Examination of Witnesses (Questions 79
WEDNESDAY 30 OCTOBER 2002
79. Good morning. Just for the record, Mr Terry
you are the Chairman of the Council and Ms Reiter you are the
Council Member and Chairman of the WaterVoice European Group.
Have we got that one right?
(Ms Reiter) That is correct, yes.
80. Very good. Why do we need a Water Framework
(Mr Terry) I think it is necessary to put a unified
approach to water quality, water resource management across Europe,
and I think the objective is a very good piece of legislation.
It is something that is required and it should give us a consistent
base to take forward to the next 20, 30, 40 years.
81. But the mind does boggle a little bit, does
it not, when you think of some of the river basins we are talking
about. Who is going to do what and when? Can you just answer that
for me because I find I am looking through the water muddily at
the moment. Who does what when?
(Mr Terry) Who does what to what?
82. To bring it to life, to give it substance.
Who has to do what to make it alive and kicking?
(Mr Terry) Essentially what it is necessary to do
is to look at each of the river basins which have been designated
in the UK and do a holistic study of all the aspects that are
affecting water quality in that particular river basin, and out
of that come forward with a programme for improvement or maintenance
or no deterioration as the case may be. Really, I think, the people
whom we believe will be leading that will be organisations like
the Environment Agency.
83. Do you think the Environment Agencywhich
has a hell of a lot on its plate already and already seems a rather
large and complex organisationis going to take this on
(Mr Terry) It has to be them because I would imaginealthough
I am not an expertit is their statutory duty. It is a requirement
on them. They, after all, are the guardians of the quality of
the water environment and the total environment in the UK. I would
have expected them to be the lead agency in terms of working through
prospects, and put into perspective what might have to be done.
84. How do we know if we are making progress
(Mr Terry) How do we know?
85. How do we know how it is all going?
(Mr Terry) There is an end point which is 2015 and
one has to work systematically towards that.
86. That is inevitable, I would have thought.
You cannot do much about it; it is coming running towards you.
(Mr Terry) It is a programme that has to be undertaken.
There is a fair amount, if I may put it, of background thinking
going on by a large number of the technical organisations and
the technocrats who surround that. They are the people, I think,
who are going to have to put a series of mile stones that have
to be achieved throughout the process. It is a process which is
going to take us from 2003-04, when I guess the main work will
start and presumably the legislation that is required in the UK
will be enacted, right through to 2015. It is a long programme
and I think it needs to be tackled holistically. I guess the driver
for that process is going to have to be the Environment Agency.
87. I guess it is a costly process and some
of my colleagues will talk about costs, but I was just interested
in the principles. Who should pay the costs? Presumably you are
saying "not the customers".
(Mr Terry) The customers clearly have to pay their
fair share of any improvements and we accept that entirely. I
think it would be entirely wrong if the total burden of the total
improvements that were required as a result of the implementation
of the Water Framework Directive fell on the customers of the
water and sewerage industry. We would find that inequitable.
88. How would you define that fair share? Other
people are going to have different views about this, are they
(Mr Terry) Exactly. Can I perhaps answer round that
question. I think one of the problems is if you look at the issues
there are point sources of pollution, there is diffuse pollution,
there is pollution from agriculture, there is pollution from urban
highways and drainage. What happens is, if you were to take a
holistic approach to that and say "Let's try by good practice
to have better drainage systems at the urban drainage level; by
good practice let us have better farming practices" you would
actually solve the problem at source. I am sure that is the idea
of the Framework Directive. Nevertheless there will be some absolute
qualities which will have to be improved perhaps in terms of sewerage
works discharge and I thinkfairlya proportion of
those costs should be born by customers. Not to the extent that
they are paying to clear up nitrates or lead that has been put
in as part of the diffuse pollution.
89. It is the diffuse pollution that I find
difficult. Let us talk about agriculture. I guess if there are
better farming practices there are going to be costs to the farmers.
Presumably they are going to be recouped somewhere. Is it going
to be recouped by higher food prices? Do you feel that this is
an area where the customer might eventually have to pick up.
