The Charleston Water System has announced new guidelines for advertisements sent out by HomeServe USA, a private warranty company that advertises itself using the public utility's logo. Under the new terms of their agreement, HomeServe will no longer be allowed to use the CWS logo on the outside of mailing envelopes or on the initial letter that customers see upon opening the envelope.
HomeServe USA, a Connecticut-based subsidiary of the U.K. warranty company HomeServe plc, has been mailing advertisements to CWS customers since December 2013 after signing a marketing agreement with the utility in September 2013. Under the terms of the contract, HomeServe promised CWS a $120,000 startup fee and a 12-percent commission on all warranties sold in the utility's service area. The initial terms of the contract explicitly granted HomeServe "the exclusive non-transferrable right to use Utility Marks ... in connection with the advertisement, marketing, sale, and administration of the products."
Charleston Water System CEO Kin Hill says he met with HomeServe representatives on Monday to discuss the marketing agreement. Under the new terms, all future mailings will have to include a disclaimer about the partnership emphasizing that the coverage plans are optional (see below). Certain phrases that have appeared in previous mailers have also been banned, including "Charleston Water System invites you to consider Exterior Water Service Line Coverage from HomeServe." HomeServe is also now forbidden from using the phrases "Special offer for Charleston Water System customers" and "Important information for Charleston Water System customers."
Elected board member Thomas B. Pritchard says he didn't see the initial agreement with HomeServe as an endorsement. He says he was caught off guard by some of the mailings.
"From a board perspective and I think a staff perspective, I don't think any of us had any idea exactly how their marketing plan was going to be," Pritchard says. "It seemed to be a little further than anybody anticipated. It seemed to be like the Good Housekeeping seal of approval, if you will, and I don't think that was necessarily the intention. And I told Kin [Hill], I mean, you look at some of these things and go, 'Wow, I could see how somebody might be intimidated into buying this coverage.'"
Under the terms of the initial marketing contract, HomeServe was required to submit all marketing materials to CWS for approval before mailing them out.
CWS Chief Administrative Officer Dorothy Harrison says her department approved the mailings before they went out. "We've gone back and forth, and we've compromised on the language, but we've had this meeting scheduled for some time," Harrison says, referring to the Monday meeting.
In several mailers that were sent out last year bearing the CWS logo, HomeServe stated that water service lines "may be at risk for age-related leaks or ruptures" if they were installed before a certain year. The cutoff year varied from one letter to the next, and in a few instances it was exactly five years later than the construction date of the addressee's house. Asked how HomeServe determined the threshold year for rupture risks, Harrison said she did not know. "We don't give them our list; they have no information," Harrison said.
Hill says he pushed back against some of HomeServe's demands before the initial advertisements were mailed out in 2014.
"They wanted our customer listing, and we wouldn't give it to them. They wanted to put their billing on our water bill, and we wouldn't let them do that," Hill says. "So we wanted to keep an arm's-length relationship with them, and we would not give them our customer information and data. And so what they've had to do is get some ZIP+4 data, which is why some of the information may not be accurate or correct."
Hill says he was prepared to terminate CWS' contract with HomeServe if the company did not agree to the new mandatory guidelines at the Monday meeting. "They were very accommodating, I thought, and very understanding, and it was a very good meeting," Hill says.
Pritchard says he anticipates having to negotiate further with HomeServe. "I guarantee you there's going to be greater fine-tuning going forward, because we're always going to see things — and you know as well as I do, they're going to try and walk it up as close to the line as they can every time unless we push back," Pritchard says.
According to Hill, the genesis of the initial marketing deal with HomeServe in 2013 was "a public need." He says CWS gets about 1,000 calls per year from customers who have problems with their exterior water service line, which is the responsibility of the homeowner and not of the public utility.
CWS officials say 7,700 customers in the utility's service area have signed up for coverage from HomeServe so far, and an additional 1,000 customers had already signed up for HomeServe coverage before the marketing agreement was signed. According to Harrison, 280 repairs have been made under the terms of HomeServe's warranties, which pay local contractors to conduct up to $7,000 worth of repairs per year for each customer.
Pritchard says that while some public utilities in other parts of the country have issued warnings to their customers saying that HomeServe's warranties are not necessary, the Charleston area has a higher proportion of aging homes and pipes.
"Our system is old, and a lot of our houses are old," Pritchard says, "and so [Harrison] and her staff saw it as an opportunity for the customers who were finding that their level of frustration was high when they would call and say, 'I've got water percolating in my yard, can you guys send somebody out?' and our guys would take one look and say, 'Here's the meter, and here's the water, it's behind our service so it's your problem.' So we were just trying to analyze what are the opportunities, and HomeServe was one of the ones that responded to that call."
CWS received about $47,000 in commissions from HomeServe contracts in the first 10 months of promotion, in addition to the $120,000 set-up fee — a small portion of the utility's revenues, which totaled $114 million in 2013. $2,500 per month from the proceeds are going to the Good Neighbor Program, which helps pay the sewer and water bills of low-income and disabled CWS customers.
Meanwhile, another warranty company that previously put in a bid to market its services via CWS, American Water Resources, has been mailing letters to CWS customers with the words "Information about Charleston Water System" in bold letters on the outside of the envelope, according to Harrison. American Water Resources has not signed a marketing agreement with CWS.
"They've received a little message," Pritchard says. "We're working on that right now. They can't reference us."