Memorandum submitted by WaterVoice (J5)
SUMMARY
1. Our evidence addresses the Committee's
terms and reference from the perspective of customers of water
and sewerage companies in England and Wales. It covers customers'
interests in:
— the costs and benefits of implementation
of the Directive;
— the impact on customers' bills arising
from the costs that will fall on water companies;
— the implications for water pricing
policy including water poverty;
— the part that public consultation
and information will play in the process of implementation of
the Directive;
— the role of the European consumer
body BEUC and the absence of a voice for water customers in the
European Commission's Common Implementation Strategy for the Directive.
WATERVOICE
AND THE
DEVELOPMENT OF
EU WATER POLICY
2. Improvements in water quality are costly.
Our aim is to ensure that water customers' interests as water
bill payers and water users are taken into account during the
development of and in the decision making process for setting
new water quality standards, as well as in the implementation
of those standards. As part of this it is also important to raise
the general level of public awareness that customers are paying
for these improvements.
3. EU water policy has been a major force
in driving improvements in drinking water quality—in waste
water treatment, in bathing water quality and in the water environment
more generally. In the 15 years from 1990 to 2005 water companies
in England and Wales will have invested £50 billion to improve
water quality and to protect the water environment. Much of this
investment has been required to comply with EU Directives including
the Urban Waste Water Treatment Directive the Bathing Water Directive
and the Drinking Water Directive. All of the investment the water
companies are required to make to comply with these legal obligations
is financed by customers.
4. The impact on customers in relation to
the level of water bills and affordability must be key elements
in determining the scale and pace of the quality programme. It
would be counterproductive if the consequence of introducing much
stricter water environment policies was to turn customers against
those policies by imposing too high a cost burden upon them. The
precautionary principle is a case in point where expensive preventative
measures have sometimes been taken while little is known about
any actual health benefits.
5. Proposals must be based on sound science.
Cost and benefits must be assessed properly and cost effective
solutions developed and if necessary kept under review so that
they deliver best value for money. (At the last Ofwat Periodic
Review of water companies' price limits in 1999 we and Ofwat challenged
the value for money of a £105 million scheme to resolve low
flows in rivers in Hampshire. It would have resulted in an increase
of £11 a year in water bills. Following reassessment another
way forward costing £1million with minimal impact on water
bills has been found). In implementing EU and UK water policy
the development of cost effective solutions should take precedence
over undue haste to meet Ofwat's Periodic Review timetable. There
should be flexibility in the price setting process where this
can help to keep down costs and customers' bills.
WATERVOICE
AND THE
PROPOSAL FOR
A WATER
FRAMEWORK DIRECTIVE
6. WaterVoice (under its former name of
the Ofwat National Customer Council) followed closely the Commission's
proposal for the Directive through the EU legislative process,
had discussions with Commission officials and briefed MEPs over
the three years leading up to adoption of the Directive in 2000.
7. We supported:
— establishment of a framework at European
level within which coherent policies could be developed for the
sustainable use of water addressing issues of both quality and
quantity;
— overall environmental quality objectives
of preventing deterioration in water quality and achieving good
status in all surface and ground water.
— putting the "polluter pays"
principle into practice and avoiding pollution of water resources
(for example by farmers and motorists) so that harmful substances
do not have to be removed at customers' expense before water was
fit for human consumption;
— a full cost recovery based approach
to water pricing
8. We had reservations about:
— lack of information from the Commission
on estimated costs or even ranges of costs—without which
it was impossible to judge the balance between costs and benefits;
— the proposals on public consultation
at implementation stage of the Directive which while welcome needed
to be strengthened;
— Whether the timetable of achieving
the main environmental objectives was realistic both financially
and practically.
IMPLEMENTATION OF
THE WATER
FRAMEWORK DIRECTIVE
9. The Directive is we understand the most
substantial piece ever of EU water legislation. It has to be transposed
into UK law within three years of coming into force, by December
2003; substantial environmental and economic analysis has to be
carried out before draft river basin management plans can be published
for consultation after eight years; proper water pricing policies
have to be in place after ten years; and the main environmental
objectives met after 15 years.
10. It is however important to recognise
that the Water Framework Directive is not all embracing in the
field of water policy. It will for example complement the Urban
Waste Water Treatment Directive adopted in 1991. There will continue
to be a separate Drinking Water Directive (revised in 1998) and
a separate Bathing Water Directive (a proposal for revision is
expected later this year).
