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

Memorandum by the National Consumer Council (DWB 31)


  The National Consumer Council welcomes the draft Water Bill and particularly endorses the elevation of the duty to protect the interests of consumers to a primary duty of the water regulator.

  We are also supportive of the independent Consumer Council for Water that has been proposed. We think this will help to put consumers at the heart of the regulatory process for water and help to redress the imbalance between shareholders and consumers. We believe a special remit to represent domestic consumers and disadvantage consumers would make it more effective, and in keeping with the trends in other sectors. We recommend that the Consumer Council for Water's remit should be to focus on representing domestic consumers, and in particular, disadvantaged consumers.

  We are disappointed that the draft Bill does not go far enough with the establishment of a regulatory board for the water services. We recommend that Government takes the further steps necessary to create a regulatory board for water regulation so that the powers and duties are not placed on a single individual.

  We had considerable concerns about the Government's proposals to extend competition in water published last year. Given that the Government is continuing to look at different options, we believe it is premature to change the regulator's duties towards competition. Therefore we recommend that the legislation maintains the regulator's current duties towards competition.

  We are concerned about the trends in restructuring in the water industry and recommend that Government carries out a broader and forward looking examination of the costs and benefits to domestic consumers of the various ways in which the industry might restructure itself, and the implications for regulation, over the next few years. We also recommend that the Government consults on any additional provisions they intend to put forward before the Bill is introduced in Parliament.



  We are particularly pleased that the Government has decided to consult fully on this important legislation and continues to give consumer representatives the opportunity to contribute to the policymaking process.

  We note that this draft Water Bill contains many of the provisions that were taken out of the Utilities Bill in March 2000. Whilst disappointed with the delay in providing necessary improvements to the regulatory framework, including an effective independent advocate body for consumers, we see the draft Water Bill as an important addition to the consumer policy framework for the water and sewerage industry.

The consumer interest in water

  The consumer interest in water services is well established. As we stated in 1997 in Regulating the Public Utilities: Response to the DTI Review of Utility Regulation:

    "the consumer interest in water, gas and electricity is straightforward and universal—these are basic services and the following are essential:

      —  Access to supply at affordable prices;

      —  A reliable and safe supply;

      —  Adequate and reliable service standards;

      —  Fair treatment for individual consumers and groups of consumers;

      —  Transparent and effective regulation;

      —  Choice, where practical;

      —  Clear, accessible consumer information;


      —  Transparent information on regulation and the companies' activities;

      —  Effective representation of domestic consumers' interests;

      —  Access to fair, efficient redress and compensation procedures".

  On balance, we believe these standards of service have been and continue to be delivered for the majority of consumers most of the time. However, we continue to be of the view that the cost of water to consumers is too high and we are particularly concerned about the impact on disadvantaged consumers (National Consumer Council, Future Water Charges: Response to Ofwat Consultation: Future Water and Sewerage Charges 2000-05, November 1999).

  We welcome the emphasis on support for disadvantaged consumers through the proposals to issue statutory guidance for the regulator to take account of the Government's social and environmental objectives, and the regulator's remit to take account of the interests of those who are disabled or chronically sick, of pensionable age, on low income, or living in rural areas.

  It is in consumers' interest that the regulatory process in water, as in other sectors, should be open and transparent. The regulator takes important decisions about regulated companies who are providing an essential service: water. Consumers and the Consumer Council need to see the weight given to various factors in the decision-making process and be confident about those decisions.

Water resale

  We support the Government's proposal to provide information to customers who receive water through intermediaries, such as landlords and mobile park owners. It will help them to discover whether they have been overcharged. Under the proposals, they will be able to find out what the site owners and landlords have paid for the water which they have resold to them. They will also be entitled to interest payments if they are found to be overcharged. The information obtained through Ofwat will also be able to be used as evidence use in court (paragraph 76-81). We support these proposals not only because they are consistent with similar provisions for energy consumers, but also because these groups of consumers are among the most disadvantaged.

