Examination of witnesses (Questions 180-199)|
TUESDAY 6 FEBRUARY 2001
180. Is there a differential to you in abstraction
from rivers or boreholes?
(Mr Pocock) There is a certain seasonal variation
between the two cases, for example, a drought in a surface-water
case would tend to be more short-term.
181. Yes. One of the south western water authorities
drained a river, did they not, during the last drought? All I
am saying is, with the abstraction licences, surely the Environment
Agency ought to be saying to you, "Let's get rid of the abstraction
licences for the rivers so that you people can look at abstracting
(Mr Pocock) I think it does vary. It depends on the
geography across the country and where the balance of groundwater
and surface water is. Also, there is an existing power the Environment
Agency has already to revoke licences that have been dormant for
more than seven years. At the moment that debate is very positive
on what licences are required
182. How many have they revoked?
(Mr Pocock) They can revoke any licence
183. How many have they revoked in your area,
(Mr Pocock) I think there have been relatively few.
184. How many?
(Mr Pocock) As far as I am aware none on the part
of the Environment Agency other than those schemes where there
have been environmental schemes carried out in agreement with
water companies, and there we have been very keen and have gained
some success in achieving schemes which have improved the environment.
(Ms Taylor) To be fair, Mr Chairman, if somebody is
not using existing powers then that is a matter to be addressed.
I do not think you necessarily have to repeat the power in another
Bill in order for that to happen.
185. Can we be clear? Are you saying that you
do not object when it is seven years but only when it is four?
(Ms Taylor) No. We are saying there is no clarity
as regards sleeper licences when it comes to contingency planning
186. Yet you are not arguing about the power
that already exists and that it is seven years?
(Ms Taylor) We are pointing out that that exists and
is not necessarily used.
187. But you objected to it?
(Ms Golay) Yes, because there is another clause in
the Bill that makes the situation quite different, which is that
eventually the Environment Agency will be able to revoke licences
without being responsible for compensating the abstractor for
the loss and the costs of that revocation. At the moment we understand
that the Environment Agency is reluctant to revoke licences in
some cases because the costs would be very high. Of course, that
barrier to revocation will eventually disappear so we have got
a two-pronged approach.
188. So it is really just upset about your members
possibly having to pay a bit more?
(Ms Golay) It would be our customers, and that is
the problem. That is why we come back to our first point that,
if the cost of obtaining raw water increased, as the Bill is proposing,
it would be our customers eventually paying for that.
189. Rather than the company's profits coming
(Ms Golay) If it is a cost that is legitimately incurred
under a legal obligation, it is part of the Director General's
duties to finance it. That is the law.
(Ms Taylor) This comes back to our original point
which is that we are not objecting to what we are seeing, necessarily,
but we are saying that the decision should be open so that all
stakeholders can understand the consequences.
190. But if, eventually, that Bill were to clarify
the position of regulation, you are still not happy with it. You
do not want a Bill that is about more regulation; obviously you
have the powers of the Director General increased but you do not
want him to weigh up the various issuesyou want that to
be thrown back into the political arena so the Secretary of State
can start all over again. Do you not think that would weaken any
Bill like that?
(Ms Taylor) No. On the contrary, I think it would
strengthen it because I think the decision-making would be public
and publicly accountable
191. But a Bill might make a decision to say
"These are the new powers, the increased powers, of the Director
General", and it will not just be about your industry, but
about environmental and social concerns too. You do not want to
trust him with that, however, because I believe you perceive a
greater shall we call it regulatory risk, and you are probably
arguing, are you not, that that would cost the industry more.
What are you afraid of? Charges to customers, or lack of profits?
(Ms Taylor) Charges to customers.
192. Could you detail that? What capital cost
are you envisaging could fall out of the Bill as we know it at
(Ms Golay) Essentially, what the proposals do on abstraction
licensing is they shorten the life of the abstraction licences
and, therefore, they shorten the life of the assets used to obtain
water from the environment. If you have assets with short lives,
they have to be paid back over a shorter period which means the
annual cost goes up.
193. We have talked quite a bit about abstraction
and I want to move on because we have new bodies proposeda
Water Advisory Panel, a consumer council for water, new powers
for the Secretary of State, new powers probably for the Regulator.
Now, you do not like that but what we are asking is what do you
think would be the outcome? Are you saying it is inevitable that
there would be greater capital costs there?
(Ms Golay) The greater capital costs come out of the
abstraction licensing proposals.
Christine Butler: Nothing else? Not these new
bodies? Not the new powers?
194. Not efficiency? Not rearrangement? Not
classic examples that are making your entire company better at
what it does? None of that matters?
(Ms Taylor) I must apologise; we are obviously missing
your point and I am very sorry about that because it is not our
intention to do so. I appreciate you have asked the question twice
so that it is our problem, and I am sorry.
195. I am not asking about abstraction but what
I am saying is that, obviously, this is about a change regime
for regulationwe have agreed thatand you want to
reduce the powers of the Regulator as proposed in the Bill
(Ms Taylor) No, we do not.
196. But you do not want that wide scope;
you do not want a final decision to be with him; you want it to
come back to the possible intervention of the Secretary of StateI
am laying the context of my question, which is about costs. Are
you saying it is inevitable that there would be greater cost because
of greater regulatory risk? That is a broad question.
(Ms Taylor) I want to get this right, because this
is the third time you have needed to ask us. In terms of costs,
we are looking at increased costs being passed on to customers
as a result of the licensing amendments. You want to move on from
197. What about as a result of regulatory risk?
(Ms Taylor) In terms of regulation, in terms of advisory
panels and so onnot a problem. In terms of possible perceived
regulatory risk, I will hand the answer over to my colleague.
198. First of all, do you perceive regulatory
risk as a risk, and do you perceive that there will be greater
cost to the industry because of it?
(Ms Golay) Yes.
199. Do you think that is inevitable or would
you be able to get round it?
(Ms Golay) If regulatory risk is increased, that means
it is more difficult to attract investors to the industry and
the fact that industry moves towards the shorter term investment
horizon away from the longer term horizon increases the cost.