(Mr Terry) Let us be clear. In terms of statute we
speak for the customers of the water and sewerage industry so
I do not think I want to take on the role of speaking on behalf
of the customers of the farming industry other than as a consumer
in general. I would have thought those issues have got to be faced
up to. I think this is one of the reasons that we, as an organisation,
so much welcome this Committee looking at these issues. I think
it is the first time at this sort of level someone has said, "Hey,
what is this going to mean across the board? What is it going
to mean for all those stakeholders who have an interest?"
So I am going to duck your question, if I may, and say "What
is it going to mean to prices of food?" Clearly many improvements
in many things can actually be self-funding. If you adopt a better
process in farming you have fewer costs yourself, and so on and
so forth. I think there is an element of that. We would like to
ensure that in the implementation phase the costs that are born
by the water and sewerage customers are a fair share of that and
not, if you like, the dustbin that picks up all those pieces right
at the end.
(Ms Reiter) I think that is one of the important things
that we actually welcome in the Framework Directive itself. By
the very nature of the work that has to be done, is actually going
to take everything back from the sea, as it were, back up the
rivers and say, "What is actually happening? What is going
in? Do we actually have to put it in?" Because then we are
paying to take it out at the other end, so we are actually bearing
two costs from two different sources. We think the close examination
of costs as well as outputs in terms of environmental improvements
is going to be very beneficial to customers in the end.
90. But at the end of the day you accept that
water bills are going to increase.
(Mr Terry) I would start from the premiss of no, it
is not necessary." I would always start, speaking on behalf
of customers, and say that it is not necessary for water bills
to rise. Let us not start from that premiss. Let us start from
the premiss of what is the total going to cost? What are the most
cost effective solutions to these problems? Look at it holistically
and make sure there is a fair share of that burden. I do not accept
that the burden has to be passed absolutely to water customers.
I think what is going to happen is that it is going to put a lot
of pressure on the water and sewerage companies, which is going
to work through into higher investment, which is going to work
through into higher charges. But at this point we do not know
what the total costto come back to the Chairman's pointand
over what period that amount of money is spent. Two things will
determine what is going to happen to the bills: how fast you make
the investment and how much the investment is.
91. Can I just pick you up on this question
of costs. One of the things that has quite surprised me in reading
some of the submissions we have had, are the enormous margins
between the bottom and the top end of the estimates of how much
this is all going to cost. Have you done any modelling yourself
or are you just the recipients, as we are, of these wide ranging
attempts to quantify potential costs?
(Mr Terry) We do not have the resources in our organisation
or the technical capability to do that work. We believe it should
be done. We would suggestif we might be so boldthat
perhaps the government should commission Ofwat to do some of that
work. There is a range of bodies that would have to be involved,
but clearly as the financial regulator I think much of the work
in terms of assessment of what the cost is going to be and how
that would then potentially work through into customers' bills,
should be a study which is done. Who are the best people to do
it? It is going to have to have inputs from organisations such
as the Environment Agency, but probably it is going to have to
be done by someone like Ofwat who have the authoritative knowledge
of how those costs are likely to work.
92. Do you think that the knowledge does exist?
One of the things that seems to be difficult for everybody is
to actually work out what the costs and benefits of this whole
exercise are. Given the billions that the top end estimates are
talking about, it is an unusual departure in policy terms to be
marching into the distance, committing yourself to achieve something
by 2015 which potentially could have great big numbers attached
(Ms Reiter) We would share that. It was one of the
disappointments to us that this was not taken into account at
the time the Directive was actually being formulated. At the time
it was being formulated we were not actually engaged in discussion
in Europe with the Commission. Now the Bathing Water Directive
Revision is in we have been much more active and we have made
our views known very clearly that the cost and the benefits really
ought to be looked at before we actually embark upon something.
It is difficult to determine the benefits because very little
evaluation and validation has been done on any previous directives
that have been passed and implemented.
