Examination of Witnesses (Questions 120
- 139)
TUESDAY 27 JUNE 2000
DR GEOFF
MANCE, DR
GILES PHILLIPS
AND DR
MARTIN GRIFFITHS
120. Can I go back to the previous answer you
gave on the Tyne. You mentioned the Tyne had been cleaned up.
How far was that actually a result of work that was done to get
rid of sewage discharges, and how far was it just that industry
that had been along the Tyne just died and was not there any more?
(Dr Mance) The major polluting load and the major
consumer of oxygen was actually sewage. If you go back 20 years
the sewage from Newcastle went into the Tyne, effectively, untreated.
So you have got a population of about 1.5 million pouring crude
sewage into an estuary where the material washes up and down the
estuary with each tide and takes several tidal cycles to move
out of the estuary. So most of the oxygen consumption was from
sewage as it decomposed in the estuary. It is actually killing
plaice in the estuary.
Joan Walley
121. If I could come back to a couple of points
arising out of Mr Chaytor's and Mr Gerrard's questions, it does
not quite add up to me. On the one hand, I am being told that
there was the environment programme which is going to really deal
with the major outstanding work and investment that was needed.
Yet, by the same token, there is a residual of combined sewer
outfalls which is going to be carried forward into the next review.
Speaking from a constituency point of view, and seeing how urgently
that kind of work is needed, I cannot accept that all the work
that needs to be done is being done when the kind of priorities
that matter to my constituents are not going to feature until
the next programme. When I look at that, combined with the whole
issue about assets and serviceability of assets and the alarming
concerns that, maybe, we are only looking at replacement works
of one in 1,000 or one in 100 years, I really want to press you
about the advice that you are giving to ministers in the first
instance as to the principles that should underpin what should
actually be in this programme. It still seems to me that however
more is being done this time, for the first time ever, there still
is not enough being done, particularly when it comes to the existing
infrastructure of sewers and drains, and the concerns that there
are there. Can you, perhaps, just reassure me on that—or
not, as the case may be?
(Dr Mance) Clearly, in our published advice to ministers
in May 1998 we advised that all the problems should be dealt with.
122. When you say "all", which is
"all"?
(Dr Mance) I mean all. So all the identified problem
sites could be dealt with.
123. So there is a list other than that list?
(Dr Mance) We have had a running spreadsheet which
has been available to the companies, it has been put in the public
domain at several points in the process and culminates in the
publication, this week, of the programme as approved by ministers.
In A Price Worth Paying in May 1998 we laid out an action
list which we attach as an appendix to the evidence, which identifies
that we were putting forward the view then that given the Director
General's statements and the initial cost estimates, we felt the
whole programme could be funded.
124. The whole programme was not funded?
(Dr Mance) No.
125. What is not funded?
(Dr Mance) Ministers took a view of the balance they
thought advisable between price reduction and the environment
programme and gave us public guidance on the programme they wished
to see; initially, in Raising the Quality, which is a DETR
document, which was put in the public domain in the autumn of
1998 and, subsequently, this last autumn, in more detail, just
prior to the final price determination, where they fine-tuned
their advice to us and actually increased the scale of the programme.
However, they did not go for 100 per cent of the programme we
recommended. There is a residual. The residual falls into three
parts. In one or two companies there are a number of sites where
if the sewage-works loading from the population increase actually
came to fruition, it might cause a failure of the river standards.
I repeat "if" and "might", because that is
a low probability, in our view. Therefore, there is not a large
risk because these are not areas where there has been large population
growth over the last 20 years. Under some of the EC Directives
we need to make further progress on compliance with the guide
values in the Directives, as opposed to the imperative or mandatory
standards. There is no timetable for that in the Directives as
such, we just need to demonstrate progress. The final category
was the low-priority combined sewer overflows, which is about
a third of the total number of overflows, where there is only
a low aesthetic impact—
126. Are they not the most important to people
who have to live alongside them?
(Dr Mance) I believe that the medium and high priority
storm overflows would be more urgent for those people, because
they will have widespread aesthetic impact and be causing damage
to the water course itself. So we have picked up, if you like,
the worst-offending storm overflows in every part of the country.
