Clauses 42-45: Objectives of Regulation of Water Industry

110.     Clause 42: Objectives and duties under WIA. This clause amends section 2 of the WIA.

111.     New subsections (2A), (2B) and (2C) amend the general duties which affect the manner in which the Secretary of State, Assembly and Authority exercise their specified functions under the WIA. They are given a new consumer objective to protect the interests of consumers of regulated water and sewerage services, wherever appropriate through promoting effective competition. They are under a duty to further that objective, to secure that the functions of water undertakers and sewerage undertakers are properly carried out throughout England and Wales, , to secure that companies holding appointments are able (in particular, by securing reasonable returns on their capital) to finance the proper carrying out of the functions specified in the conditions of their appointments, and to secure that the activities and functions of licensed water suppliers are properly carried out.

112.     In determining the "interest of consumers" for the purpose of the consumer objective, the regulator should take into account the interests of all customers. However, the regulator should also have for consumers who are disabled or chronically sick, are of pensionable age, have low incomes or reside in rural areas. In addition, the regulator should have regard for customers of undertakers whose premises are not eligible for supply by licensed water suppliers. This is intended to enable the regulator to balance the interests of these and eligible customers.

113.     New subsection (2E) empowers the Authority and Secretary of State, in exercising any function in relation to water, to have regard to any interests of consumers of gas, electricity and telecommunications services, which are affected by the carrying out of that function.

114.     New subsection (3) provides that, subject to the primary duties in new section (2A), the Authority or the Secretary of State should carry out their duties in such a manner as to

• promote efficiency and economy on the part of companies appointed as water and sewerage undertakers;

• ensure that there is no undue discrimination in the fixing of water and drainage charges;

• secure that the interests of customers and potential customers of such companies are protected as regards the sale of land;

• ensure that the interests of customers and potential customers are also protected in relation to any activities undertaken by their water or sewerage undertaker that are unrelated to their functions as statutory undertakers, or in relation to the activities of any person who appears to be connected with the undertaker, including through the presentation of accounts in a suitable form; and

• contribute to the achievement of sustainable development.

115.     New subsection (4) provides that in exercising their powers and performing their duties set out in subsection (1), the Secretary of State and the Authority shall have regard to the principles of best regulatory practice, including transparency, accountability, proportionality, consistency and targeting.

116.     Subsection (9) provides for the provisions of this clause not to detract from other duties imposed on the Authority or Secretary of State.

117.     Clause 43: Guidance to Authority on social and environmental matters. This clause adds a new section 2A to the WIA. Similar provision was made in the Utilities Act 2000 for the gas and electricity industries.

118.     The clause allows the Secretary of State, or for water and sewerage undertakers whose areas are wholly or mainly in Wales, the Assembly to issue statutory guidance to the Authority. The subject of the guidance is how the Authority might contribute to social and environmental policies.

     119.     Subsection (2) in new section 2A requires the Secretary of State, where practicable, to have regard to the costs and benefits which may be expected to result from the guidance.

120.     Subsection (3) in new section 2A requires the Authority to have regard to any such guidance when discharging its statutory functions.

121.     Subsections (4) to (8) in new section 2A set out the conditions under which the Secretary of State or the Assembly may issue guidance.

122.     Subsection (9) in new section 2A requires the Secretary of State and the Assembly to publish any guidance.

     123.     Clauses 44 and 45: Standards of performance in relation to water supply and sewerage service. Clause 44 amends section 39 of the WIA. It extends the existing arrangement whereby the Secretary of State can make regulations in response to proposals for new or amended standards of performance only in response to a specific proposal from the Authority. The amendments made by this clause will allow the Secretary of State to initiate such proposals as long as a number of criteria specified in the amended section are met.

124.     A new subsection (A1) is inserted into section 39 of the WIA to allow the Secretary of State to make regulations either on application by the Authority, or otherwise under certain conditions.

125.     Subsection (3) amends the list of bodies that must be served notice of an application by the Director to include the Council and any other persons or bodies the Secretary of State may consider appropriate.

126.     Subsection (6) inserts new subsections (4) - (8). These subsections allow the Secretary of State to make regulations under section 38 if no such applications have been made, as long as he considers that the regulations will contribute to the attainment of policies relating to public health and the environment, or if not, that there are exceptional reasons why it is otherwise in the public interest that the regulations should be made. The subsections govern the procedure.

127.     Similar amendments are made to section 96 of the WIA in relation to sewerage service, by clause 45.

Clauses 46- 50: Functions of the Council

128.     Clause 46: General functions of the Council. This clause adds seven new sections (27C to 27G, 30ZA and 30ZB) to the WIA.

129.     New section 27C requires the Council to have special regard for the interests of individuals that are disabled, chronically sick, of pensionable age, with low incomes, residing in rural areas, or not eligible to be supplied by a licensed water supplier.