93. In paragraph 20 of your evidence you say
"We wish to see a realistic, water customer friendly approach
to implementation". You have just used the words "costs"
and "benefits". Given that customersin the broader
sense of that wordare the recipients of what water companies
and all of those who are involved in river basin management activities,
whatever their outputs are, there are people who are affected
by it if we define "customers" in that sense. There
are many who have a passionate interest in the environment (in
inverted commas)some of whom sent evidence to uswho
would put huge store as customers by the perceived environmental
gains that come from this directive. Do you feel that you know
enough about the value of the benefits to be able to include that
into your cost/benefit thoughts?
(Ms Reiter) I think that is one of the difficulties,
actually. The benefits have not been properly evaluated. I think
what we have to do is to make sure that we are looking for not
only cost solutions but actually alternative solutions that actually
do deliver benefits to customers both in terms of lower rises
in bills, but also give us the environmental benefit as well.
We have had a case recently where at the last periodic review
in my areain WaterVoice Wessex, I am Chairman of the Wessex
Committeethere was a scheme there that was going to cost
£105 million which was £11 for ever on customers' bills.
After very careful examination of the situation there by all the
parties concerned, all the environment bodies and water companies
(three water companies working togther to see what they could
do) we have actually achieved a solution now which we believe
will deliver something like 87 per cent of the benefits that were
looked for from the environmental point of view at a cost of under
a million pounds. That is the sort of activity that we believe
should be going on. We are disappointed that that has not been
driven by Europe, but we hope to see it driven here in the UK.
94. In the RSPB's evidencewe are going
to be hearing from them later onthere is a sort of fervour
that comes through from their submission that they want everything
there possibly can be to be banged into this whole exercise. This
is the great opportunityas they see itto have every
wetland properly defended, every environmental issue sorted out.
How do you think there should be a proper balance struck between
those with this great enthusiasm and passion and the customers
whom I suspect you have in mindthe people at the end of
a tapin terms of getting the right balance between costs
and benefit. In all of these directives parliamentarians are continually
told that the United Kingdom gold plates everything. How do we
get the right balance between officialdom and gold plating, and
those with passion and enthusiasm versus those who have to pay?
(Ms Reiter) I think it is only by very close examination
of all the plans that are put forward. That starts actually with
ministerial advice on what is actually required for the regulator
to deliver in the light of the directive that he has to comply
with, balanced against what other environmental groups may wish
to have, balanced again against customers' ability to pay. The
one thing I think we bear in mind at the end of it is when we
are looking at what the impact on bills is going to be we think
in terms of what inflation is and what, for instance, is the increase
in a pensioner's income or those on low incomes; what increase
are they getting per annum out of which they have to meet these
95. Many of the people you have described may
also be members of the environmental bodies.
(Ms Reiter) Yes.
96. And I have not seen anything at the moment
to suggest, for example, that water companies, the Environment
Agency, the government are going to give customers any kind of
menu which says that the environment they are enjoying as citizens
could be improved by the introduction of this measure. Here are
some possible options in terms of extra costs. Would you like
to pay? We talk about the consumer, but the last person to know
about this is going to be the guy in 2015 who gets his water bill
and says, "Oh, something has happened". How do we approach
(Ms Reiter) Within the Framework Directive there is
a requirement for consultation, and that is one of the areas in
which we believe we can be very active, but we cannot be the only
active party because we only represent the customers of the water
companies. We do not represent the environmental side. We will
represent the customer issues. But we have, in fact, coming up
for the next periodic review already had conducted some joint
research conducted for us by MORI. The participants have been
DEFRA, Ofwat, EA, DWI et cetera. What is interesting out of that
is that everyone feels friendly towards the environment, but when
you actually come to ask how much they are prepared to pay, it
starts at £5 and the maximum would be £20. Already customers
are beginning, if asked, to think in terms of the balance of what
they will pay.
(Mr Terry) If I might just say to you, I think it
is a key point that if you are going to take something forward
like this Framework Directive. We were actually disappointed that
the final Framework Directive did not have perhaps a stronger
definition of what was required in terms of public consultation.
