Examination of Witnesses (Questions 140
- 159)
TUESDAY 27 JUNE 2000
DR GEOFF
MANCE, DR
GILES PHILLIPS
AND DR
MARTIN GRIFFITHS
140. I think that is fairly categorical. It
was a suggestion put forward by English Nature. As regards the
delivery of an NEP scheme, you have said that if there is a good
reason given you will allow substitution for earlier delivery
of an alternative location. How are you going to implement that
and specify which projects have to be delivered earlier to avoid
soft target substitution by the water company?
(Dr Mance) Given we have agreed timetables with the
companies for all the sites in the programmes, and that is going
to be put in the public domain, I am not sure there are many soft
options left to bring forward. We have to recognise that delivery
to time is not totally in their gift. One of the things that I
find slightly odd is that there is no requirement on local planning
authorities, for instance, to take account of the Government's
international commitments. The planning authority has control
of planning permission for a new sewerage works and that can disrupt
the timetable, essentially beyond the control of the company.
That is quite a difficult issue to deal with. We have to recognise
the realities of that and be prepared to adjust in the face of
what is a real world issue facing the water companies. What we
will make clear to them is we will not accept a one way adjustment
if delayed, we expect a compensating acceleration where they can.
141. On the point of planning permission, is
that a very real issue as you see it at the moment and would you
like the Government to issue planning guidance to effectively
give an environmental overhaul in certain cases?
(Dr Mance) We are aware of several instances where
companies have really struggled to get the necessary approval
for a sewerage work site. In one case I can think of a company
which has identified over 30 potential sites and none of them
have been seen as acceptable by the Council. That is quite a difficulty
for the company at the end of the day that is doing its damndest
to find a suitable site around a major town to put in secondary
treatment to comply with the Urban Waste Water Treatment Standards
and is being frustrated, if you like, by an unwillingness to accept
there is a need for a site at all. That is a real issue when compliance
with the Urban Waste Water Treatment targets and timetable is
a commitment given by the Government in Brussels.
142. Should we see greater joined up government
there effectively?
(Dr Mance) I think some clearer guidance when there
are international commitments involved might help.
143. Water UK were very concerned that, as they
put it, water supply issues were put at a lower priority than
the environmental agenda. Do you think that is true?
(Dr Mance) We have not considered the scale or appropriateness
of the investment programme in water supply. That is clearly an
issue for the Minister to weigh and judge against his priorities.
That said, there is a substantial programme of investment to improve
water supply quality. My recollection is that the first investment
programme which immediately followed water privatisation in 1989
through to 1994 had its primary focus on drinking water quality
and, therefore, got a heavy slice of investment on the water supply
side. It may be the relative priorities now are shifting but I
think that is really a question for the Minister. One side of
water supply I think my colleague might want to comment on is
in relation to water resources and security supply and planning.
(Dr Phillips) Yes. I think we have tried to put in
our written response to you that this time we have had a part
to play which has been accepted by Government and Ofwat in co-ordinating
consistent plans for adequate water resources in future across
all water companies. Our feeling is that that process as a first
attempt went quite well. We have not fully agreed all the plans
of companies but we are now in a position where all of them are
at least partially agreed. All of them we are broadly satisfied
with for the next five or ten years, which is the particular focus
of the Review. Ofwat was asked by Government, and as far as I
am concerned have done so, to ensure that those plans for adequate
water resources were included and allowed for in the financial
decisions. In terms of quantity of water available, and it is
not our role to promote the quality of drinking water, we are
satisfied there has been real progress. We have left a number
of activities which need to be taken further and those have been
documented and put in the public domain.
144. You did touch on asset maintenance earlier
and we have had a lot of submissions which have expressed their
concerns that the periodic review did not deliver enough for asset
maintenance spending. You have said you have only had complaints
from two minor companies on the level. Can you just elaborate
a bit on that?