It is the ones which are giving widespread aesthetic impact—and
are really pronounced and, in some cases, actually discharging
continuously rather than intermittently—which are being
addressed by the programme.
Chairman
127. Why did the DETR exclude some of the programmes?
(Dr Mance) It was a judgment by ministers on the balance
they wished to see between the scale of the programmes and the
scale of price reduction.
Joan Walley
128. So it was not necessarily environmentally
imperative in those residual cases?
(Dr Mance) It was a political judgment which the process
set out. That is why in our evidence we laid out the roles—the
Agency put forward the environment programme, ministers took a
view on the scale of that and the advisability of supporting that
in whole or in part on the basis of estimates of the likely impact
of prices given by Ofwat. Ministers gave clear guidance in public
to us on the scale of the programme they were prepared to support,
and it was a very substantial programme. In one or two parts of
the country, I think the company would be unable to go beyond
the existing programme. So, for instance, our view in Preston
in the North West is that, had the whole system over-flow problems
been funded, effectively Preston would not have been able to function
over the next five years; there would have been so much excavation
of the roads, it would have brought Preston to a halt. So we took
a view there, in discussion with the company and an assessment
of the manageability and scale of rebuilding the sewers of Preston,
that it needed to be spread over a long period of time.
Chairman
129. What about the treatment schemes on the
Mersey, for example? There were about five schemes there.
(Dr Mance) There is an issue about the cost estimate
and the actual justification of cost as opposed to whether they
should proceed, but my colleague can comment.
(Dr Griffiths) At the final phases of the determination
there were 62 schemes where the advice the minister took from
Ofwat was that there were insufficient cost and relative benefits
in the case made. We were asked to complete a further appraisal
of costs and relative benefits and resubmit those to the minister
during this five year period, and if he was satisfied, he would
have powers to introduce those into the programme. Certainly some
of those schemes—and I think there was Wigan and Fazakerley
and one or two of these fairly major urban regeneration/redevelopment
schemes—were exceedingly expensive, tens of millions of
pounds, and it was quite difficult to do a cost and relative benefit
debate at that stage. We therefore will be submitting those cases
as quickly as we can because we believe in many respects these
decisions have already been taken in the South but the scale of
the engineering in the North is extreme.
Mr Chaytor
130. Could I ask a bit more about the cost benefit
issue and ask if you have well-developed systems for cost benefit
analysis? I think we understand how it is fairly straightforward
to do a cost benefit analysis in terms of ending sewage discharges
near a coastal town and do a calculation about the benefits of
additional tourism, but not so easy to do a cost benefit analysis
of the impact of increased abstraction of water and the impact
on biodiversity in a particular river area. Could you tell us
how you do these cost benefit analyses?
(Dr Mance) I think you have summarised the dilemma
quite well. There are no generally available accepted methodologies
for costing environmental benefit or pricing environment benefit.
Therefore weighing costs versus benefit is difficult when you
are trying to take into account the environmental benefits as
opposed to some of the more tangible things like potential impact
on tourism or regeneration. I would like to put in context the
fact we are not actually required by statute to undertake a cost
benefit analysis.
