Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence

Examination of witnesses (Questions 180-199)



Mr Olner

  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 the groundwater"?
  (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, for example?
  (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.

Mrs Dunwoody

  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 for droughts.

  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 down slightly?
  (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.

Christine Butler

  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 issues—you 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 the moment?
  (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 proposed—a 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?

Mrs Dunwoody

  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.

Christine Butler

  195. I am not asking about abstraction but what I am saying is that, obviously, this is about a change regime for regulation—we have agreed that—and 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 State—I 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 that.

  197. What about as a result of regulatory risk?
  (Ms Taylor) In terms of regulation, in terms of advisory panels and so on—not 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.

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