(Dr Mance) I commented that only two
of the small water owning companies have sought referral to the
Competition Commission challenging the price determination. The
inference of that is that other companies believe they are adequately
financed and to fulfill their commitments and that includes the
maintenance of the infrastructure. We hear anecdotal comments
and speculation that the companies have not been adequately financed
on infrastructure renewals. I am not aware yet of any clear evidence
being put in the public domain by companies or by Ofwat as to
what is the balance on that, what are the assumed asset lives
implied by the investment rates. I think that might help to indicate
whether there is actually an issue or not. Certainly one major
company is saying to us that the rate of renewal of the sewerage
system in their area implies a life of the sewer of one thousand
years plus, many others are telling us it is several hundred years,
both water mains and sewers. I have not yet seen any of them put
that information out in the public domain. I always find that
quite frustrating. The first thing is to establish what the facts
are and then one can consider their relevance. The rumour and
speculation and comment in evidence to you is fine but I would
like to see it substantiated by evidence.
145. What is the Agency's view on the way that
Ofwat assesses asset maintenance needs? There does not seem to
be a great deal of consistency from the anecdotes you give.
(Dr Mance) The approach based upon serviceability
is measuring the rate of failure of the asset maintenance and
whether that rate of failure is low enough to be acceptable. I
always think in terms of protecting the environment, that we do
not wish to see failure. We actually want to see pre-emptive maintenance
preventing sewer collapse and discharge for a new generation of
unsatisfactory storm overflows. If a large new housing estate
is being connected to a sewer we would like to see evidence that
the company is considering whether the design capacity of that
sewer is going to be exceeded or not and whether the downstream
storm overflows are going to operate more frequently than intended
or not, for instance. The serviceability criteria seem to follow
rather than lead performance.
Joan Walley
146. Could I just pick you up on that. Whose
responsibility do you feel establishing that serviceability standard
should be? Is it yours, the water companies, is it ministers,
I am not quite clear where that responsibility in your view should
rest?
(Dr Mance) In terms of the way companies act as custodians
of their assets, that clearly rests with Ofwat. In terms of the
environmental performance, that rests with ourselves. That is
why on several occasions both my chief executive and myself have
written to managing directors of companies making clear that now
we have a comprehensive list of all the inherited environmental
problems of the companies, any new failures of environmental standards
will result in the enforcement issue. That is us putting down
our marker about the environmental consequences of a company waiting
for failure, new problem storm over-flows rather than pre-emptively
investing to make sure capacity is maintained in the system.
Mr Gerrard
147. Can I ask a few questions about the review
process itself? You obviously feel from your introductory remarks
that your contribution to the 1999 process was superior to anything
which happened in 1994, although admittedly the Environment Agency
did not exist as such then, it was the NRA which was involved.
How would you like to see things happen in the future? Do you
think you actually did as well as possible or are there things
you would like to improve in the future review and the way you
approach it?
(Dr Mance) In terms of our own approach, some of us
were partly involved in a previous life in the National Rivers
Authority in the previous review. It was much more effective going
down the route of making sure there was an objective benchmark
put in place of all the known environmental problems and the way
to prioritise them. Also the approach of water resources and making
sure every company had a properly structured water resources plan
done on a consistent basis, so we could be confident that both
environmental quality and the security of water supply in quantity
terms were being secured by the programme. So I think we learnt
a great deal and that is the appropriate way of progressing. We
would like better access to better cost information. This time
it is only late in the day for a limited number of sites that
we have had site specific cost information available. That clearly
does make it difficult to judge the balance between cost and benefit.
On the scale of the investment programme it is quite difficult
to be working with generic costs only rather than site specific
ones, and it also makes it very hard to comment in an informed
way on the benefit of cost effective solutions through integrated
approaches for the site, for instance. So I think better access
to site specific costs would be beneficial. It is hard to see
why it should not be available, it must be the basis for much
of the planning. This time round both ourselves and Ofwat and
indeed ministers have put a lot more information in a timely way
in the public domain. I think that has been beneficial and has
made the process clearer. I will not say more transparent, I do
not think you can be more transparent, you are either opaque or
you are transparent—I do not think we have yet reached the
point where the process is genuinely transparent. Some of the
issues which came out of the previous question about asset lives
and so on, perhaps if that type of information featured throughout
the process about the basis for assumptions—things like
the average asset life—that might make for a much more informed
debate which hopefully results in better quality decisions. That
is not to imply we are uncomfortable with the decisions which
have emerged from this process in terms of the scale of the environment
programmes, it is just in theory it should result in better understood
and better quality decisions.
148. You say you think it is beneficial that
there is more public debate, I think we would accept that. You
also said earlier you thought it was beneficial that Ofwat and
ministers had made their views clear right at the beginning of
the process whereas you were really relatively late in the day
doing that. You said you sent an open letter to a number of people
but your publication of A Price Worth Paying was rather
late in the day compared with what DETR and Ofwat had done, was
it not?