131. Do you think you should be?
(Dr Mance) No. There was a long debate during the
passage of the Environment Bill 1995, which created the Agency,
about the duty being imposed upon the Agency to take account of
an assessment of the likely costs and benefits, and ministers
during the passage of the Bill in the House made clear it was
not a duty to undertake a full cost benefit assessment, nor were
we expected to generate our own information but only to be able
to use such information as was available. That does not mean we
do not take account of the possible benefits, we do, and part
of the iteration of building up the spreadsheets is looking at
each site at the suggested solutions and whether they made sense
or whether they were being gold-plated. There is an iteration
of trying to get to what appears to be the most cost effective
solution. Equally, where EU Directive standards are involved,
there is no requirement under the statute for us to actually assess
possible benefits. It is a given and we are not exercising discretion,
we are actually implementing an international Government agreement,
and therefore have to proceed. All that said, the Agency for a
long time, and its predecessor bodies, has been actively carrying
out cost benefit assessment in flood defence capital works, for
instance, so we have a lot of experience of doing cost benefit
analysis, the difficulty in all cases is how to take account of
and how to value environmental benefit and at times the social
benefit. So the trauma of living next to a river which smells,
is dead, is black, has objectionable solids—as we tend to
refer to them and you know what I mean—actually flowing
past the end of your garden or outside your front door, actually
has an impact upon your quality of life, but how you put a price
on that is very difficult. We therefore went in this process for
a multi-attribute technique, which is where you give a number
of weightings to different characteristics, and then you come
up with a total score which enables you then to compare sites
on a reasonably quasi-objective basis. We developed the weighting
factors and the scores using focus groups, and using our statutory
advisory committees, to actually get advice on relative weighting
in an open way, and then we published all that information so
that it was accessible. It gave us a way of prioritising the relative
need. It was not intended to indicate what should or should not
proceed but enable us to prioritise. We then had to meld together
the outcome of that where we had discretion with the sites where
we also had requirements under EC Directives and trying to make
sure in an integrated way we were promoting all the action on
these sites within this programme. Every time there is a construction
on a sewage works, for instance, there is a risk of disruption
of performance, and an environmental risk of unacceptable discharge,
so it is sensible to keep the number of construction phases on
a sewage works to a minimum, and it hopefully also means the company
can come up with more cost effective solutions. We have not tried
to scrutinise in detail the cost site by site of the companies's
proposals, because it is clearly the role of Ofwat to do so.
132. In terms of the formulation of the programme,
you say there is not a strict and precise method of prioritising
the different components of the programme. It is a combination
of the focus groups' responses to the characteristics you have
identified, the weightings they give and the impact of the EU
Directives. It all sounds very subjective. Where is the balance
between what you perceive of as the customers' preferences and
what is necessary under the EU Directives and your own judgments
about the science and the environmental quality of it? How do
you pull it altogether?
(Dr Mance) I am not sure it is completely subjective
but there is an element of subjectivity in it. What we are faced
with in this process is a number of reasons for investment, so
there is a Bathing Waters Directive requirement for investment,
there is a Shell Fisheries Directive requirement for investment,
there is an Urban Waste Water Treatment Directive requirement
for investment, there is potentially a genuine environment problem
as well in terms of absence of wildlife in an area because of
the impact, there may also be the aesthetic problems caused by
the stranding of sewage solids. What we have done for each of
those is identify the obligations. The EU ones are driven by hard
timetables in the Directives and clear commitments on timing.
We have then sought where we have some discretion to prioritise
using the multi-attribute technique, to give us a priority sequence.
We then used both sets of information to look across for each
site to make sure we had picked up the non-discretionary elements
first, where we were already going to have investment because
there is an EU driver, a European Directive requirement, because
it is clearly more sensible to try and make sure that while that
site is being disturbed by one tranche of investment all the other
reasons for investment are dealt with. That should open up the
options for more cost effective solutions—better design
or integrated design. That then leaves you with a residue of,
if you like, the apparent discretionary things which you then
have in a prioritised sequence. It inevitably involves bringing
together in a reasonably structured way the different priorities
for investment and it does give you a cascading sequence, with
the first priority which is absolute because of the EU Directive
requirements and ending up with the ones where there is true discretion
available to ministers as to whether to proceed or not. That is
the sequencing. It may sound slightly subjective but when you
work it through on paper it is far from that, it is a rather mechanical
process almost once you have actually done the digest.
133. As we move on through time to the next
periodic review, do you think there will be more precise methods
of cost benefit analysis? Is anyone outside the Agency doing any
work or research on this?
(Dr Mance) There is a lot of activity outside the
Agency, I am not so sure that will lead to a lot of progress.
We ourselves are promoting a number of R&D projects aimed
at focusing on particular operational needs such as this. What
we are currently exploring is how we capture the outcomes of this
investment programme in economic terms so we can actually see
the economic benefit in given areas of the investment which will
be made under this programme. We actually have a chance to use
this almost as a real world experiment to give us a chance to
quantify the economic benefits which do appear on the ground.
That still will not give us a clear costing of the environmental
benefits, say getting the fish back into the river; that is the
more difficult one.
134. Can I ask you something else about the
programme? Is there still some dispute as to exactly what is in
the programme and what is not in the programme? This was a point
which came out in our hearing last week and there was some criticism
from the companies that they claim not to be absolutely sure as
to what the total programme involved. Will publication of this
document this week resolve that or are there still some grey areas?
