking.
The Chairperson:
You will meet the full-time officials?
Mr Mellor:
Absolutely. The first stage would be for the director of operations and the director of human resources to meet them — if it got to the level where we could not agree on something and it was a major issue. I would then come into play if the issue could not be resolved at that stage. That is how it works in a company of this size.
The Chairperson:
None of those decisions will be taken until the trade unions have a meeting at your level.
Mr Mellor:
Not necessarily. That depends on the way that the discussions go.
The Chairperson:
If there is no agreement at this level of trade union negotiations, and the leaders of the trade unions here want to meet you specifically to talk about these issues, then no issue will be resolved until that meeting takes place.
Mr Mellor:
Let me put it this way. The next step —
The Chairperson:
I am saying that if there is no agreement at that level, and if the full-time officials want to meet you to discuss those issues, you will meet them.
Mr Mellor:
Absolutely.
The Chairperson:
OK.
Mr McCartney:
The change programme affects many constituencies, so I am not going to go into the matter here. I propose that we hold a party meeting with NI Water on the matter; we will write to the company and ask for a party meeting, rather than go into a question session here.
The issue of overcharging is currently in the news. I agree with the Chairperson’s request for reassurance that it will not be repeated — within certain bounds. What stage are we at as regards refunding those people, and what is the process for refunding? There is a similar situation with the people who were undercharged. You said that there should have been a clearer picture sooner. When should the matter have been detected? Why did the situation run on for so long?
There appears to be five or six billing bands, from £63 to £1,600. Will you analyse which customer was affected the most? Someone who was due a low bill could have been presented with a bill for £1,600. We were told at Monday’s briefing that people could have had three bills during that period. A small business that received three bills in excess of £1,000 in one year — £3,000 — would be put under a massive strain. Will you analyse the impact of that situation, as well as refunding people?
Mr Duddy:
As a director of customer services, this is not a position that I want to be in. Money has been taken from customers who should not have paid that money, and I have to go back looking for more. As regards how we rectify the situation, we will speak to the Consumer Council first of all, and agree a strategy. We will also speak to groups who represent businesses, farmers and the commercial community to explain the details fully. The refund process is relatively straightforward.
I will explain why the situation arose. The data on the diameter of pipe serving each customer and the diameter of the meter serving each customer is in the system. The problem was the fact that the meter diameter, rather than the pipe diameter, was used to calculate the standing charge. This is not so much about the data being wrong, as about the wrong data being used.
We can start the refund process within two weeks of reaching agreement as to how we go about it with stakeholder groups. We estimate that to refund all the 5,800 or so customers who are affected will take eight-to-10 weeks. We will rectify the undercharging in parallel. There may be cases where there is a big difference between the pipe size and the meter size, so some customers will be more affected than others; in those cases we will talk, as we always do, about how payments can be made by instalments or other means.
Mr McCartney:
I should be interested to know how many customers, on receiving their bills, telephoned you to complain that they thought they had been overcharged, only to be told that they were not. You said that some 5,350 customers were overcharged. Say, for example, that 3,000 of them — to take a figure — wrote back to say that they had been overcharged and they received a standard letter from you to the effect that your calculations were correct. When do you say to yourselves that you have a problem? At what point do you ask yourselves why 3,000, or 1,000, or whatever number of people are complaining about their bills?
Mr Duddy:
We knew that there was a problem when the first large accounts started complaining in January and February of 2007. At that stage, we knew we had a problem. We amended those 300 monthly accounts proactively because we were able to deal with them manually. Because of the numbers involved, the six-monthly bills could only be adjusted through the billing system. It took time to adjust the billing system, and we did that through January 2008. All bills sent out since then are correct. That leaves some 8,250 accounts, for the period up to January 2008, of which some are overpaid and some underpaid.
Mr McCartney:
So, when you found out that a high number of the customers billed monthly thought that they were being charged too much, you made an analysis of the six-monthly bills?
Mr Duddy:
During the following months, as we went through the 64,000 billing accounts —
Mr McCartney:
When was that — January 2007?
Mr Duddy:
Throughout 2007.