(Dr Mance) If I may just reiterate, we sent an open
letter at the start because of the Director General's apparently
clear statement there would be price cuts and that was the only
thing that mattered. We wanted to balance that with the fact that
consumers got the benefit from a cleaner environment as well as
a price reduction, so there was an indirect benefit and a direct
financial benefit but just weighting one as important above all
else seemed to be wrong. With hindsight, I actually think that
statement by the Director General opened up the scope for a big
environment programme. We published at the time what we clearly
intended and planned in terms of the scale of the environment
programme against the Ofwat timetable of ministers needing to
give advice in July, and we wished to see the nature of the Ofwat
cost information before putting together our view of what would
be a sensible scale of environmental programme. Therefore there
was a timing issue. We lagged I think only three weeks behind
Ofwat's submission on the costs of the quality programme in putting
forward our published and open advice to ministers. So I do not
think we were very slow or dilatory, I think in time terms it
was probably the right way round rather than to pre-empt the cost
information.
149. Water UK have suggested that during the
review process the roles of the various participants in the process
should be more formalised. Do you think that is a reasonable suggestion?
Do you think the co-ordination which happens now is sufficient?
(Dr Mance) I do not see the benefit of greater formality
in co-ordination. We have regular meetings with the so-called
quadripartite group, although there were more than four players
there, and that was a vehicle for communication rather than decision;
it was not a negotiating forum. We were aware Ofwat were also
running a whole series of bilateral meetings. We met with DETR
officials, we met with Ofwat, we met with the water companies,
with Water UK, we met a number of NGOs, English Nature, making
them aware of what was happening, seeking their views, and in
the case of English Nature in relation to the SSSIs we were seeking
agreement about timetabling issues. So there was a lot of bilateral
discussion but I think the statutory framework is clear on the
role of ministers, the role of the Director General of Ofwat,
the role of the Agency and the role of the water companies. I
am not sure there is any need for any greater clarity or formality
than that which is laid out in the statute.
150. With so many players in a process like
that, should there not be someone taking a lead on co-ordination?
Whose role should that be? DETR?
(Dr Mance) DETR clearly have a role in making sure
there is a clear policy framework there on both drinking water
quality and environmental quality. The statute makes clear though
that the role of ensuring that once the obligations on the companies
are clear they are adequately financed to fulfil their functions,
rests with Ofwat. I am not surprised in part that the companies
are saying there should be greater formality and more of a leadership
role. I noticed in the Water UK evidence, there was no reference
to greater honesty about cost estimates, for instance. Perhaps
after a process where they appear to be somewhat bruised by the
outcome, they would prefer a different process because this one
has actually been effective.
151. They were complaining there were some simple
things which ought to have been clarified. One example was that
the Agency and Ofwat were using different definitions of what
the cost drivers would be for waste water improvements and they
were saying why could that not be clear in the beginning. Should
not DETR be getting hold of that sort of problem?
(Dr Mance) I think we would like to know what the
specific examples are from them and how long those confusions
persisted, given that we issued clear guidance on every single
cost driver following consultation with Water UK, DETR and Ofwat
and they were agreed, and actually issued by Ofwat on our behalf,
to make sure there was no ambiguity or confusion amongst the companies.
152. You mentioned as well discussions that
you had with your statutory advisory committees, with NGOs, do
you think there is sufficient opportunity for people such as them
to be involved in the review process? Are there enough opportunities?
Do their views get enough weight?
(Dr Mance) The feedback from the chairs of the committees
was that they were well pleased with the process. They thought
it had gone well and thought their committees' involvement had
been adequate and appropriate. My recollection is, having scanned
back through, that we consulted formally with the committees on
five occasions through the process. So at every stage, including
in the autumn of last year, between the draft final determination
and final determination of price, on the detail of the programme
which was being recommended to ministers and seeking advice on
any last minute adjustments, for instance, of relative priorities
within that programme, we consulted. They have given us advice
on overall approach right the way through to the detailed priority
within the programme.