  The National Consumer Council also welcomes the increased attention being paid by Government to the environmental aspect of water services. Our view is that consumers have a direct and long-term interest in the protection of the water environment and are supportive of efforts to do so. Nevertheless, we will confine our response to this consultation on issues involving the regulatory arrangements.

New regulatory arrangements

  We endorse the Government's objective in the draft legislation of achieving a fairer balance between the interests of consumers and shareholders by putting the consumer at the heart of the regulatory process and making regulation more open and more accountable (paragraph 23). Our research has consistently shown that consumers have borne too heavy a financial burden in terms of high water prices. In addition, consumers have borne, and continue to do so, a disproportionate share of the cost of financing new investment since privatisation of the water and sewerage industry. Our view is that the shareholders have profited excessively at the expense of consumers and that a better balance between the interests of the consumers and shareholders is long overdue.

Social and Environmental Guidance

  We particularly welcome the provision to allow the Government to issue statutory guidance to Ofwat on social and environmental objectives and how they might be achieved. Since privatisation we have noted that, responsibilities for the utility services' social aims and objectives have fallen between three stools: the companies, regulators and Government. We argued that this situation was detrimental to consumers' interests as there was no forum for decision-making on these issues and the regulators cannot be expected to formulate and implement social policy. These are important provisions to help to ensure that the interests of disadvantaged consumers are high on the regulatory agenda. They are also consistent with those of the Utilities Act 2000, and they create a consistent framework for supporting vulnerable groups and protecting their access to essential services.

Primary duty to consumers

  We welcome the elevation of the consumer protection duty of the regulator into a primary one (Clause 27). We have noted in particular that the draft Bill creates a new "consumer objective" for water, which requires the Director to protect consumers' interests. We also welcome the fact that the existing general duties of Ofwat and the Secretary of State will be amended to provide the new objective to protect the interest of consumers particularly those who are disabled or chronically sick, of pensionable age, with low incomes, or live in rural areas.

The Director General and the Water Advisory Panel

  We are disappointed that the draft Bill does not contain a provision to establish a regulatory authority, but maintains the position of Director General. In the past we have been critical of single person regulators because there is a danger that regulatory decisions could focus on the personal agenda of one individual. We would prefer to involve others more directly in the process so they too could take responsibility for the resulting decisions.

  The establishment of regulatory boards has been occurring in other sectors: gas, energy (Utilities Act 2000), and in postal services (Postal Services Act 2000). The Government is considering establishing a regulatory board for the Office of Fair Trading and has proposed the setting up of a board for the new communications regulator in its recent White Paper A New Future for Communications (2000). Involving others in the decision making about water regulation would be particularly appropriate given its complexity, involving environmental as well as economic matters.

  The establishment of the Water Advisory Panel (Clause 22) is not a substitute for this given that it is an advisory body and not accountable for the regulator's ultimate decisions. While we welcome it as a step away from the past practice of vesting considerable powers in the hands of one individual, we do not believe it goes far enough. We acknowledge that there has been some progress in making the Panel independent of the Director, its members being appointed by the Secretary of State, who also defines their terms of reference. In addition, the matters that must be referred to the Panel and the circumstances under which they are determined are all set by the Secretary of State. Nevertheless, we note in particular that the Director is under no obligation to follow the advice of the Panel, only to consider it (Clause 22). We also recommend that the Water Advisory Panel is under an explicit duty to publish all the advice it gives to the regulator, so contributing to the openness of decision-making.

  We recommend that Government takes the further steps necessary to create a regulatory board for water regulation so the powers and duties are not placed in a single individual. The Panel should be required to publish the advice it gives to the regulator.

Consumer Council for Water

  We also welcome the establishment of the Consumer Council (Clause 23) to act as a strong advocate body for consumers of water. Councils—whatever sector they may be in—should be independent, operate openly and transparently, speak authoritatively about both consumers' experiences and the activities of the regulated companies. The provisions in the draft Bill will go a long way to achieving this.

  We believe that the focus of the Council should be on domestic consumers, and small businesses, but with particular regard to disadvantaged consumers.