Mr McCartney:
When was it recorded? When was the problem brought to the attention of the chief executive?
Mr Duddy:
As director of customer services, I formally brought it to the chief executive’s attention towards the end of September and the beginning of October 2008 — within the last few weeks.
Mr McCartney:
You say that this goes back to 2007, and in that year the customers billed monthly let you know that there was a problem. How was this allowed to run for 18 months? Is there no safeguard in the system that alerts you to a problem if a large number of complaints are received?
Mr Duddy:
As I have said, we were aware throughout.
Mr McCartney:
So this did not come as a bolt from the blue?
Mr Duddy:
It did not. I was aware from January or February 2007 that we were getting queries from big key-account customers. As 2007 progressed — and there was much besides going on in that year — we got to grips with the size of this issue for the customers billed on a six-monthly basis. We worked in close consultation with the billing team.
Mr McCartney:
When Mr Mellor came in front of the Committee for the first time as chief executive, he was asked by the Chairperson whether any more skeletons lurked in the closet. At that stage, he should have said that there might be a problem with billing. You would have been better off flagging it up than saying nothing.
When this emerged last week — and we accept that it is not the same as the last problem — the presentation of it in the media was very damaging to the image of the company. The company could have said three, four, five or six months ago that there was a problem with billing that it was correcting and that would be brought to the public’s attention. It was only brought to the public’s attention when it was being addressed. The Committee was not informed at any stage to be prepared for a public announcement in three or six months’ time, or in a week’s time. We found out about this through your admission that you had made — and I do not like to use the word — a mistake. The problem could have been flagged up.
You are saying that the problem has existed from January 2007, and it is now October 2008. Somewhere along the line, you could have said that there was a particular problem and explained that to the Committee. You could have asked us to bear in mind that you were reviewing your billing system and that the problem would come into public light. People will be disgruntled if they are overcharged. Those who are undercharged may take a different view, but, at the end of the day, this is something that the Committee should have known about well in advance of its becoming a public issue.
Mr Mellor:
You are quite right. I should also have been aware of it; there is no question about that. When the Committee asked me that question four months ago, I replied that I could not give any guarantees. At that point, the issue was known within the company. I am not sure if anyone knew the size of it, but there was an issue, and it should have been brought to my attention.
Since I have taken over as chief executive, I have put in place what I call an escalation process, which, in words of one syllable, says that if this happens, I need to know by this stage, this is what I need to know, and this is what I expect to happen. In this instance, as soon as I became aware of the issue, I informed the Committee.
The Chairperson:
You are saying that there has been an issue around billing since 2007, and that the chief executive did not know about it until October 2008?
Mr Mellor:
Until very recently, yes. I did not know the scale of it, certainly.
The Chairperson:
Mr Duddy, did you know this? Obviously you knew the scale of it.
Mr Duddy:
I have already said that I was aware of it. Being responsible for the introduction of the new system —
The Chairperson:
You did not think it was right to inform the chief executive of the scale of the problem?
Mr Duddy:
In terms of the extent of the problem, and given that we were looking at a difference of £700,000 or thereabouts, I should have —
The Chairperson:
Never mind about the money; I am saying that you did not think it right to inform the chief executive that 10,000 people had had their bills miscalculated.
Mr Duddy:
In hindsight, we should have raised it sooner, yes.
The Chairperson:
As Warren Buffett says, everything is clearer in the rear-view mirror than it is through the windscreen.
Mr Duddy:
There was a lot going on in that particular year.
The Chairperson:
I do not think that “a lot going on” in that year is a sufficient reason for not informing the chief executive that the bills were wrong. You come here and tell the Committee that this is going on, that is going on, and something else is going on — you represent a commercial company.
Mr Mellor:
I have to take responsibility for the failure in our processes.
The Chairperson:
That does not get us anywhere.
Mr Mellor:
My point is that it might do in future. It may be closing the stable door after the horse has bolted.
The Chairperson:
We have done that before.
Mr Mellor:
We have to move forward.
