Arrangements for water undertakers to take water

12 Arrangements for water undertakers to take water from other persons

In Part 3 of the Water Industry Act 1991, after Chapter 2A there is inserted—

“Chapter 2B

Additional sources of water

66M Arrangements for water undertakers to take water from other persons

(1) 5The Minister may by regulations make provision about the supply of
water to a water undertaker by a person other than a water undertaker.

(2) Regulations under this section may, in particular—

(a) confer functions on the Authority, the Secretary of State and the
Welsh Ministers;

(b) 10make provision preventing the CMA or the Authority from
exercising powers under the Competition Act 1998 in respect of
a water supply agreement;

(c) include provision described in sections 66N and 66O.

(3) In this Chapter—

• 15“the Minister” means—

  (a)

  the Secretary of State, in relation to the supply of water
  to a water undertaker whose area is wholly or mainly in
  England, and

  (b)

  the Welsh Ministers, in relation to the supply of water to
  20a water undertaker whose area is wholly or mainly in
  Wales;

• “relevant person” means a person other than a water undertaker;

• “water supply agreement” means an agreement for the supply of
  water to a water undertaker by a relevant person.

66N 25Orders in respect of supplies by relevant persons

(1) Regulations under section 66M may, in particular, make provision for
the Authority by order—

(a) to require a water undertaker to take a supply of water from a
relevant person, and

(b) 30to vary or terminate a water supply agreement.

(2) Provision made under subsection (1)(a) must provide that—

(a) the Authority may make an order only on an application by the
water undertaker or the relevant person, and

(b) before making an order the Authority must be satisfied that the
35water undertaker and the relevant person cannot reach
agreement.

(3) Provision made under subsection (1)(b) must provide that the
Authority may make an order only on an application by a party to the
agreement.

(4) 40The provision that may be made under subsection (1) includes—

(a) provision about the circumstances in which the Authority may
make an order;

(b) provision requiring the Authority to have regard to whether a
person has complied with a code or rules described in section
566O;

(c) provision enabling the Authority to specify the times at which,
the period during which and the terms and conditions on which
the supply of water must be taken;

(d) provision for an order made by the Authority requiring a
10supply of water to be taken to have effect as an agreement
between the water undertaker and the relevant person (or those
persons and other persons);

(e) provision requiring a party to a water supply agreement to pay
compensation to another party on the variation or termination
15of the agreement.

66O Codes and rules in respect of water supply agreements

(1) Regulations under section 66M may, in particular, make provision for
the Authority to issue one or more codes in respect of water supply
agreements, including—

(a) 20provision for a code to include provision about procedures in
connection with making, varying or terminating a water supply
agreement;

(b) provision for a code to include provision about the terms and
conditions of water supply agreements;

(c) 25provision for a code to include provision about procedures to be
followed by the Authority in determining whether to make an
order described in section 66N;

(d) provision for the Authority to direct water undertakers to
comply with a code;

(e) 30provision for such directions to be enforceable by the Authority
under section 18;

(f) provision for the Minister to require a code to be revised or to
prevent a code being issued or revised (but see subsection (3)).

(2) Regulations under section 66M may, in particular, make provision for
35the Authority to issue and enforce rules about charges that may be
imposed under water supply agreements, including—

(a) provision for the making of rules about the amount or
maximum amount of a charge;

(b) provision for the Authority to direct water undertakers to
40comply with the rules;

(c) provision for such directions to be enforceable by the Authority
under section 18;

(d) provision for the Minister to issue guidance as to the content of
the rules (but see subsection (3));

(e) 45provision for the Minister to require rules to be revised or to
prevent rules being issued or revised (but see subsection (3)).

(3) Functions conferred by provision described in subsection (1)(f) or (2)(d)
or (e) must be conferred on the Secretary of State and the Welsh
Ministers acting jointly so far as the code, guidance or rules relate to—

(a) a supply of water to a water undertaker whose area is wholly or
mainly in England by means of the supply system of a water
undertaker whose area is wholly or mainly in Wales;

(b) a supply of water to a water undertaker whose area is wholly or
5mainly in Wales by means of the supply system of a water
undertaker whose area is wholly or mainly in England.

