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CUSTOMER SATISFACTION IN THE WATER INDUSTRY
Thank you for inviting me to share our office's general concerns with respect to customer assistance issues that face you and all new jersey residents. As I am sure you know, our office -- the division of the ratepayer advocate -- was created in 1994 by governor Christine Todd Whitman to represent and protect the interests of utility customers in the state of new jersey, including industrial, small business and residential consumers, in an effort to protect the economic interests of all new jersey ratepayers. This is an unorthodox mix of constituents for a traditional utility consumer advocate, but it reflects the fact that the economic well-being of an entire community is interrelated in the new competitive environment.
To quote the great American sage, Benjamin Franklin, "when the well is dry we know the worth of water" (1746). In a recent consumer attitude survey, the question was asked, "what do customers want most from their local water utility?"1 Among the responses given were, good customer service and a plentiful water supply.
The issues most important to customers were clean, safe, quality water at a reasonable price. Customer satisfaction in the water industry is based primarily on two factors: one, whether water tastes, and smells and looks good; and, two, if it is reasonably priced. If the first prerequisites are not met, customers assume that water quality problems exist.
These results shouldn't surprise any of you. Nor should the fact that there is an intrinsic tension between the two responses. Americans traditionally have had confidence that their water would be clean, affordable and limitless . . . and water rate issues were virtually invisible to the average consumer. When I was a deputy attorney general 20 years ago, and working on water rate cases, I recall that one consumer literally aired his dirty laundry in public. At a public hearing the customer took his laundry out of a bucket and placed it on the hearing room table to show the administrative law judge that the water coming out of his tap was dirty and leaving his laundry even dirtier. Consumers at that time complained about water quality issues; I don't recall too many customer complaints about rates. Well, the world of water regulation has changed.
In recent years, a number of developments have driven water rates up sharply. One major factor is the cost of implementing major environmental initiatives. For example, the amendment to the safe drinking water act of 1986 increased the number of contaminants that are regulated from 26 to 83, and mandated the construction of tremendously expensive new water treatment plants aimed at ensuring clean water for new jersey consumers, in light of identified critical areas.
Another factor driving up rates are the costs of replacing aging water supply infrastructures and of meeting a growing demand for residential and industrial water use.
Indeed, water rates are rising faster than the rate of inflation. It has been estimated that anywhere from one in four to one in six water customers are currently paying more than two percent of their household income for water service.2 With this trend, low-income customers are now less able to afford water services. The result is that affordability is emerging as an issue for the water ratepayer in much the same way as affordable rates became a social policy issue in the energy sector beginning in the 1980s. Water rates now concern new jersey consumers in the same way and for the same reason that electric or gas heating bills are of concern: the inability to make any type of utility payment eventually impacts one's credit and leads to the threat of service disconnection.
These steadily climbing water rates particularly place a burden upon lower-income households, which are concurrently experiencing spiraling energy costs without corresponding increases in household income. Not only are lower-income customers least able to bear the brunt of increased rates, but they often live in housing with the most inefficient pipes and appliances. In urban areas, low-income populations generally do not have the expansive lawns and swimming pools that require large quantities of water. However, low income housing often contains inadequate plumbing fixtures and appliances that waste water. Faulty fixtures, as you know, waste hundreds of gallons of water per day, which only adds to the regressive impact of rising utility costs on the low-income population. While not all low income households pay their water bills directly, higher water rates are frequently passed on to these households through higher rents.
The issue of water affordability clearly has serious implications for your companies, as well, in terms of increased arrearages, late payments, disconnection notices, and actual service terminations. In other words, affordability issues affect the bottom line, increasing company expenses associated with credit, collection, and disconnection activities. Other ramifications of the affordability issue are also becoming apparent. Wall street may respond to the affordability issue in terms of the utility's financial viability and ability to meet debt obligations. And last, but emphatically not least, your approach to disconnection policies has public health implications, since potable water is a health-related essential service.
So the water industry now, along with the energy industries, and state regulators find themselves under increasing pressure to deal directly with affordability and disconnection problems. I believe that the utilities, the regulators and the consumer advocates must and can work together in developing new and innovative options to deal with the issue of affordability. We must each familiarize ourselves with the expanding range of options available for consideration by utilities and regulators in dealing with this issue.
The ratepayer advocate has been sending clear messages to all water utilities during the pendency of current rate cases. Attention must be given in your tariffs to those economically distressed customers, such as families receiving public assistance, senior citizens on fixed incomes, those who have been laid-off due to corporate downsizing and people with chronic health problems or disabilities. These ratepayers have long been considered in all electric and gas tariffs.
As a matter of fact, it may help to take a look at some of the measures the electric and natural gas utilities have implemented to support affordability for low-income customers and determine whether some of those programs can be transformed for your businesses.