The Chairperson:
I know that, but we keep doing that. We must have 5,000 horses in the stable because we keep bolting it —
Mr Mellor:
With respect, we are gradually removing the risk in the business. We are focusing on one bit here. There is a huge amount in this business which is going right, and it is important that we understand that.
The Chairperson:
Well, it is not going right quickly enough.
Mr Mellor:
That is a matter of opinion. It is certainly twice as fast as has happened in England and Wales.
Mr Bresland:
I have two points. One is about the standard charges — you said that you had changed the basis of the standard charges from the meter size to the pipe size. Most of the pipes in country areas are 100 mm — four inches — in diameter. Most of the tappings through the country are between 20 mm and 32 mm; what is the standing charge in a case like that? Is that a £65 charge or a £1,000 charge?
Mr Duddy:
As I explained earlier, the standing charges are scaled according to the size of the supply pipe. The most usual supply pipe size is around 26 mm to 40 mm in diameter. In old money, that is an inch or an inch and a half, or thereabouts. The standing charge for that type of pipe is £194. The highest standing charge — £1,600 — is for a 100 mm or 4 in pipe. Commonly, such a pipe would be used in a very large commercial undertaking, such as a large factory or a power station, and it would be a monthly account.
Mr Bresland:
If that is the case, why not continue to base the charge on the meter diameter rather than the pipe diameter? If it is a 20 mm pipe, there is no such thing as using a 4 in meter on it.
Mr Duddy:
Of the 64,000 accounts, around 49,000 had the same diameter of supply pipe as meter. Thus, the matter was straightforward — there was no change. That meant that the remaining 15,000 accounts could potentially be affected. The bills for some 4,000 or 5,000 of those 15,000 accounts were OK — the meter and pipe size were within the same band, so there was no change there either. That left around 8,500 accounts where the meter size was different from the pipe size. It would be highly unusual to have a meter with a diameter of 100 mm or 4 in on, for example, a supply pipe with a diameter of 26 mm.
Mr Bresland:
The most common pipe size in country areas is 100 mm or 4 in.
Mr Duddy:
Sorry, but I would not agree with that. A typical farm would not have a 4 in supply pipe.
Mr Bresland:
Once the meter is tapped into, the flow is reduced into a smaller pipe then.
Mr Duddy:
A 32 mm — 1·5 in — supply pipe would commonly be used on a farm, and there would be no reason for the meter on that pipe to be bigger than that.
Mr Bresland:
The supply has to be tapped off a pipe along the roadside.
Mr Duddy:
Yes, the supply pipe is tapped off the main pipe on the road. However, although the main pipe might be 100 mm in diameter, the supply pipe that connects that pipe to individual premises would not be that size. Perhaps we should be clear about what is meant by “supply pipe”. There is a main water pipe under the road, to which the private supply pipe is connected. That private supply pipe taps off the main pipe and delivers water to an individual property. I am talking about the private supply pipe and the meter that is on that pipe.
(The Deputy Chairperson [Mr Wells] in the Chair)
The Deputy Chairperson (Mr Wells):
Alan, I know that you have a great deal of experience in this area, but, unfortunately, we have encountered a problem — this witness session must finish at 1.30 pm, because we must take five minutes to deal with the SL1s. Four members have yet to ask questions, so we will have to pass the prepared questions to the witnesses for a written response. I will do as Mark Durkan does in the Committee for Enterprise, Trade and Investment, another Committee on which I sit; I will invite each member to fire off a question, and we will ask the witnesses to answer them together.
Mr McCallister:
Yet again, public confidence in Northern Ireland Water has been dented, and that confidence must be rebuilt. Customers must feel confident that they were being billed correctly as far back as the time of the Water Service, before Northern Ireland Water took over. Did customers who were overcharged experience any financial difficulty because of the overcharging?
Mr B Wilson:
I assume that the relevant data was transferred to the Crystal Alliance. At that stage, was that data accurate? Basically, where did it go wrong?
Mr Dallat:
Chairman, I am disappointed that we have run out of time; this is a very serious matter and I have a lot of questions. Mr Mellor, the last time that you were here, you said that the buck stopped with you. Is that still the case?
Mr Mellor:
Absolutely.
Mr Dallat:
There must be times when you feel like throwing in the towel?