(4) References in this section to a water undertaker’s supply system are to
be construed in accordance with section 17B.

66P Procedure etc

(1) 10A statutory instrument containing regulations under section 66M may
not be made unless a draft of the instrument has been laid before and
approved by a resolution of—

(a) each House of Parliament, in the case of regulations made by
the Secretary of State, or

(b) 15the Assembly, in the case of regulations made by the Welsh
Ministers.

(2) Before laying a draft of an instrument in accordance with subsection
(1), the Minister must consult—

(a) the Authority,

(b) 20water undertakers,

(c) water supply licensees,

(d) the Chief Inspector of Drinking Water,

(e) the Chief Inspector of Drinking Water for Wales if there is one,

(f) the Environment Agency,

(g) 25the NRBW,

(h) the Council, and

(i) such other persons as the Minister considers appropriate.

(3) The supplemental and consequential provision that regulations under
section 66M may include by virtue of section 213(2)(f) includes
30provision amending, repealing or revoking provision made by or
under an enactment.

(4) Section 213 applies to regulations made by the Welsh Ministers under
section 66M as it applies to regulations made by the Secretary of State.

(5) If a draft of an instrument containing regulations under section 66M
35would, apart from this subsection, be treated for the purposes of the
Standing Orders of either House of Parliament as a hybrid instrument,
it is to proceed in that House as if it were not a hybrid instrument.

(6) In this section “enactment” includes a Measure or Act of the National
Assembly for Wales.”

40Inset appointments

13 Procedure with respect to inset appointments

(1) Section 8 of the Water Industry Act 1991 (procedure with respect to
appointments and variations replacing relevant undertakers) is amended as
follows.

(2) In subsection (2)(a) (the Water Services Regulation Authority to serve notice of
application), for “on the existing appointee the NRA and on every” there is
substituted “on—

“(i) the existing appointee,

(ii) 5if the application relates to the replacement of a water
undertaker whose area is wholly or mainly in England,
the Chief Inspector of Drinking Water,

(iii) if the application relates to the replacement of a water
undertaker whose area is wholly or mainly in Wales, the
10Chief Inspector of Drinking Water for Wales if there is
one, or the Chief Inspector of Drinking Water if section
86(1B)(b) applies,

(iv) the appropriate agency, and

(v) every”.

(3) 15In subsection (4)(b) (the Secretary of State or the Water Services Regulation
Authority to serve notice of proposed appointment or variation), for “on the
existing appointee the NRA and on every” there is substituted “on—

“(i) the existing appointee,

(ii) if the proposed appointment or variation would replace
20a water undertaker whose area is wholly or mainly in
England, the Chief Inspector of Drinking Water,

(iii) if the proposed appointment or variation would replace
a water undertaker whose area is wholly or mainly in
Wales, the Chief Inspector of Drinking Water for Wales
25if there is one, or the Chief Inspector of Drinking Water
if section 86(1B)(b) applies,

(iv) the appropriate agency, and

(v) every”.

(4) In subsection (5)(b) (the Secretary of State or the Water Services Regulation
30Authority to serve notice of the making of an appointment or variation), for “on
the NRA and on every” there is substituted “on—

“(i) if the appointment or variation replaces a water
undertaker whose area is wholly or mainly in England,
the Chief Inspector of Drinking Water,

(ii) 35if the appointment or variation replaces a water
undertaker whose area is wholly or mainly in Wales, the
Chief Inspector of Drinking Water for Wales if there is
one, or the Chief Inspector of Drinking Water if section
86(1B)(b) applies,

(iii) 40the appropriate agency, and

(iv) every”.

(5) After subsection (6) insert—

“(6A) In this section “the appropriate agency”, in relation to the replacement
of a relevant undertaker, means—

(a) 45the Environment Agency, if the undertaker’s area is wholly in
England;

(b) the NRBW, if the undertaker’s area is wholly in Wales;

(c) both the Environment Agency and the NRBW, if the
undertaker’s area is partly in England and partly in Wales.”