For example, is there a place in your customer assistance portfolio for demand side management and energy conservation programs, which have been stipulated in recent natural gas and electric cases? Can you implement pilot programs for the most payment-troubled customers that offer financial counseling and referral, community assistance, monthly billing arrangements, arrearage forgiveness, payment discounts, income-based payments, lifeline rates, targeted conservation, disconnection moratoria, and flow restriction? Each of these methods work differently to address affordability. The best approach for your company is probably multifaceted, combining several alternatives that meet the needs of your specific franchise territory.
In response to growing concerns nationwide about low income ratepayers, the ratepayer advocate has established low-income task forces which are seeking solutions on an industry by industry basis. We have already met informally with representatives of electric and gas utilities together with BPU staff and community and social service representatives. In fact, last Monday we hosted an all day conference at Seton hall law school on solutions for gas and electric low income ratepayers. Our next roundtable targets the water industry and we look forward to meeting with your customer representatives and with state community social service representatives to begin our dialogue on the issues of affordability of clean water.
As if affordability weren't a tough enough issue, your industry is fighting hard to maintain the safety and quality of our water supply. And that battle is becoming more difficult, according to a report of the American academy of microbiology. Burgeoning populations, aging sewer systems, environmental pollution and the growing resistance of microorganisms to water-treatment chemicals are among the problems cited by the academy in its report "a global decline in microbiological safety of water: a call for action." This report was based on data from u.s. and international health agencies. Furthermore, since up to 80% of diseases may be related to waterborne microbes, the report concludes. "It's easier to measure chemicals and metals. It's more complicated to measure bacteria and viruses, but it's the bacteria and viruses that make us sick."
As if that doesn't make your day, according to a recent news report, as many as 1.5 million new jersey residents may have been exposed to tainted tap water that violated federal or state health standards during 1994 and 1995.3 Recently in Dover township, there was the identification of a possible "cancer cluster". Although the quality of water has not been linked in any way with the seemingly high incidence of childhood cancer in Dover, it would ease everyone's fears, if water quality could absolutely be ruled out as the possible cause. These incidents and others have moved new jersey u.s. representative h. James Saxton to introduce bill h.r. 3429, which is called the water quality public right-to-know act of 1996. This act would require water utility companies to disclose the results of water tests annually, which many new jersey companies are already doing.
Consumers today are more conscious of the ingredients in the foods they eat than at any other time in history. Go to any supermarket and you can see shoppers picking up products and reading the ingredients listed on the package. They are also buying more bottled water than ever before. Moreover, people today are very concerned about which types of chemicals and by-products are contained in the products they use. Consumers are demanding that water, which historically has been taken for granted as being "clean", should be certified, on a regular basis, that it is in fact "clean" and complies with all federal and state laws.
Under congressman Saxton's bill, the water quality public right-to-know act would provide customers essential information about the water they drink. The proposed report, currently entitled in the bill as the "consumer confidence report", would clearly, and plainly report the results of the most recent contaminant testing (including, but not limited to, the levels of crytpo sporidium and radon); the maximum acceptable levels (as determined by the environmental protection agency) of each found contaminant, and, a plainly worded, non-legalese, explanation of all potential health implications associated with those contaminants found to exceed acceptable levels.
Additionally, if the bill is enacted, the consumer confidence report would be mailed to customers and published annually in one or more local newspapers within the service territory of the utility. Providing the proposed reports to their customers would not be a hardship for water companies, given that they are already required to test for contaminants.
The impact of this legislation on consumers is substantial and significant. Such reporting will permit households to make intelligent and informed decisions on evaluating their drinking water, whether it comes straight from the tap or is bottled (which should also have a printed label on the container listing the levels of contaminants), and whether to install a water purifier. If a given utility's report demonstrates a high level of a certain contaminant, for whatever reason, consumers would be made aware of it and could choose not to drink their tap water until the contaminant is removed.
The utility's obligation requires greater customer outreach.
This bill may also educate consumers on the impact their apparently innocuous actions have upon the quality of their water supply. For example, chemicals used for spraying lawns and gardens which run off into the storm water system can dump chemicals directly into storm drains eventually leading to pollution of the drinking water supply. These chemicals would most likely appear on the consumer confidence report and homeowners could see how their actions directly and detrimentally affect their own water supply.
In summation, the quality and affordability of water is a growing concern. As water rates rise and household incomes remain stagnant, water bills will take up an increasingly higher percentage of income. The water industry is currently facing a challenge which it must overcome with the help of state regulators, state consumer advocates, municipal leaders, utility management and information from their own customers. Customer satisfaction will be achieved when water is truly clean and rates are affordable.
Thank you for this opportunity to speak, and I look forward to hearing your comments. The issues I have raised are not new to utility ratepayers or consumer advocates or regulators. They are new to the water utility industry. This is a wake up call and we look forward to working together to resolve these issues.
Footnotes
1 Consumer Attitude Survey on Water Quality Issues, American Water Works Association Foundation, 1993. Back
2 Rubin, Scott J. Are Water Rates Becoming Unaffordable, American Water Works Association, February 1994, p 79. Back
3 Adam Piore, How Bad Was N.J. Water?, The Bergen Record, May 10, 1996. Back
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