130.     New section 27D requires the Council to obtain and review information about consumer matters, including consumer views on such matters, in different areas of England and Wales.

131.     New section 27E gives the Council the function of making proposals, providing advice and information about consumer matters and representing consumer views to public authorities, water companies, licensed water suppliers, and any other body whose activities may affect the interests of the consumers.

132.     Subsections (2)-(4) in new section 27E provide that the Council shall not disclose any information relating to a particular individual or body, unless the individual or body involved has given consent, the information is already available from another source or if it is the Council's opinion that the published information does not seriously and prejudicially affect the interests of the individual or body concerned.

133.     The Council must consult the individual or body concerned and have regard to any opinion expressed by the Authority.

134.     Subsections (5) and (6) in new section 27E put restrictions on the Council not to publish any information which is or is likely to be the subject of criminal proceedings. The Council is also required in these circumstances to have regard of the opinion expressed by the Secretary of State, the Assembly or the Director of Public Prosecutions.

135.     Subsection (7) in new section 27E states that the restrictions in subsections (2) to (5) do not apply to the disclosure of information to the Authority, the Secretary of State, the Assembly, the Competition Commission or any other public authority.

136.     New section 27F gives the Council the function of providing information to consumers about consumer matters. This clause only deals with information that is already available to the public. The intention is that the Council are able to bring together comparable information from different companies, or sources, and make it available (both on own initiative, and on request) in forms that are useful to consumers.

     137.     Subsection (4) in new section 27F requires the Council to maintain at least one office in both England and Wales, where the consumers can apply for information.

138.     New section 27G gives the Council power to publish any information and advice about consumer matters, if it thinks it is in the interest of consumers. Subsection (3) in new section 27G restricts this power, so the Council cannot publish any information relating to a particular individual or body unless the person or body has given its consent to the publication or if the information is already available from another source or if it is the Council's opinion that the published information will not seriously and prejudicially affect the interests of the individual or body concerned.

139.     Subsection (4) in new section 27G requires the Council to consult the individuals concerned and the Authority before publishing such information.

140.     Subsections (5) and (6) in new section 27G puts restrictions on the Council not to publish any information which is or is likely to be subject of criminal proceedings. The Council is required in these circumstances to have regard to the opinion expressed by the Secretary of State, the Assembly or the Director of Public Prosecutions.

141.     Section 30ZA places a general duty on the Authority to consult the Council in relation to the exercise of its functions, except where the Council has requested not to be consulted or the Authority considers it to be clearly inappropriate. This general duty is in addition to any specific duties to consult the Council that are already in the Bill (e.g. the requirement for the Authority to consult the Council about its code of practice in Schedule 1).

142.     New section 30ZB requires the Authority to send to the Council a copy of any document it is required to publish under the terms of the WIA.

143.     Clause 47: Provision of information to the Council. This clause adds four new sections (27H to 27K) to the WIA.

144.     New section 27H grants the Council rights to direct the Authority, undertakers or licensed water suppliers to supply information it needs to carry out its functions. Those so directed must provide the information as soon as reasonably practicable and in the form the Council requires. The Council is required to have regard to the desirability of minimising the compliance burden for the Authority and the undertakers. If a body does not provide information sought by the Council, it must give the Council its reasons if the Council requires.

145.     New section 27I allows the Council to publish reasons that the body gives for any refusal to supply it with information in its possession, provided that those to whom the information relates have consented, or it is already in the public domain, or it will not cause serious and prejudicial effects to those to whom it relates. The Council is obliged to consult such persons, and to consider the opinion of the Authority, before deciding whether to publish the reasons. Disclosure is also restricted where information relates to any matter which is, or likely to be, the subject of criminal proceedings. The Council, in deciding whether disclosure is appropriate in such cases, needs to consider the opinions of the Secretary of State, the Assembly or the Director of Public Prosecutions.

146.     New section 27J enables the Authority, the Secretary of State or the Assembly to direct the Council to provide reasonable information which they require for the exercise of their functions. These bodies are entitled to reasons from the Council for a refusal to provide the information requested. These bodies may publish the reasons, subject to the need to exclude information the publication of which might cause serious and prejudicial effects to persons to whom it relates.

147.     New section 27K gives the Secretary of State a power to make regulations setting out the categories of information which the Authority or an undertaker may refuse to provide when the Council requests it, or the categories of information which the Council may withhold from the Authority, the Secretary of State or the Assembly when a request is made.

148.     Subsection (2) in new section 27K provides that an undertaker's refusal to supply information to the Council can be referred to the Authority. Under subsection (3) in new section 27K the Secretary of State may provide through regulations for another person to adjudicate failures to comply with any directions under sections 27H or 27J.

149.     Subsection (4) in new section 27K sets out the duties of an adjudicator. An order against a company issued under this section is enforceable by the Authority.