Duty of CMA to refer mergers of relevant undertakers

14 Exceptions to duty and undertakings in lieu of merger references

(1) In section 32 of the Water Industry Act 1991 (duty to refer merger of water or
sewerage undertaking), for “Subject to section 33 below,” there is substituted
5“Subject to sections 33 and 33A below,”.

(2) After section 33 (exclusion of small mergers) there is inserted—

“33A Exceptions to duty to make reference

(1) The CMA may decide not to make a merger reference under section 32
as regards a case falling within section 32(a) if it believes that—

(a) 10the arrangements concerned are not sufficiently far advanced,
or are not sufficiently likely to proceed, to justify the making of
a merger reference;

(b) the prospective merger is not likely to prejudice the ability of
the Authority, in carrying out its functions by virtue of this Act,
15to make comparisons between water enterprises; or

(c) the prospective merger is likely to prejudice that ability, but the
prejudice in question is outweighed by relevant customer
benefits relating to the merger.

(2) The CMA may decide not to make a merger reference under section 32
20as regards a case falling within section 32(b) if it believes that—

(a) the merger has not prejudiced and is not likely to prejudice the
ability of the Authority, in carrying out its functions by virtue of
this Act, to make comparisons between water enterprises; or

(b) the merger has prejudiced or is likely to prejudice that ability,
25but the prejudice in question is outweighed by relevant
customer benefits relating to the merger.

(3) Before forming a view as to the matters in subsection (1)(b) or (c) or
(2)(a) or (b), the CMA must—

(a) request the Authority to give an opinion under section 33B, and

(b) 30consider that opinion.

(4) The CMA may not make a merger reference under section 32 if—

(a) it is considering whether to accept an undertaking under
section 33D instead of making such a reference; or

(b) it is prevented by section 74 of the Enterprise Act 2002 (effect of
35accepting an undertaking in lieu), in a case where that section as
applied by paragraph 1 of Schedule 4ZA may have effect to
prevent such a merger reference.

(5) In this section “relevant customer benefit” has the meaning given by
paragraph 7 of Schedule 4ZA.

33B 40Opinion of the Authority

(1) Where the CMA makes a request under section 33A(3), the Authority
must give its opinion on—

(a) whether and to what extent the actual or prospective merger
has prejudiced or is likely to prejudice the Authority’s ability, in

carrying out its functions by virtue of this Act, to make
comparisons between water enterprises, and

(b) where it forms the view that the actual or prospective merger
has prejudiced or is likely to prejudice that ability, whether the
5prejudice in question is outweighed by any relevant customer
benefits relating to the merger.

(2) In forming an opinion on the matters in subsection (1), the Authority
must apply the methods set out in the statement under section 33C that
has effect when the request under section 33A(3) is made.

(3) 10In this section “relevant customer benefit” has the meaning given by
paragraph 7 of Schedule 4ZA, except that references in paragraph 7 to
what the CMA believes are to be read for the purposes of this section as
references to what the Authority believes.

33C Statement of methods

(1) 15The Authority must prepare and keep under review a statement of the
methods to be applied in forming an opinion on the matters in section
33B(1).

(2) The statement must in particular set out—

(a) the criteria to be used for assessing the effect of any particular
20water enterprise ceasing to be a distinct enterprise on the
Authority’s ability, in carrying out its functions by virtue of this
Act, to make comparisons between water enterprises;

(b) the relative weight to be given to the criteria.

(3) Before preparing or altering the statement, the Authority must
25consult—

(a) the Secretary of State,

(b) the Welsh Ministers,

(c) the CMA, and

(d) relevant undertakers.

(4) 30The Authority must from time to time publish the statement as it has
effect for the time being.”

(3) After section 33C (inserted by subsection (2)) there is inserted—

“33D Undertakings in lieu of a merger reference

(1) If the CMA considers that it is under a duty to make a merger reference
35under section 32, it may instead of making such a reference accept
undertakings to take such action as it thinks appropriate from such of
the parties concerned in the actual or prospective merger as it considers
appropriate.

