Water companies supply water for the entire population for a given geographic area. They are natural monopolies. For that reason water tariffs are regulated, particularly if a company is privately operated. So – unlike in the competitive sectors where profits are linked to market share, price of goods sold, and cost of goods sold – profitability for a water utility comes from efficient operations (low operating cost).
This is nothing new, and engineers have worked for a long time to reduce energy costs or to introduce automation in order to reduce the cost of manpower. In this article however, we are going to discuss how customer service can also contribute to improved profitability, particularly in the area of metering policy. Indeed, meters are the cash registers of a water utility; so improving the performance of meters, and making sure that everything is metered, are key to increase revenue.
Another significant impact of having a privatised water utility is customer satisfaction. Indeed, the fact that the company is a monopoly makes it very sensitive to dissatisfaction, since customers do not have the choice of changing supplier if they are dissatisfied. This is equally true whether the utility is privatised or not, but a private utility will be under more scrutiny as it has to prove that profits are not made at the expense of customer rights.
The first element to secure revenue is to ensure that all water usage is metered. While this seems to be straightforward, some policies may have unexpected consequences. In the case of apartment buildings, there are several possible metering policies. It is possible, for example, to implement a one-house, one-meter policy. Consequently one meter is installed for every flat in all apartment buildings, and customers are charged according to their consumption.
Can we then assume that all water usage is metered? This is unfortunately not the case, because there are leaks or unofficial tapping of the internal water system. So while this policy favours water conservation for individuals, it does not give any incentive for property management companies to reduce their own water usage or repair their leaks – and somehow it is even an incentive for them to tap the internal water system without informing the water utility.
An alternative is to install only one large meter for the whole building. The entire usage of the building is then registered and billed to the building management company. The major disadvantage of this policy is that it does not give any incentive to individual homeowners to reduce their water consumption, since what they pay for is not directly related to how much they use.
In Macao both policies have been implemented. Each flat is metered, as well as each building. The difference between the large meter and the total consumption of the sub-meters is billed to the building management company. Finally, internal fire fighting systems are also metered, in order to verify that water is not abstracted from this system for non-fire fighting purposes. Such a scheme proved to be effective in reducing water wastage and improving the water company operations (increased revenue and lower cost as non-revenue water is reduced).
THE RIGHT TYPE OF METER FOR THE RIGHT WATER USAGE
The second element to improve revenue is to ensure the suitability of the meter type with the water usage. For example, fire fighting requires that the water meter can sustain a very high flow rate during a short period of time, while continuous low flows are needed for most domestic use. In order to accurately measure domestic usage while meeting the requirement of fire fighting standards, the two supply systems in Macao are separated, and are metered with different types of meter. Bulk size class B meters (Woltman type), which are more robust, are installed for the fire service system, while Class C meters (single jet meters) which are more sensitive, are used for the normal water supply system.
Following a strict application of the metering policy, and with active leakage detection, non-revenue water has dropped in Macao from around 14% in 2000 to 10% in 2004.
THE NEED FOR STANDARDS
The result of this search for an improved metering policy (making sure that all usage is metered, and installing more appropriate meters) is that metering losses are reduced. Customers are going to have to pay for their actual usage and this usually means a higher water bill. Our experience is that it is common for customers to ask for an explanation of this increase, and the accuracy of the water meter is often the first thing to be questioned.
In Macao, to deal with this situation, we have set up a strict policy on meters. First we have acquired a state-ofthe- art meter testing bench, with the necessary certificates. Then in our purchase policy we ask for meters to be compliant with ISO4064. This international standard sets an upper and a lower limit to the inaccuracy of a water meter. So on the one hand we can ensure that meters delivered to us are accurate (they will not under-register), and we can assure customers that their right to a fair metering is preserved (they will not over-register). This is certified by a third party (meters are tested and certified before delivery) or verified by the test bench upon request.
So using international standards not only ensures revenue but also customer satisfaction; it projects an image of a professional company, and reassures customers that they are being treated fairly, even if the utility has been privatised.
CUSTOMER SATISFACTION THROUGH SEGMENTATION
As mentioned earlier, customer satisfaction is very important for a private water utility. In Macao, in order to address the needs of customers, it was found necessary to initiate a customer segmentation exercise. This concept derives from the realisation that not all customers are the same, and thus they don’t have the same needs. For example, a large organisation with several meters may want to receive bills more frequently than a domestic user, and may have some special request such as testing the water quality.
Consequently two groups of customers can be formed. One will consist of the smaller group of key accounts. They are the customers who are important because they use a lot of water, or because they are very sensitive either to any water supply interruption or any problem related to water quality. In Macao this group of customers represents almost a third of the total consumption. For them a specific communication channel has been established, and specific services can be offered to them such as electronic bill consolidation, or automatic meter reading or specific billing schedules or leakage detection.
On the other side are the vast majority of customers; for them, the most important requirement is to have quality services, in the sense of simple but consistent service. In particular they are very sensitive to any issues related to their water bill. So in Macao, quality performance indicators have been implemented to investigate such matters as the number of wrong readings per month, or bills sent to thewrong address, and these indicators are closely monitored in order to control the quality of the whole reading/billing process. We also offer several payment channels (counter payment, bank, Internet, direct debit, ATM card) in order to make settling their bills more convenient for our customers.
To summarise, there is on the one hand the small group of large customers, for whom we need to be reactive, with tailor-made answers. On the other hand there is the large group of remaining customers, and providing them with quality services means standardising our procedures as much as possible, and setting up quality control mechanisms.
In Macao, where the water services have been privatised for 20 years through a public-private partnership, customer services have gradually moved to become the main focus of the company’s attention. While in the early days much emphasis was placed on the need to secure water supply and on the performance of treatment, the challenges today are to improve revenue and to ensure satisfaction. For both goals, customer service is the key to success.