They have the power to delay one out of every three projects in Britain. They can take months to produce a simple quote. They can charge you £4000 before they begin to think about supplying a water mains. They are … utility companies.
When Andrew Gill was planning a storage facility for South Norfolk council at the end of last year, its water supply was not his main worry. His inquiries to Anglian Water the November had suggested that it would take about two weeks to connect a supply. Presuming it was resolved, Gill turned to more pressing matters and waited. And waited.
When nothing was done by March, Gill made a tentative phone call. His application, he was assured, would be processed by the end of April at the absolute latest. Anglian said it would put the case in its “urgent” file. It just needed to work out a price estimate.
Fine, thought Gill. But the price estimate took another month to arrive. And when it did, there followed two further months of increasingly lame excuses – including the disconcerting revelation that it had not occurred to the call centre’s staff to inform Anglian’s subcontractors that the work was to be done. Water was finally connected last week – two-and-a-half months after Gill had handed the building over to the client.
Gill’s experience sounds farcical. In fact it is just one example of a widespread problem. According to a joint survey by the National Federation of Builders and the National Contractors Federation, water supply problems such as delays or unforeseen costs occur in half of all projects. Gas and electricity problems arise in 43% of all projects. The performance of some privatised utilities is, in fact, losing contractors substantial amounts of time and money on more than one-third of all projects.
Christopher Wise, the NFB’s director of policy, says that contractors are becoming frustrated and resentful, not because the utility companies are making a mess of installing water or electricity supplies, but because of problems with processing orders and delays in obtaining quotes. This had led to some “unbelievable stories from hell”.
“There were many reports of incidences of appalling service and very few of good performances,” he says. “The main reason for delays in project deadlines and management difficulties is the time taken to issue quotations and agree the supply. This is exacerbated by poor communications such as not returning calls, deferring responses, delays in issuing quotes and ultimately by the utility provider not adhering to the agreed installation programme.”
Martin Woodhouse, managing director of Benfield Construction, experienced all these problems while working on a student residences block in Coventry.
Benfield envisaged a construction programme of 30 weeks, and wanted to get cracking with the vital infrastructure. But when he applied to Severn Trent Water for a connection, it took three months to come up with a quote, and then a further 10 weeks to reach a stage when installation could take place. As with Gill’s storage facility, the job was finished before the water was installed, throwing Woodhouse’s whole schedule out of kilter.
All this has implications for a company’s bottom line. “It does impact, especially when it’s something like student accommodation that needs to be ready for a new term,” says Woodhouse. “You can get a time extension but you can’t give the client what they want when they wanted it.
“It affects not so much your costs as your processes. You can’t do things in order and that takes up huge amounts of office time. When you’re tendering you’re trying to be conservative and hope it’s in the right ballpark but this makes it harder.”
The evil empire
The structure of the utilities industry has been changing constantly since privatisation 15 years ago. The utilities were among the last of the great public services to be privatised in the Indian summer of the Thatcher regime. Since then,
their performance has left much to be desired E E (see “Licensed robbery”, above).
There were many reports of appalling service and few of good performances
Christopher Wise, director of policy, NFB
“Privatisation has ripped the heart out of the industry because nobody has taken ownership,” says Woodhouse. “It used to be the case that you’d be able to phone John at the electricity board or Fred at the water board and they’d know what you were talking about. Now if you phone up it can be 10 minutes before you speak to a human being. They all seem to be overstretched and stuck in a culture of bureaucracy and backside-covering.”
Over the M1 in Leicester, John Cawrey, who runs his own contracting firm, has been confronted with similar problems. “Before you had the name of the inspector for the area,” he says. “Now you have to speak to someone in Gloucester or Birmingham, or further afield. They tend to use agency staff and a lot of them don’t know the systems.”
Cawrey’s difficulties extended to design fees. He was told by Severn Trent – them again – that he could build 80 houses outside Leicester without having to pay for water to be installed. Unfortunately, Cawrey was building 107 dwellings in the first phase, and this required him to pay for a main water line to be installed in a bridge over the M1. When Cawrey inquired as to the cost of all this, he was told it would be £400,000.
