Select Committee on Environmental Audit Minutes of Evidence


Memorandum from Water UK


  Water UK welcomes the Committee's well researched and authoritative report. It broadly supports the Committee's conclusions and it hopes that the Government and the regulators will review institutional arrangements and their working practices carefully to ensure that the Committee's conclusions are fully implemented.

  Water UK has taken account of the Committee's recommendations in formulating its submission to the Environment Sub-committee on the recently published draft Water Bill. Our press release and a background brief on our submission to the Environment Sub-committee are to be found on Water UK's website

  A key theme of the Bill is better regulation, ensuring that the customer is at the heart of economic regulation and that the regulatory process is more open and transparent, accountable, predictable, consistent and effective. The Committee's report on water prices and the environment has been very helpful in identifying areas where improvements should be made.


Timetable (para 39)

  We accept the Committee's conclusions. Our concern is that, although initially the timetable for the 1999 periodic review seemed reasonable, in practice there were difficulties. We note that Ofwat will be considering whether to reduce the duration of the review to two years which implies greater pressure on the DETR, other regulators and companies to deliver on time.

Assessing customer needs (paras 50, 52)

  We agree that customer research should be undertaken on a co-ordinated basis and that there should be common ownership of the results. We look forward to discussions with the DETR on how customer research might be best managed in future in the light of the committee's recommendation. We think companies continue to have an important role to play in developing research within a co-ordinated framework agreed with DETR, Ofwat and the CSCs.

Early predictions (paras 68, 69)

  We support these important conclusions.

Costing the environment programme (para 90)

  We agree with the Committee's conclusion.

The role of the DETR (para 94), long term planning (paras 179, 180)

  We regard these conclusions as extremely important and far reaching, and we strongly support them. We welcome this clear statement of the role of the DETR and we continue to believe that a longer term vision is required extending well beyond the five year period forming the basis for a periodic review.

  We have suggested to the Environment Sub-committee reviewing the draft Water Bill that the Secretary of State might be required to set up a national forum to consider the longer term issues affecting the water industry.

Transparency, involving wider stakeholders, date provision, monitoring (paras 100—122)

  We support all these recommendations and hope that early implementation will take place. We think that the draft Water Bill should be amended to ensure that these recommendations are implemented, for example, to make the full financial model publicly available.

The price profile (para 128)

  We agree with the Committee's view on roller coaster prices. Already two companies have interim price determinations effective from April 2001, and it is likely that more companies will need to request interim determinations before 2005. It is clear that the media are confused about why this is happening and no doubt customers are even more confused.

  The lack of forward planning on the prospects for prices and investment beyond 2005 remains a matter for concern. Paragraph 126 of the report summarises the only evidence in the public domain on Ofwat's view on this matter.

Size and nature of the environment programme (paras 139, 142)

  We agree that there is no room for complacency given the likelihood that new quality obligations are likely to be introduced, and there will be constraints on water resources. This reinforces the need for longer term planning. We believe that a prudent approach by Ofwat would have been to make proper allowance within price limits for the cost of expected future environmental spending likely to crystallise before 2005.

Accommodating new obligations (para 151)

  We share the Committee's concern. The current arrangements for dealing with the timely introduction of any new obligations set by government between periodic reviews are not well specified and remain contentious. This applies to all new obligations, not just those that need to be reappraised. We think DETR needs to take the lead in agreeing a sensible process with the regulators and the industry, covering the ground presently dealt with in Appendix E of Ofwat's final determinations report. This work needs to be undertaken as a matter of urgency as a number of important issues already need to be resolved.

Tackling diffuse sources of pollution (paras 159,160)

  We agree with the Committee that there the Environment Agency should focus more regulatory effort on diffuse sources of pollution and demonstrate an overarching enforcement strategy. Future environmental benefits arising from improvements in sewage treatment will not be fully realised until diffuse pollution beings to receive the same level of attention as point source pollution.

Water quality programme (para 163)

  A review of the DWI's procedures and adequacy of its resources will be timely at the beginning of AMP4 and will help to ensure that the regulator is well placed to fulfil its role over the next five years.

Interface with planning process (paras 171-173)

  We agree with the Committee's conclusions.

Maintaining the infrastructure (paras 198, 208-212)

  The Committee's conclusions on the maintenance of sewers and water mains are shared by Water UK. We continue to develop our views on the appropriate methodology for assessing capital maintenance through our focus group of experts on this subject. We look forward to further discussions with DETR and the regulators on this important matter.

Setting the right framework (para 220)

  We think that a co-ordinated approach to sustainability is best achieved by debate and discussion between government, regulators, the industry and other stakeholders. We think this co-ordinated approach should be given statutory backing by means of the draft Water Bill, with economic and environmental regulators required to work towards sustainability and to collaborate to achieve this end. We have also suggested a national forum should be set up to consider longer term issues affecting water customers and the environment.

  Ultimately it is for Government to balance the costs and benefits of extra investment in environmental improvement and take decisions in the light of the best available information and advice from regulators and the industry. Government should have a clearly defined role in the sustainability debate.

  We are not convinced, therefore, that the Committee's proposal that the DG should have a specific duty to have regard to sustainable development is appropriate or sufficient. The new draft Water Bill power for the Secretary of State to provide guidance to the DG on environmental matters is also unlikely to achieve an effective result.

Water efficiency (para 225)

  We are pleased that the Committee recognises the number of initiatives being undertaken by the industry on water efficiency. The Committee also rightly points out that in many cases there is no financial incentive for water companies to reduce their water consumption. This is also true for unmetered customers.

  There is a need to promote joined-up regulatory thinking on water efficiency. Ofwat requires that water efficiency activity should be cost effective. This is not always recognised by the EA and DETR who look at the broader environmental and sustainability principles.

  We believe that it is essential to get a strategic framework for water efficiency agreed with EA, Ofwat and DETR before any targets are set. This would formalise how the water efficiency targets are to be funded as well as how they will be undertaken and the benefits measured.

Leakage (paras 230-232)

  We agree with the Committee's conclusions, and we would wish to strengthen them. The water industry should be more closely involved in the work of the tripartite group.

  If government wishes to reduce leakage below economic levels this is effectively a new obligation on companies that should be funded through price limits. The draft Water Bill gives the Secretary of State powers to set standards of service in environmental areas and we understand that the DETR would use this to reduce leakage below economic levels. As the Committee suggest DETR should explain its reasons for doing this, and provide a regulatory appraisal setting out the benefits and costs of imposing the new obligation.

January 2001

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