  It is disappointing that the draft Bill does not give the Consumer Council for Water a remit to have regard to particular groups of disadvantaged consumers. Section 17 of the Utilities Act 2000 gives the Energy Consumer Council a remit for individuals who are "disabled or chronically sick"; "of pensionable age"; "with low incomes"; and "residing in rural areas". The Water Bill should have a similar provision.

  We recommend that the Consumer Council for Water's remit should focus on representing domestic consumers, and in particular disadvantaged consumers, to bring it in line with energy in the Utilities Act.

Information needs of the Council

  We welcome the provision in Clause 32 to require the regulator and water companies to supply information to the Consumer Council so it can do its job. The usefulness of this provision, however, will depend on the description of information and circumstances when information can be refused by the companies in the regulations introduced by the Secretary of State (27J (1)), and also the requirements for having "regard to the desirability of minimising the costs, or any other detriment, to the person to whom the direction is given" (27G(3)).

  Also, we believe it is inappropriate that any refusal to supply information by a company to the Consumer Council should be referred to the regulator, given that part of the Consumer Council's role is to scrutinise the decisions of the regulator, there is a potential conflict of interest. In our view, the Information Commissioner (set up under the Freedom of Information Act 2000) is the appropriate authority for such a task.

  We welcome the duty to publish information in the consumer interest as set out in Clause 31 (27F). However, we are concerned about the caveats being placed on the Council about the publication of information in this Clause. In the same way that the Utilities Act provides for publication of information by the Gas and Electricity Consumer Council, the Water Bill requires one or more of three criteria to be satisfied before it can be published (27F(3)). This could weigh the decision about publication in the water companies' favour. There could well be information that should be disclosed in the consumers' interest, which the companies may not want disclosed and may refuse to disclose. The Council should have a duty to balance the consumer interest against the considerations of confidentiality when deciding whether to publish information; and the Information Commissioner should have the duty to arbitrate where a company refuses to supply information to the Council.

Competition in Water

  We note the Government's proposal to amend the general duties of the Director of Ofwat to protect the interests of consumers "wherever appropriate through promoting effective competition" (Clause 27 (2(2B))). This gives the regulator a more proactive role in promoting competition than the existing Water Industry Act 1991 which states the regulator has a secondary duty to "facilitate effective competition" (Section 2 (3(e))).

  The National Consumer Council is supportive of promoting competition as a general rule: it offers choice and the possibility of lower prices and better services to consumers. However, we are not as sanguine as the Government about the benefits to be gained from competition in water services. As we stated in our response to the consultation on Competition in the Water Industry in England and Wales (April 2000), we believe that water is a natural monopoly with fixed infrastructure and with little scope for common carriage and competition. Potable water is homogeneous and choice therefore has little meaning for consumers. The costs of the industry are only slightly affected by the behaviour of individual consumers. We concluded that the risks far outweighed the benefits and expressed considerable concern about competition going further under the proposals set out in Competition in the Water Industry in England and Wales (2000).

  Given, too, that the Government is working further on its options for extending competition (paragraph 60), we believe it is premature for the regulator to have a more proactive duty towards competition. Whilst the energy regulator was given a duty "to promote competition" in the Utilities Act 2000 (sections 9 and 13), competition has developed considerably further in those sectors.

  We recommend that the draft Bill does not change the regulators' duty with regard to competition.

Industry Restructuring

  We note that the Government proposes to add provisions to the Bill, before it is introduced, to respond to the recent developments in the restructuring of the water industry with a view to ensuring the continued protection of drinking water quality (paragraph 3). We welcome the Government's decision as we share the concerns that water quality is a primary issue that arises from the restructuring that has occurred. However, we think that the focus on water quality alone is too narrow given the wider implications of the restructuring proposals for the economic concerns of consumers. For instance, the recent cases of proposed separation of assets and operation in the industry have implications for consumer service and regulation. We think consumers could face risks of supply availability and costs in the medium term that has not been explored. We recommend that Government carries out a broader and forward looking examination of the costs and benefits to domestic consumers of the various ways in which the industry might restructure itself, and the implication for regulation, over the next few years. We also recommend that Government consult on any additional provisions it intends to include in the draft Bill before it is introduced to Parliament.

January 2001

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