“I was amazed,” he says. “They wanted £4000 up front just to open the file. I was expecting about £200,000 because it involved going over a bridge, but £400,000 is a huge amount.”
The utilities have a take-it-or-leave-it attitude, says Cawrey. “There is no commercial pressure because they don’t have to compete with anyone. It’s a monopoly. They won’t do anything until they have a fee up front.”
Benfield’s Woodhouse confirms this. In one project, he was told that if he required anything more elaborate than a domesticconnection – more than 32 mm in diameter – he would have to pay between £2000 and £3000 in design fees for the privilege.
Harry Noble, a director at Relmfield Builders in Bedford, is yet another customer who has been sent around the bend by the utility providers. In one recent project, his firm was asked to upgrade all the gas and electrics in a care home.
“Because we upgraded the gas, we were told we would need a commercial meter,” he recalls. “I said, ‘OK. Send me one’. But I was then told I would have to wait seven days for them to issue a price.”
Noble was baffled. Why, he asked, did they have to spend a week working out what should be a standard cost? “I was told it depended what time of year you wanted it,” he says. “It seemed to me like they were whizzing up the price in the winter.”
Noble is often left dumbfounded by a system that appears to value process above performing
a service. His firm is often asked to provide “ludicrous questions about unnecessary technical design points”, when often all he wants is a service to the site because the building has not even been fully designed. One application questionnaire had 60 questions with requirements for plans, sketches and mechanical drawings, even though all he wanted was a 32 mm water connection.
“Only in the most unusual circumstances are the services requirements not a standard specification,” he believes, “but we feel threatened that unless we complete all questions in the most minute detail and provide all the drawings and sketches demanded, our service request will go no further.”
The high prices are perhaps the logical conclusion of a privatised market in which there is only one supplier. Contractors suspect that they are often called upon to shoulder the costs of infrastructure so the utility company doesn’t have to. One said: “Some are obviously preparing for competition and so are less sure of future income streams from water supply charges. So they’re looking to put in a new main free of charge.”
It’s a monopoly. They have a take-it-or-leave-it attitude. They won’t do anything until they have a fee up front
John Cawrey, contractor
It’s a fair cop: Providers promise to improve.
The good news for contractors is that the increasing clamour has not gone unnoticed by the utility providers. Severn Trent replied to Building’s inquiries with a reassuring mea culpa. “We are very aware of the problems,” said a spokesperson, who admitted that a number of its sales staff “didn’t have the necessary level of technical expertise. We have undertaken a major investigation and as a result have transferred our new connections team into the operations directorate.” This means that quotes will now be handled by a greater number of better skilled staff. Which seems like a good idea.
Anglian Water, for its part, blamed its difficulties on “teething problems” associated with a new computer system currently being installed. “We do apologise for any delays that have been experienced,” said a contrite spokesperson. “However, we currently have an action plan to address these issues in place, which is part of a longer term strategy to improve customer relations.” So it seems there’s good news and bad news. On the plus side, the new computer system should make Anglian easier to deal with. Less encouragingly, if Andrew Gill’s diary of events is correct, they’ve been installing the new system for something like the past four months.
Not all providers seem to be in such turmoil. Where a lot of utility providers seem to be today, EDF Energy was three years ago. The huge firm, which supplies electricity to London and the South-east, was split into three non-complementary parts and had only a 50% approval rating from its customers. Paul Cuttill, chief operating officer of networks at EDF, says he realised it was time for a change when the company received 20 Energywatch complaints in two months.
“For our 100 or so biggest projects,” he says, “we assigned ‘principal account liaisons’, or PALs, who were put onto big projects to provide a single point of contact.” Cuttill also made sure that for the smaller contractors there was a single point of contact for all enquiries.
Now EDF is set to restructure itself into four hubs in Bury St Edmunds in Suffolk, Maidstone in Kent, Potters Bar in Hertfordshire and Canning Town in east London, each with five clusters of 100 staff. The idea is that, despite being a huge multinational, EDF can still have an in-depth knowledge of the local market. EDF’s approval rating is now up to 80%, but Cuttill does concede utility providers still face problems. “When you have to subcontract work, that can introduce hiccups,” he says. “If the streetworks contractor doesn’t turn up, we get the blame, but we can’t do too much about it.”