Christine Russell
153. Dr Mance, can I ask you to tell us what
you think the customer really wants because we are aware that
during the course of the review there were many, many surveys
carried out by different groups and your own survey, I think,
came up with the fact that 69 per cent of respondents actually
were willing to pay more for cleaner rivers, cleaner coastal waters
and a more adequate water supply. Ofwat's survey, of course, came
up with the contrary conclusion. Would you like to comment on
surveys and perhaps say what you think the customer really wants?
(Dr Mance) There was a very large number of surveys
commissioned, ourselves, DETR, the BBC at one point who arguably
might be neutral, I am not sure, but might be, the National Consumers'
Council, a whole range of organisations carried out surveys. I
think almost uniquely the Ofwat survey came up with the conclusion
at odds with the rest.
154. The National Consumers' Council, did they
not agree with Ofwat?
(Dr Mance) I do not think so, depending on what conclusion
you draw. The conclusion that you can draw from the majority is
the consumer did not necessarily want a price reduction. They
might have been happy to see stable prices provided the money
that was released actually went into quality improvements in both
drinking water quality and environmental quality. What they did
not want to see was that money going into the shareholders or
bonuses for the directors. I think beyond that I would struggle
to draw any firm conclusions from the whole range of surveys because
a lot depends on how the questions are put. The underlying commonality
was they were not necessarily desperate for a price reduction
at the expense of environmental or drinking water quality improvements.
Nor were they necessarily desperate to see a price increase. I
think there is a clear signal there. They did expect the money
to go into drinking water and environmental quality improvements,
not to shareholders.
155. In the light of the conflicting surveys
this time around, do you think next time around there would be
any merit in having an outside organisation that actually has
no vested interest in the review process to actually come along
with an independent customer survey?
(Dr Mance) There is an inference in that question,
if I may respond, that the survey carried out by the DETR was
not independent. I would have thought it was the role of a Government
Department to be seeking a view which had impartiality and balance
in it. It was certainly the most comprehensive and detailed of
the surveys and was not just based upon questionnaires but on
focus groups and interviews as well, so it was a very substantial
survey with, if I remember correctly, the largest survey sample
size as well. Beyond that I am not sure yet another commissioned
survey would add much value.
Ms Russell: You put your trust in Government
Departments.
Joan Walley
156. Dr Mance, you already touched a little
bit earlier on about concerns of your chief executive reminding
companies of their statutory obligations and making it clear that
they would be prosecuted if job levels, job cuts went below a
certain level. Can I ask you just very briefly to comment on that
in relation to the two reports we have had in the press recently
that some water companies are now considering a different form
as a possibility of looking at, say, we understand, mutuality.
There seems to be, if you like, some response to the changes that
there have been whereby companies are looking at unbundling some
of their responsibilities perhaps going out to more contract based
employment and really not looking at this in a holistic way as
the current structure allows them to be in their present ownership
form. Could you perhaps comment on that briefly, please?
(Dr Mance) Certainly. Can I just clarify what the
letter from my chief executive said. It will not surprise you
that I actually drafted it. We were very clear that we were not
saying that there would be action on a specific number of job
cuts. What we were doing was expressing concern at the scale announced
and reminding company directors that if there was evidence a policy
decision by them had led to a failure of standards we had the
option of taking them by name to court, not just the company.
We were reminding them of their legal obligations as directors
of the company to make sure they sustained the necessary level
of environmental performance. We were not specifically tying that
to a threshold of job cuts or anything, it was just a concern
we had that they should be very clear about the approach we would
take in those circumstances.
157. So you put them on notice.
(Dr Mance) Yes, for clarity to make sure that is known.
Now, in terms of the change of form of ownership of the company,
that is really an issue for the Director-General and Ofwat to
consider. Our concerns would be whether that new structure will
secure the performance in terms of environmental standards and
the renewal of the assets at the required rate to make sure we
do not encounter new failures of environmental standards through
failure to ring fence.
Chairman
158. You have no view about that?
(Dr Mance) At the moment from the information we have
seen about the proposals it is very hard to judge whether it would
or would not deliver that. I would comment, as I understand one
of the proposals, that I do not see why the present water company
should necessarily automatically assume it should have the contract
to run those assets. It would seem appropriate for there to be
free and open competition and perhaps that competition ought to
include the demonstrable competence of complying with environmental
standards by alternative suppliers of that management service.
159. That has been a very useful session. Thank
you very much indeed.
(Dr Mance) You are very welcome, Chairman.
|