(Dr Mance) Throughout the process there have been
claims of confusion and lack of clarity. I have to say I find
it very hard to accept. We have from the start maintained a quality
control led spreadsheet, which has been available to the companies
and to Ofwat. We have had confusion in one or two instances but
that is where the company has deliberately in its strategic business
plan chosen not to use the standard spreadsheet but to re-present
it a different way, changing headings, changing groups and investment
needs. In one or two instances that has led to confusion between
the company and Ofwat as to whether there is adequate funding,
but from the Agency's point of view the obligation is clear. It
has been throughout in the spreadsheet which has been issued formally
by my chief executive to each company on two occasions, the third
occasion being this week. So I find it hard to accept they are
under any illusions at all about the investment programme which
has been approved by ministers from the point of view of improving
the environment.
135. One more question about the situation beyond
2005. If 2005 is the point at which work on sewage will have been
completed, do you envisage an increase in work as a result of
further EU Directives, or an extension of the scale of existing
EU Directives beyond 2005? Will that be a major issue in the next
period?
(Dr Mance) That is difficult to judge. On the Habitats
and Birds Directives the Government is currently reviewing the
potential designations for nature conservation purposes. That
looks likely to increase the number of areas designated and the
scale of the areas we have previously been aware of, but we do
not know the scope of that yet and that could well cause further
impact. The implementation date for that is actually April 2004,
so it is going to have impact within this period potentially.
There is the draft Water Framework Directive, which looks like
being agreed this summer, which at first sight should not necessarily
drive extra investment but, unfortunately, over about three decades
now of personal experience every time a Directive is implemented
we work on the basis it will not drive very much in the way of
investment and it always seems to unexpectedly have a few bear
traps in it which cause substantial investment. So I would be
surprised if in 2005 to 2010 there is not a need for additional
investment because of change of standards or interpretation in
relation to EU Directives.
136. Will that be significant or will it be
something the companies can easily absorb? Is it something the
companies ought to be planning for now? Are they aware of this
and have you advised them of this?
(Dr Mance) Given it is all subject to Government agreement
and decision, and we all face an uncertainty in relation to 2005
to 2010, neither we nor the companies are able to adequately plan
for it, but that is the nature of the business. What we will do
is make sure that as soon as it is clarified, it is converted
into detailed spreadsheets again, so the companies when they come
to plan for 2005-2010 and the next periodic review have no doubts
at all about the obligations they face.
Chairman
137. Are you always happy with the European
Directives or are there occasions when you would rather do something
else?
(Dr Mance) I think my hesitation says it all, does
it not?
138. Yes, is the answer.
(Dr Mance) I think the Directives which do not start
with the environment but start actually with standards for discharge,
do not necessarily give us the best return for the environment
and the scale of investment which goes in. If we actually started
with genuine environmental need and worked back, we would undoubtedly
get a far better benefit for the cost involved.
Mr Loughton
139. Can we move on to implementation and monitoring
now. The quadripartite group, do you think there is any merit
in continuing that with a sort of monitoring and reviewing role
for the implementation of the Environmental Programme and other
programmes that come out of the Review?
(Dr Mance) No is the simple answer. The danger is
it would confuse the responsibilities of the respective bodies.
We are publishing the environmental obligations the companies
face. It is clearly our responsibility to Government to make sure
that programme is implemented through changes in abstraction licences
and discharge consents, and that those changes actually appear
on the ground and are effective. It is quite appropriate, therefore,
that the responsibility rests with us for making sure that is
put in place, that we should openly publish progress on that basis
and be held accountable, if you like, for our effectiveness or
otherwise. In doing so it would expose the effectiveness or otherwise
of each individual water company in delivering their approved
and funded programmes which, again, I think puts the accountability
firmly with them. If they fail to deliver then the role for enforcement
in relation to their management performance and economic performance
or financial performance rests with the Director-General which,
again, is clear. I think the risk of having a formalised quadripartite
monitoring group is it becomes a forum for negotiating variation
from what is currently a very clear, firm agreement and programme.
I do not think it would help at all.
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