Mr Mellor:
I have good days and bad days, but it is a very worthwhile job that we are trying to do. As I said, the shared agenda, I hope, is to produce a water company and a waste-water company on a par with the rest of the UK. I am sorry to have to keep bringing up problems, but at least we are identifying those problems and fixing them.
Mr Dallat:
How far on are you in appointing a new chief executive? It seems that you need one very badly.
Mr Mellor:
As I wrote to the Chairperson a while ago, it has always been our plan to try to recruit a chief executive in the first quarter of next year. We expect to advertise shortly.
Mr W Clarke:
I agree with John; this is an important issue, and it is not often that we get the opportunity to ask questions. The meeting should have been better structured, so that all members got their questions in.
The indicators show that we are still underperforming on the incidents of major and medium pollution. Perhaps you could touch on that? Energy costs are increasing all the time; what efforts are you making to look at renewables? There are 44 water treatment plants, 270 water pumping stations, 1,300 waste-water pumping stations, over a thousand waste-water treatment works, all of which should be all running independently, either through the use of biomass or through other renewable energy sources. I hope that you will take a look at that, and I am sorry that I did not get a chance to ask more questions.
Mr Duddy:
I wish to pick up on the query about the financial difficulty that the overcharging will cause. As always, if the bills that we send out cause a problem for customers, they can phone us and we can come to a payment arrangement with them — for example, payment in instalments. That is part of the normal way that we do business. I am not aware of any particular customers who have experienced financial difficulty as a result of being overcharged on the standing charge.
As in the old Water Service system, the data was put into columns and fields according to meter size, pipe size, normal consumption, and so on. In 2006, a joint team, made up of Water Service, NIW, and Crystal Alliance, worked to prepare for the new billing system. In the process of moving data across, the meter size found its way into the pipe size field. In essence, that is what happened; the problem was in the transferring of data. However, it was not as simple and clear-cut as that, because they were trying to match up two completely different systems. Being totally open, that is what happened; there were no errors in the data, rather, it was the way in which the data was placed in the new system.
Mr B Wilson:
Was there nobody overseeing that to make sure that everything was correct?
Mr Duddy:
One of the things that this raises — and it is something that we have already looked at — is the quality assurance around how we finally sign off on the information that goes into the billing system.
The Deputy Chairperson:
I share John Dallat’s frustration about what has happened. The Committee for the Office of the First Minister and deputy First Minister is to meet in here next, and, unfortunately, the room has to be prepared. Members who did not get the chance to ask all their questions can email the Committee Clerk, and those questions will be passed on. There will be another opportunity to question Northern Ireland Water, and I will make a special request of the Chairman that those members whose questions were truncated should be at the top of the list for the next meeting.
I have to ask one final question, and it must be asked: is there anything else out there, that you are aware of today, that could come back to bite Northern Ireland Water and embarrass you and this Committee? It is a case of speak now or forever hold your peace. If you come back in three months’ time and tell us that you knew about something in October and did not tell us, the Committee will be quite concerned.
Mr Mellor:
You are quite right. However, as I have said, I have implemented an escalation process, which seems to be working well. We have flushed out this issue, and to the best of my knowledge there are no other major issues. However, I must stress that I cannot guarantee — as far as data quality is concerned — that we will have fully bottomed out all of this for probably another 12 months.
The Deputy Chairperson:
Let us hope that there are no issues that your directors have not passed on to you.
Mr W Clarke:
Will the Committee receive written answers to the questions that have been asked today?
Mr Mellor:
Yes. We can answer the question on pollution now if you wish —
Mr W Clarke:
No, I would prefer more detailed answers.
Mr Mellor:
We will be very happy to provide the Committee with written answers.
The Deputy Chairperson:
The Committee has a lot of questions that it has not been able to ask you today on this issue.
Mr Mellor:
Please send those questions to us. We will attend to them as quickly as possible.
The Deputy Chairperson:
Thank you for coming before the Committee today, and for being so forthright. Hopefully, between today’s evidence session and the written answers that you will provide, the Committee will be able to form a clearer picture on this issue.