(2) The power under subsection (1) is to be exercised for the purpose of
40remedying, mitigating or preventing the prejudicial effect on the
Authority’s ability, in carrying out its functions by virtue of this Act, to
make comparisons between water enterprises that the actual or
prospective merger has had, may have had or may be likely to have.

(3) In forming a view for the purposes of subsection (1) as to whether it is
45under a duty to make a merger reference under section 32, the CMA—

(a) is to disregard the effect of section 33A(4)(a), but

(b) is to take into account the powers under section 33A(1) and (2)
to decide not to make a merger reference.

(4) In proceeding under subsection (1), the CMA must, in particular, have
regard to the need to achieve as comprehensive a solution as is
5reasonable and practicable to the prejudicial effect on the Authority’s
ability, in carrying out its functions by virtue of this Act, to make
comparisons between water enterprises.

(5) In proceeding under subsection (1), the CMA may, in particular, have
regard to the effect of any action on any relevant customer benefits in
10relation to the actual or prospective merger.

(6) Before deciding whether or not to accept an undertaking under this
section, the CMA must—

(a) request the Authority to give its opinion on the effect of the
undertakings offered, and

(b) 15consider the Authority’s opinion.

(7) Where the CMA makes a request under subsection (6), the Authority
must give its opinion on the effect of the undertakings offered.

(8) An undertaking under this section—

(a) comes into force when accepted;

(b) 20may be varied or superseded by another undertaking under this
section;

(c) may be released by the CMA.

(9) An undertaking under this section ceases to be in force if an order
under section 75 or 76 of the Enterprise Act 2002 (powers to make an
25order where an undertaking is not fulfilled) is made, in a case where
that provision of the Enterprise Act 2002 as applied by paragraph 1 of
Schedule 4ZA may have effect in relation to such an undertaking.

(10) The CMA must consider any representations received by it in relation
to varying or releasing an undertaking under this section as soon as
30reasonably practicable.

(11) In this section “relevant customer benefit” has the meaning given by
paragraph 7 of Schedule 4ZA, except that references in paragraph 7 to
what the CMA believes are to be read for the purposes of subsection (7)
as references to what the Authority believes.”

15 35Exclusion of small mergers: advice of CMA on threshold

In section 33 of the Water Industry Act 1991 (exclusion of small mergers from
the duty to make a merger reference under section 32), after subsection (6)
there is inserted—

“(6A) The CMA must—

(a) 40keep under review the conditions set out in subsection (1)(a)
and (b), and

(b) from time to time advise the Secretary of State as to whether the
conditions in subsection (1)(a) and (b), and the sums mentioned
in those paragraphs, are still appropriate.”

Relevant undertakers’ charges

16 Charges schemes

(1) In section 143 of the Water Industry Act 1991 (charges schemes), for
subsections (6) to (9) (charges scheme not to take effect until approved by the
5Water Services Regulation Authority, etc), there is substituted—

“(6) If the Authority considers that a relevant undertaker’s charges scheme
does not comply with—

(a) subsection (2), (3) or (5),

(b) regulations under section 143A,

(c) 10rules under section 143B, or

(d) section 144A(9), (10) and (11)(a),

the Authority may give the undertaker a direction to do, or not to do, a
thing specified in the direction.

(6A) It is the duty of a relevant undertaker to comply with a direction under
15subsection (6), and this duty is enforceable by the Authority under
section 18.”

(2) After section 143A there is inserted—

“143B Rules about charges schemes

(1) The Authority may issue rules about charges schemes under section
20143.

(2) Rules under this section may in particular—

(a) make provision about the types of charges that may be
imposed;

(b) make provision about the amount or maximum amount, or the
25methods for determining the amount or maximum amount, of
any type of charge;

(c) make provision about the principles for determining what types
of charges may or may not be imposed;

(d) make provision about principles for determining the amount of
30any change that may be imposed;

(e) require particular schemes of charges to be available in
specified cases;

(f) make provision about the timing of payment of charges;

(g) require charges schemes to be published;

(h) 35make provision about how charges schemes are to be
published.

