Select Committee on Environment, Transport and Regional Affairs Memoranda

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 objectives—that 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 related consultation:


  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 unnecessary expenditure.

  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 in legislation.


  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 demand-led.

  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 longer.

  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 the environment.

  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 term—not just the short term—interests of customers and to give him a specific duty to act transparently, predictably and consistently.

  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 maintenance.

  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 industry.

  A framework is essential because the Competition Act is not appropriate for introducing competition in a network industry.

  Under the Competition Act, competition is developing by the cherry-picking of customers, which affects other customers adversely.

  The framework must require that all suppliers in the industry are licensed through an appropriate licensing regime.

  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.

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