Memorandum by Water UK (DWB 18)
Water UK is the industry's representative organisation.
All the companies in England and Wales are members as are the
three publicly owned Scottish Water Authorities and the Northern
Ireland Water Service. In England and Wales there are 10 water
and sewerage companies and 13 water only companies.
Water UK members in England and Wales have around
8,500 sites licensed by the Environment Agency, made up of 2,000
abstractions and almost 6,500 waste water treatment works. We
are also responsible for over 13,000 storm overflows consented
by the Environment Agency.
Over the next five years these companies will
invest around £15 billion, taking the total invested since
privatisation to around £50 billion. Drinking water quality
is over 99 per cent compliant and 95 per cent of bathing waters
meet European standards and 92 per cent of rivers are classified
as good or fair.
The draft Water Bill results from a consultation
on abstraction licensing carried out by Government in 1998, a
set of Clauses on regulatory reform included in the Utilities
Bill early in 2000 and subsequently dropped, and a selection of
other tidying up changes to water legislation. Further changes
to the Bill may take place to reflect the outcome of several other
consultations carried out in 2000, in particular on extending
competition in the water industry.
We fully support the Government's objectivesthat
the customer should be at the heart of regulation and that the
regulatory process should be more open and transparent, accountable,
predictable, consistent and effective. We believe that these principles
of good regulation apply not only to economic regulation but should
also apply to environmental regulation. We have made relevant
submissions in the last year both to the Environmental Audit Committee
(EAC) inquiry into Water Prices and the Environment, and to this
Sub-Committee's inquiry into the Environment Agency.
We put forward a number of proposals in this
submission to improve the way the industry is regulated in the
interest of both customers and the environment. Our submission
deals with the following key topics in the draft Bill and Government's
We support the proposed principles of better
regulation; these need to apply also to decisions of the Environment
Agency and the Drinking Water Inspectorate.
The proposed revisions to the abstraction licensing
regime need to be supplemented by further regulatory measures
for the purpose of ensuring security of water supply and avoiding
Collaboration between environmental and economic
regulators is essential to make the system work effectively. The
Water Bill should provide for such collaboration explicitly but
it fails to do so in the draft.
This collaboration should be led by Government,
which should be responsible for deciding trade-offs and making
choices. Such intervention should be specifically provided for
in the legislation, as is referred to below.
Legislation should require the co-ordination
of decision making by the Secretary of State, the Director General,
the Environment Agency and the Drinking Water Inspectorate in
order to achieve consistency.
There should be a national forum involving Government,
regulators and the industry and its stakeholders, to consider
the longer term issues affecting our customers and the environment
and maintain a continuous debate on sustainability.
Customers should be consulted and fully involved
in the sustainability debate. This should also be provided for
The proposed licensing regime should explicitly
recognise the duty on the water industry to supply its customers
and on the Environment Agency to augment resources. Supply is
Without revision, the proposed licensing regime
could replace long-term arrangements by short-term ones; this
would have a significant impact on the cost and duration of infrastructure
investments which would otherwise be productive for decades or
Security of supply could be reduced and costs
raised unnecessarily unless proper regulatory arrangements were
put in place; they are absent from the Bill.
Removal of "sleeper" licences, which
companies need in case of drought or emergency, places security
of supply at particular risk; such licences do not now damage
Government's regulatory appraisal of the Bill
is woefully inadequate, as it does not appear to have involved
any economic or financial analysis whatsoever. Its main comment
on the cost of its proposals (paragraph 2.22) is that there will
be few costs for "licences in force which are not causing
significant environmental damage." There is no estimate of
administrative costs, the likely impact of the Bill on costs to
customers, or the benefits to the environment.
We support the proposal to give the customer
representative body independent status.
We agree that the new Consumer Council should
have a representation and advocacy role, not one of decision-making.
The Council should represent all customers and
have adequate expertise. As the existing Customer Service Committees
are to be abolished, greater clarity is needed from DETR about
the arrangements to be put in place at regional level.
Primary legislation should define the respective
roles of the Council and the economic regulator. The memorandum
of understanding between the Council and the regulator should
not undermine the Council's independence.
Legislation should amend the primary duty on
the Director General of Water Services to emphasise the longer
termnot just the short terminterests of customers
and to give him a specific duty to act transparently, predictably
In order to assist the funding of a continuing
massive investment programme, the existing duty on the regulator
to secure a reasonable return on capital should be retained and
there should be a duty to secure appropriate funding for asset
Legislation should expressly require the Director
General to extend general principles established by the Competition
Commission in its reports to all companies, and enable companies
to appeal against principles in price review methodologies in
advance of a price determination.
Legislation should implement the Government's
commitment in the utility regulation review to require the Director
General to consult on, publish and follow a code of practice governing
his decision-making processes. The legislation should contain
a specific reference in the Director General's duties to consulting
customers properly, and it should require the Advisory Panel to
publish its advice to the regulator, and also the Director General
to publish his financial model in full.
Legislation should require the Secretary of
State and the Director General to consult the Health and Safety
Commission when relevant to the carrying out of their functions,
in line with the corresponding sections of the Utilities Act.
We are very disappointed that Government has
not proposed a legislative framework for competition in the water
A framework is essential because the Competition
Act is not appropriate for introducing competition in a network
Under the Competition Act, competition is developing
by the cherry-picking of customers, which affects other customers
The framework must require that all suppliers
in the industry are licensed through an appropriate licensing
Proposals to widen the prosecution powers of
the DWI are welcome but do not go far enough.
The legislative framework must ensure that new
entrants, in their chosen area of activity, are subject to the
same public health, environmental and social obligations as the
incumbents and other competitors.
As water competition is in its infancy, the
legislative framework should be flexible in other respects for
the time being and permit market forces to develop competition
models appropriate to the industry.