150.     Clause 48: Provision of statistical information to consumers etc. This clause adds two new sections (38B and 95B) to the Water Industry Act 1991.

151.     The new 38B gives the Council a duty to publish statistical information relating to consumer complaints (made to the Authority, the Council, the Assembly, the Secretary of State or directly to undertakers or licensed water suppliers and their representatives) and the handling of those complaints. The new 95B makes similar provision for sewerage undertakers.

152.     The Council has discretion over the form and frequency of the publication of the statistics.

153.     Clause 49: Consumer complaints. This clause inserts a new section 29 into the WIA. It sets out the circumstances in which the Council should seek to resolve consumer complaints against undertakers or licensed water suppliers, unless frivolous or vexatious. The Council has powers to obtain information relevant to a complaint from the undertaker, or licensed water supplier, concerned in order to facilitate the process of seeking to resolve the complaint in a satisfactory manner. The Council does not have the power to impose a settlement between the parties in any complaint, but is required to refer a dispute to the Authority for resolution. The Council is required to refer the matter to the Secretary of State (or Assembly) if an offence has been committed or is suspected. The Council, on concluding an investigation, may make a report to the Authority, Secretary of State or the Assembly. The contents of the report may not be disclosed or published by any party without the consent of any individual complainant that is or could be identified in the report. This clause also requires consumer complaints made direct to the Secretary of State, the Assembly or the Authority to be referred to the Council, unless they are frivolous or vexatious.

154.     Clause 50: Investigations by the Council. This clause adds a new section to the WIA.

155.     New section 29A gives the Council scope to carry out investigations relating to the interests of consumers where no specific complaint has been made. The Council is required to consult the Authority, the Secretary of State and the Assembly before embarking on such an investigation. After an investigation the Council may make a report to the Authority, the Secretary of State, the Assembly, the Office of Fair Trading or any other public authority that has an interest in the matter. The Council may also publish these reports, subject to certain restrictions on disclosure of information relating to individuals or bodies. Disclosure is also restricted where information relates to any matter which is, or likely to be, the subject of criminal proceedings. The Council, in deciding whether disclosure is appropriate in such cases, needs to consider the opinions of the Secretary of State, the Assembly or the Director of Public Prosecutions.

Clauses 51 and 52: Enforcement of Obligations

156.     Clause 51: Financial penalties. This clause adds six new sections (22A to 22F) to the WIA and confers powers on an enforcement authority (the Authority, the Secretary of State, or the Assembly) to impose financial penalties on statutory undertakers and licensees.

     157.     New section 22A allows financial penalties to be imposed for contraventions of appointment conditions, licensees' conditions, statutory or other requirements, and failure to achieve standards of performance of water supply or sewerage services as prescribed under section 38(2) or 95(2) of the WIA. Subsections (1) and (2) allow for the case where a licensed water supplier has caused or contributed to a breach of an undertaker's condition of appointment or caused or contributed to an undertaker contravening a statutory or other requirement; or where an undertaker has caused or contributed to the breach of a licensed water supplier's licence or caused or contributed to the latter's contravening a statutory or other requirement. In those cases, the Authority may impose an appropriate penalty. This is to cater for the relationship between licensed water suppliers and undertakers where one may contribute to the contravention of a responsibility of the other party. References in sections 22A to 22C to contraventions include references to causing or contributing to a contravention.

158.     The power does not apply to contraventions committed before the power comes into effect. Receipts from financial penalties are paid into the Consolidated Fund. The new power operates alongside existing order-making powers.

159.     The penalty must be of a reasonable amount in all the circumstances of the case and in no instance should be more than 10% of the undertaker's annual turnover, as determined in an order by the Secretary of State. An enforcement authority is not able to impose a financial penalty under these provisions in respect of any infringement for which it is satisfied that the most appropriate way of proceeding is under the Competition Act 1998.

160.     There are procedural requirements for the imposition of a penalty, including requirements on the enforcement authority to publicise its intentions, give notices with prescribed information, and receive and consider comments from interested parties; procedures for modifying the penalty in the light of representations; and procedures for notifying the company concerned and interested parties of the final decision on the imposition of a penalty. The company may apply to the enforcement authority to pay a penalty in instalments.

161.     New section 22B requires each enforcement authority to consult on and publish a statement of its policies with regard to the imposition of penalties and calculating their amount, and to take account of those policies when using these new powers.

162.     New section 22C sets out time limits for the imposition of a penalty, related to the time at which the contravention occurred or, where applicable, the time at which enforcement action was initiated.

163.     New section 22D makes provision for interest that if the penalty is not paid in full by the required date. However, if the company has made an application to the authority to alter dates of payment, the penalty need not be paid until this application is determined.