I think Sheila is right; it is exactly that point. If you extend
that public consultation in a complete form with all the interested
bodies, that is probably the way that you are going to get a measure
of whether people are prepared to pay more (either directly through
their water bills or indirectly through other costs associated
with farming or direct taxation or whatever), and how much they
are prepared to pay. I think one of the key messages that we would
want to get across to you is that as you go forward into something
which is likely to be costly over a long period of time, let us
make sure that we look at this properly and let us make sure we
do thoroughly consult all the stakeholder groups (of which we
are the representative of one, the billpayer).
(Ms Reiter) The scale and pace of the implementation
will be a very important factor in getting to the end point, as
(Mr Terry) If you do it all today, or are you prepared
to prioritise and also have a realistic approach. Let us do it
in a way which will maintain the capability of the various organisations
to implement it and also the ability of the customers concernedacross
the board, not just water and sewerage customersto afford
the resultant bills.
97. In view of what you have just been saying,
do you feel that WaterVoice has a role to play in trying to convince
the customers in some circumstances of the importance of certain
programs going ahead perhaps rather faster than might be the case
if customer resistance to price increases was the determining
factor? Have you got a role to play there, not just advocating
for the customers but advocating for change?
(Mr Terry) Yes. Again, I would want to put it in perspective.
Our organisation is all about water customers; that is our role
as defined in the current statute. I think from that perspective
we would say that providing the customers who pay the bill are
to be seen as a key stakeholder, we would be very happy to work
constructively with all the other legitimate stakeholders in the
process. Whether I would go so far as to say that we would be
prepared to start advocating price increase to achieve some things
that come out of the Water Framework Directive, I would want to
take a raincheck on that one. We are not an organisation that
is just saying "Bills down". We have said that the top
customer priority in terms of water and sewerage services is to
eliminate sewer flooding. We know that has a big bill; potentially
it has a big bill to customers that goes with it. But we are saying
that that is something in our judgment customers would be prepared
to bear because it has a demonstrable outcome. So, yes, we have
a role. I do not think we would ever see ourselves as being the
leading light in that role; we would see ourselves as being a
very important player in the role and certainly in any area of
public consultation through which we believe the process should
Mr Lepper: I will come back to that point later
98. One of the things we learned last week when
we listened to someone from the Commission was that the whole
concept of cost benefit analysis is alien to this process. The
goals have been set down and they are supposed to be achieved
through least cost route. Therefore it is not a question of "if".
We have bought into this and we have to find some way of delivering
it. Does that alarm you that we have this agenda ahead of us,
we do not know how much it is going to cost, have not quantified
the benefits very clearly and there is a pretty clear objective
in terms of near pristine water to achieve within a time scale.
(Mr Terry) It does worry us. It worried us when, from
the outset, cost benefit or the cost implications of this directive
were not considered. I remember being at a conference a few months
ago and challenging one of the senior people in Brussels. They
said that the benefits are so obvious to see, why do we have to
quantify them? That is fine from a bureaucrat, but from an organisationand
organisations that are actually representing peoplewho
are going to fund that in way one or another I think it is right
that we say "Hang on a bit".
99. But it would be worth at least attempting
to nail down what might be the benefits to the customer. Obviously
water companies will have a lower clean up cost in due course,
not immediately, from cleaner water sources.
(Mr Terry) Absolutely and I think that is one of the
points I was trying to make earlier. If you take that holistic
approach you will actually get a solution and not solve the symptoms,
but you are absolutely right. We would support that, but how that
works into the process and who is going to be a leader in that,
I am not quite sure.
(Ms Reiter) One of the things we hope, of course,
is that the Water Framework Directive by its own nature will supercede
some of the existing directives, but we must remember that there
is a whole series of directives that we are still having to meet
(Habitats Directives, Shellfish Directives, the Nitrate Directive
and next year there is going to be a Ground Water Directive 2003).
This was the point that we were very concerned to make in Europe
and we tried very hard, pounding the corridors there, to get this
message across. It is fine for each individual committee to be
working on one directive, but when you look at the cumulative
effect of thiswhilst it might actually drive some costs
out from different directivesthe total package is very
big. That is why it is very important to us that in looking to
take this forward the scale of work and the time scale has to
be taken into account. Not only the environmental benefits but
the customers' ability to pay for it.