(3) The rules may provide for the reduction of charges under a charges
scheme where conditions specified by the rules are satisfied.

(4) Rules made by virtue of subsection (3) may in particular specify
40conditions about—

(a) taking steps for the purpose of reducing or managing water
consumption;

(b) taking steps for the purpose of reducing or managing the
discharge of matter from premises;

(c) taking steps for the purpose of reducing the volume of surface
water entering public sewers or the rate at which it does so.

(5) The provisions of charges schemes must comply with rules issued
under this section.

(6) 5The rules may make different provision for different cases, including
different provision in relation to different, or different descriptions of,
persons, circumstances or localities.

(7) The power to make rules under this section may not be exercised for the
purpose of limiting the total revenues of relevant undertakers from
10charges fixed by or in accordance with charges schemes.

(8) The Authority may from time to time review the rules issued under this
section and issue revised rules.

(9) Revised rules may include provision for applying any of their revisions
to charges schemes under section 143 made before the revised rules
15come into effect.

143C Rules under section 143B: procedure

(1) The Authority must have regard to guidance issued under section 143D
in making rules under section 143B (as well as to any guidance issued
under section 43 or 44 of the Flood and Water Management Act 2010).

(2) 20Before issuing rules under section 143B, the Authority must—

(a) prepare a draft of the proposed rules, and

(b) consult the relevant persons about the draft.

(3) The relevant persons are—

(a) the Secretary of State;

(b) 25the Welsh Ministers;

(c) the Council;

(d) any relevant undertakers likely to be affected by the rules;

(e) such other persons as the Authority thinks appropriate.

(4) The Authority must specify the period (“the consultation period”)
30within which a person may make representations about the proposed
rules.

(5) Before rules under section 143B prepared by the Authority are issued,
the Minister may direct the Authority—

(a) not to issue the rules, or

(b) 35to issue them with specified modifications.

(6) In subsection (5) “the Minister” means—

(a) the Secretary of State, so far as the rules in question affect
relevant undertakers whose areas are wholly or mainly in
England;

(b) 40the Welsh Ministers, so far as the rules in question affect
relevant undertakers whose areas are wholly or mainly in
Wales.

(7) A direction under subsection (5) must be given within the period of 28
days beginning with the day after the end of the consultation period,

and rules prepared by the Authority may not be issued before that
period of 28 days has expired.

143D Rules under section 143B: guidance

(1) The Minister must issue guidance as to the content of rules under
5section 143B.

(2) Before issuing the guidance, the Minister must—

(a) prepare a draft of the proposed guidance;

(b) consult the relevant persons about the draft.

(3) The relevant persons are—

(a) 10the Secretary of State;

(b) the Welsh Ministers;

(c) such other persons as the Minister thinks appropriate.

(4) The Minister may from time to time revise the guidance and issue
revised guidance.

(5) 15Subsections (2) and (3) apply to revised guidance as they apply to the
original guidance.

(6) The Minister must arrange for the publication of guidance issued under
this section.

(7) In this section “the Minister” means—

(a) 20the Secretary of State, in relation to relevant undertakers whose
areas are wholly or mainly in England;

(b) the Welsh Ministers, in relation to relevant undertakers whose
areas are wholly or mainly in Wales.”

17 Rules about charges for connections etc

25After section 144 of the Water Industry Act 1991 there is inserted—

“Rules about undertakers’ charges

144ZA Rules about charges for connections etc

(1) The Authority may issue rules about charges that may be imposed by a
relevant undertaker under—

(a) 30section 42(2)(a) (provision of new water main);

(b) section 45(6) (connections with water main);

(c) section 46(7)(b) (ancillary works for domestic connection);

(d) section 99(2)(a) or (2A)(a) (provision of public sewer or lateral
drain);

(e) 35section 101B(3) (lateral drains);

(f) section 107(3)(b)(i) (communications with public sewers);

(g) section 185(5) (moving of pipes etc).

(2) Rules under this section may in particular—

(a) make provision about the types of charges that may be
40imposed;