11. The Government has so far published,
in March 2001 the first of three consultation papers on implementation
of the Directive. The second consultation paper is expected in
the autumn. In the meantime the Environment Agency, which will
have a major role to play in implementation of the Directive published
in June 2002 a consultation document on technical requirements.
At this early stage in the process of implementing the Directive
there are inevitably many significant areas of uncertainty as
to the impact that the Directive will—or may—have
on customers of the water companies.
12. We very much welcome therefore the Environment,
Food and Rural Affairs Committee's inquiry. The Committee in its
report will have a significant opportunity to influence implementation
of the Directive in a way which balances the interests of water
customers with those of other stakeholders.
WATER CUSTOMER
ISSUES
Costs and Benefits of the Directive
13. There are uncertainties about the estimated
costs of implementing the Directive. The partial Regulatory Impact
Assessment in the Government's first consultation paper put the
total estimated costs of complying with the Directive in England
and Wales in the range £2 billion to £9.2 billion. This
is a wide range and we wish to see further work done in producing
a full and updated Regulatory Impact Assessment to refine the
estimated costs and to narrow the range.
14. There are further uncertainties about
where and on whom the costs that would fall. For example the costs
to sewerage undertakers—and in turn customers—of improvements
to point source discharges were put at £0.9 billion to £4.2
billion while the cost of reducing pollution from diffuse sources,
particularly agricultural sources, were put at £0.6 billion
to £2.9 billion. Again we wish to see more work done to refine
the estimates to help inform the decisions that have to be taken
in implementing the Directive.
15. In accordance with application of the
polluter pay principle we would expect relevant costs to be met
at source by those responsible for the pollution and not by water
customers. We welcome on behalf of customers the prospect that
water companies will be relieved of the need for capital investment
in "end of pipe" solutions to deal with the symptoms
of agricultural diffuse pollution. It would be welcome too if
the Government were to apply the polluter pays principle to highway
drainage the costs of which are met by water customers and not
by road users.
COSTS AND
IMPACT ON
WATER BILLS
OF THE
DIRECTIVE
16. In the Government's first consultation
paper the partial Regulatory Impact Assessment put the estimated
costs of the benefits capable of quantification at between £1.6
billion and £6.2 billion. This is somewhat lower than the
estimated costs of implementation. We appreciate that many of
the benefits are extremely difficult to value. More work is required
to quantify and value the benefits more precisely where possible.
17. The Government claimed that it was not
possible to estimate the size of any increase in water bills which
might result from the Directive as this would be considered as
part of the normal process of the Periodic Review of water companies'
price limits in England and Wales, probably from the 2005-10 quinquennium
onwards. The Government explained that the costs to water companies
would be offset by previous and future efficiency gains (which
we expect to be smaller than in the past) and other factors that
are taken into account by Ofwat in the Periodic Review process.
18. While these statements are factually
correct we are disappointed that the Government, with Ofwat's
assistance, has still to provide any indication at all of the
impact on the level of water bills of implementing the Directive.
Full and effective consultation now and in the future and well
informed decisions on cost effective implementation of the Directive
cannot in our view be taken without knowledge of the possible
impact on water bills both at national and regional levels to
highlight differences across the country. Any such estimates now
would we recognise be in the form of a wide range. Further work
to refine the numbers would be required as better cost information
becomes available. We recognise that the final impact on water
bills would not be known until the outcome of each future Periodic
Review is announced by Ofwat.
SCOPE AND
TIMETABLE OF
THE DIRECTIVE
19. The Government has said that it wants
to achieve implementation of the Directive in the most cost effective
manner possible without as rule going beyond the Directive's requirements
unless it was justified against any costs or benefits that arise.
We welcome the Government's commitment on cost effective implementation
but we are concerned about the possibility that the Government
might go beyond the Directive's requirements.
20. We wish to see a realistic, water customer
friendly approach to implementation. This means that no additional
work should be done beyond that which is strictly required to
meet the Directive's requirements. Any other requirements that
the Government wishes to implement should not be done on the back
of the Directive but should be the subject of separate cost benefit
analysis and consultation with water companies, customers and
other interested parties.