All-seeing eyes: The regulators
Ofwat and Ofgem are the government regulators for water and for gas and electricity respectively, and so might seem the first ports of call for disgruntled contractors. But when Cawrey complained to Ofwat he was told to talk to Severn Trent Customer Services and call back only if he had no reply in six weeks. “What usually happens is that they’ll get back to you after nearly six weeks and say you haven’t filled in the form properly. Then the clock starts again.”
The good news is that the regulators appear to have recognised that their service to business customers has to improve. Ofgem has Energywatch, a complaints service that monitors customer problems, and this has recently set up a dedicated business unit – although not many contractors appear aware of its existence.
Sean O’Hara, the director of connectivity at Ofgem, says the regulator’s approach is simple. “If there’s suspicion that gas and water companies are ripping people off, then we can refer it to Energywatch. But the best way to combat poor performance is to encourage competition.” Energywatch intends to deal with referrals by publishing a half-yearly list of complaints against suppliers that fail to meet their service level agreements.
Ofwat has also shown an interest in the idea. “Ofwat likes the concept and wants to create a similar sub-agency,” says Wise. “I haven’t read their service agreements but I imagine they could be fined for underperformance.”
The threat may well persuade utilities companies to take their business clients more seriously, particularly if suppliers know they will get fined. There is also the threat of the ultimate sanction: the loss of a franchise. Unfortunately, this only has teeth where there is more than one supplier. “The regulators are aware of the situation, but it really only works in places such as London, where you’ve got a choice of who you could get your electricity from,” says Wise. “But with Severn Trent and Wessex Water, where the hell are you going to go for water if you don’t use them? If they fold they’ll just set up another water company with no competition.”
For contractors and developers, therefore, it is advisable to operate out of an area where there is healthy competition between water and electricity firms. Failing that, it’s advisable to be so big that the utility provider has to treat you with respect. And if you can’t manage either of these? Get ready for a long wait …
‘Licensed robbery’: A short history of privatised utilities
After the privatisation of the 10 unitary regional water authorities in 1989, the newly floated companies (including Anglian, Severn Trent and Wessex Water) became owners of the water system. The act gave them 25-year concessions for sanitation and water supply and, according to a 2001 University of Greenwich study, “protected against any possibility of competition”, prompting “the simple creation of private monopolies”.
Twelve smaller water-supply-only companies, such as Mid Kent Water, are now mostly owned by multinationals such as French group Vivendi. More than half the water and sewerage companies have been purchased by multinationals.
A parliamentary Environmental Audit Committee report of 2000 found that privatised water companies had increased their pre-tax profits 147% between 1990/91 and 1997/98 – with prices rising 36% between 1988 and 1998. “The industry faced a public outcry in relation to high levels of directors’ pay and profits,” the report said. The Daily Mail, hardly anti-Thatcher, described it as the “greatest act of licensed robbery in our history”.
Before the privatisation of the electricity industry in 1990, most electricity was generated by the Central Electricity Generating Board, a nationalised industry, that also operated the national grid transmission system. Twelve local government Area Boards in England and Wales ran distribution and supply activities.
All this changed after privatisation. Fossil fuel generation within the CEGB was privatised as National Power and PowerGen. The nuclear plants transferred to the government-owned Nuclear Electric, since restructured into two companies, one of which has been privatised (British Energy). Now there are nine firms doing the generating. The transmission system is now controlled by National Grid Company, which is owned and operated by National Grid Transco. It was initially owned at privatisation by the regional electricity companies but is now publicly listed. The 14 regional electricity companies (including London, Eastern, Seeboard, and Norweb) have now become eight firms that distribute electricity to consumers, including EDF, Scottish Power and a number of US firms.
The experts have not applauded electricity privatisation, either. A University of Greenwich study in 2002 concluded: "The introduction of retail competition for small electricity consumers has been an economic disaster for small consumers in the UK."