164.     New section 22E provides for an appeal to the Court if a company seeks to question the validity of a penalty order on prescribed grounds. The requirement to pay a penalty is suspended until the case is determined. The court may cancel or reduce the penalty or extend the time-scale to pay. It may also require interest to be paid on the penalty, including on a reduced penalty.

165.     New section 22F provides that where any part of a penalty has not been paid by the required date, the authority may recover the penalty and any accrued interest, as a civil debt, unless an application against the penalty has been made.

166.     Clause 52: Enforcement of certain provisions. This clause amends the WIA. The enforcement authority currently has a duty to make an enforcement order in relation to a likely future contravention of a condition of appointment or statutory or other requirement, where a contravention has already taken place. Clause 47 replaces this with a duty on the enforcement authority to act wherever there is likely to be a contravention of such a condition or requirement in future (whether or not a contravention has previously occurred).

167.     This clause accelerates the enforcement process by reducing the time for making representations in response to a notice of intention to issue an order from 28 days to 21 days. The new time limits do not apply to orders issued before the entry into force of the new provisions.

Clause 53 : Remuneration and Standards of Performance

168.     Clause 53: Links between directors' pay and standards of performance. This clause adds a new section 35A to the WIA.

169.     The clause requires statutory undertakers to disclose whether or not they link the remuneration of the directors to levels of customer service attained, and to give details of how any links affect remuneration.

170.     The clause requires this disclosure to be made as soon as reasonably practicable after the end of the disclosing company's financial year, and specifies what information must be disclosed.

171.     Subsections (5) and (6) in new section 35A require statutory undertakers, when they make their disclosures about the last financial year, also to state the links between directors' remuneration and service standards that are in place for the current financial year. If they do not have any links, but have decided to introduce them in future, they must describe these. If the current or planned links are different from the previous year's, then the company must explain what differences may be expected to result from the change.

172.     Under subsection (7) and (8) in new section 35A, statutory undertakers have to make their disclosures in a form with which the Authority is content, and publish them. The Authority can also publish them, though the intention is that it does not do so unless it felt that the publication by the company was in some way unsatisfactory.

173.     The Authority is to enforce the disclosure requirement in the same way as if it were a condition of appointment.

Clause 54 and 55: Miscellaneous

174.     Clause 54: Reasons for decisions. This clause adds new section 195A to the WIA.

175.     This clause requires the Authority, the Secretary of State and the Assembly to give reasons for key decisions that each of them take.

176.     Where the obligation applies, the relevant authority is required by subsection (2) in new section 195A to produce a notice giving the reasons for its decision and to publish the notice in a manner that it considers appropriate for bringing it to the attention of those likely to be affected by the decision and/or the reasons contained in the notice. Subsection (3) in new section 195A requires that a copy of the notice should be sent to any statutory undertaker or licensed water supplier directly affected by the decision.

177.     Subsections (4) and (5) in new section 195A restrict the application of this clause in certain circumstances.

178.     Clause 55: Co-operation between water regulators. This clause places a duty on the Secretary of State, the Assembly, the Environment Agency and the Authority to prepare a memorandum of understanding, with each of the others, to cover the co-operation and exchange of information between them and the consistency of treatment of matters which affect them both. The agreed documents are to be laid before Parliament.

Clauses 56 to 58 The Competition Commission

179.     Clause 56: Specialist members of the Competition Commission. This clause provides for the abolition of the Competition Commission's sector-specific utility panel for water. Instead the Utilities Panel, established under the Utilities Act 2000 to deal with electricity and gas references, now also deals with water references. The clause allows members of the abolished panel to automatically become members of the Utilities Panel and permits them to continue work on outstanding references after the new statutory arrangements are in place.

180.     Clause 57: Determination references under s. 12 of the WIA. This clause amends section 12 of the WIA. It ensures that the same procedures apply to references to the Competition Commission under section 12 of the WIA (concerning determinations under conditions of appointment) as apply to the Commission in relation to proposals to modify conditions of appointment. It also sets down what the Commission must include in its report following a reference.

181.     The clause also expands the factors which the Commission may take into account in considering the costs associated with an undertaker's appeal against a determination made by the Authority on price controls. This measure will, in effect, give the Commission discretion to decide whether to include these costs in its calculations, having regard to the extent to which it is likely to support the undertaker's claim against the Authority.

182.     Clause 58: Conditions of appointments under the WIA. This clause amends section 14 and 16 of the WIA and inserts a new section 16A and 16B into that Act. It relates to conditions of appointment modification references made under section 16 the WIA.

183.     The clause enables the Competition Commission to review the Authority's proposal to modify conditions of appointment following the Commission's report on a reference. If it appears to the Commission that the proposed modifications are not requisite for the purpose of remedying or preventing the adverse effects specified in its report, the Commission is empowered to substitute its own modifications which are requisite for the purpose. This clause sets out the procedure for notification by the Commission of its intentions to substitute its own modifications and for consultation on the modifications themselves.