21. The Government has stated that it wants
to ensure that the deadlines for phasing in obligations to implement
the Directive are met but has no plans to phase them in earlier
than is required by the Directive. We welcome this commitment
which will be helpful in spreading the expenditure required and
the impact on water bills over the longest possible period and
will help ease any problems of affordability. This is especially
important as there will inevitably be upward pressures on water
bills in England and Wales from other directions during the period
of implementation of the Directive eg to comply with the revised
Drinking Water and Bathing Water Directives and with other Directives,
to remedy sewer flooding, to address capital maintenance requirements
and so on.
WATER PRICING
POLICY IMPLICATIONS
OF THE
DIRECTIVE
22. We have taken a close interest in Article
9 of the Directive which sets out a requirement to "take
account of the principle of recovery of the costs of water services"
and to "ensure by 2010 that water pricing policies provide
adequate incentives for users to use water efficiently".
Water pricing policies have an important part to play in promoting
sustainable use of water. The recovery of costs from customers—household
industry and agricultural—helps to raise awareness of the
true value of water, creates incentives on users to use water
responsibly and avoid wasteful use. Moreover by managing demand
in this way it may be possible to defer or avoid the development
of new water resources which may be damaging to the environment
as well as costly to customers.
23. The Government stated in its first consultation
paper that Article 9 of the Directive should have little effect
on water charging policy in England and Wales as charges are already
based on the principle of the recovery of costs, or are moving
in that direction, without subsidies for water and sewerage services.
24. The recovery of costs raises a number
of potential issues for customers. We would not wish to see any
significant changes made in the following areas as a result of
implementation of the Directive:
— Water poverty—customers on
low incomes who have difficulty in paying their bills should continue
to be eligible to receive assistance (although unlike the Government
our view is that this should come primarily through the Social
Security system and not through cross-subsidy within the charging
system).
— Metering—this has an important
part to play in water pricing policies and customers should continue,
as now, subject to certain restrictions to have the right to choose
whether or not to be metered.
— Averaging of charges—costs
and pricing should continue, as now, to be averaged across the
whole of each water company's area. Deaveraging would result in
higher bills for customers in some areas at the expense of lower
bills for others. We think the problems this would create would
outweigh the benefits of stricter application of cost recovery.
PUBLIC CONSULTATION
AND INFORMATION
25. Article 14 of the Directive contains
important requirements relating to public consultation and information
on the draft River Basin Management Plans which are a cornerstone
in implementing the Directive. We wish to see the Government,
having signed up to the Water Framework Directive, take the lead
in educating and informing water customers and the public generally
about the aims, objectives and benefits of the Directive and in
due course to promote effective consultation on the draft River
Basin Management Plans. In England and Wales we are well placed
compared to other Member States in having for example in WaterVoice's
regional committees well established customer representative bodies
ready to play a full and active part in responding to public consultation
on the draft Plans.
EUROPEAN COMMISSION
COMMON IMPLEMENTATION
STRATEGY
26. We are aware that the UK are working
with other Member States and the European Commission in a number
of Common Implementation Strategy Working Groups to provide guidance
on good practice and implementing different aspects of the Directive.
Many of these groups cover technical and specialist areas. The
Groups report to a Co-ordination Group chaired by the Commission,
which in turn reports to meetings of Water Directors in Member
States.
27. We believe it is important that water
customers (who will fund much of the cost of implementation) as
well as environmental organisations and industry should be represented
on the Co-ordination Group. We know that the Commission last year
invited the European consumer body BEUC to participate but that
they have not yet taken up the invitation. This means that water
customers have no voice on the Co-ordination Group. We have pursued
the matter for many months with BEUC who tell us that they have
many competing priorities and that based on consultations with
member organisations (in the UK the National Consumer Council
and Consumers' Association) water is not a priority. We have sought
to explore with BEUC ways in which the expertise of WaterVoice
as a non-European body could be used. As BEUC have been unable
to provide a representative they have very recently proposed to
the Commission that WaterVoice should be invited to participate.
But the matter remains unresolved and the seat on the Co-ordination
Group remains empty. We regard this as very regrettable.
ABOUT WATERVOICE
28. WaterVoice provides a strong and independent
voice for all customers of water and sewerage companies in England
and Wales. We operate through nine regional committees in England
and a committee for Wales (the statutory Customer Service Committees
established and maintained by Ofwat under the Water Industry Act
1991). The ten committee Chairmen form the WaterVoice Council
which represents the interest of customers at national level.
29. The Government intends to legislate
in a future Water Bill to replace the current arrangements for
customer representation by a new independent Consumer Council
for Water. WaterVoice may remain in use as the public name of
the new body.
WaterVoice
18 September 2002
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