Memorandum submitted by Severn Trent Water
Ltd (J6)
INTRODUCTION
As a major company providing environmentally
sustainable water and wastewater services to eight million people
in the Midlands, Severn Trent Water has a key part to play in
the achievement of sustainable water resources. Indeed we both
depend on and contribute to a healthy water environment, and therefore
support the vision of sustainable water resources contained in
the new EU Water Framework Directive. Our commitment to this goal
has been fully demonstrated by a massive investment in the water
infrastructure of the Midlands over the last 12 years, which has
resulted in a 47 per cent improvement in river quality, as well
as many other environmental benefits. However, managing water
infrastructure is a long-term business, which in parallel needs
a clear long term regulatory and financing structure. We believe
that environmental, social and economic sustainability needs to
be considered together when planning to meet the requirements
of the new Directive.
In this context the fundamental concern of Severn
Trent Water is that while there is clearly the requirement for
the Water Framework Directive to be implemented, this is without
any cost benefit analysis being undertaken. Early estimates were
that the cost of the WFD to the water industry alone was £4.2
billion but we believe on the basis of more recent work that this
could be a lot higher.
The impact of the Water Framework Directive
on customer bills will therefore be massive and we are required
to implement these quality improvements, when environmental quality
improvements generally receive the lowest ranking in terms of
priority from customers who have to pay for them.
With a huge asset base such as that operated
by Severn Trent Water, the key priorities must be as follows:
— Maintain existing assets to ensure
continued delivery of service.
— Meet all drinking water standards
and generally improve drinking water to meet customers' expectations.
— Improve customer service, particularly
by removing the threat of sewer flooding.
— Investment to meet even higher environmental
quality requirements.
To tackle all the investment required under
items 1 to 3 above generates a very significant investment programme
for the water industry, even before any new environmental quality
drivers.
Customers and their expectations of service
and product quality are at the heart of the business of a water
company. The Water Framework Directive and all its ramifications
for the water industry are likely to seriously challenge that
relationship particularly in terms of the cost, which will be
borne by water customers.
The Company has been actively tracking the development
of the Water Framework Directive and has a number of concerns
and queries on the way that it is being implemented in England
and Wales. We have fully contributed to the response from Water
UK to the EFRA Committee inquiry, which we fully endorse and support,
however we would like to submit the following response which highlights
particular points from the perspective of Severn Trent Water.
We recognise that the terms of reference of the Committee Inquiry
focus on the plans for implementation of the Directive and thus
our comments mainly address issues of process, rather than more
substantive questions about the Directive itself.
KEY ISSUES
TO BE
CONSIDERED
The Directive is very complex and in many areas
requirements are still very poorly defined. We welcome the efforts
now being made both at European level and in the UK to put in
place a clear and structured planning process for implementation
of the Directive, but are still concerned that clarity of objective
could become obscured by the sheer scale of detailed work that
has to take place. For that reason we would strongly recommend
that Government tries to establish some key principles of implementation
to guide its work as it moves forward with further stages of planning.
In particular we believe that every opportunity should be taken
to incorporate practical advice and guidance from those sectors
on whom much of the burden of implementation will fall. As well
as of course water companies, this will include farmers and land
owners, local authorities, and industry.
In this context and using the main headings
of the response by Water UK, we set out below those areas in which
we believe a more practical approach needs to be developed by
Government.
Project Planning for Implementation
In our view, progress in planning to implement
the directive has been slow. Yet again this leaves the UK at a
risk of playing catch-up in dealing effectively with EU water
legislation. The WFD is the largest and most complex piece of
water legislation in European history, which in turn demands a
high level of project management skills to ensure cost effective
implementation. In this context it is relevant to ask:
— What project management teams have
been put in place and who leads this?
— What decision making process has
been put in place, by whom and at what level?
— Whether a project plan with key milestones
and critical path analysis exists-if so is it on track; if not
what is being done?
— Whether an assessment has been carried
out to establish what resources are necessary to deliver the directive
against the statutory deadlines?
OUTCOME BASED
OBJECTIVES
It is important to recognise that this directive
is essentially driven by the need to achieve positive environmental
outcomes ie the achievement of "good status" in European
water resources. The means by which this goal is to be met is
subject to a high degree of flexibility at member state level.
However, the directive also sets out a set of
milestones and processes which have to be fulfilled in order to
meet the terms of the directive. In order to assist Member States
in implementing the directive it has therefore been agreed with
the European Commission that a Common Implementation Strategy
(CIS) will be developed which aims to set out non-binding guidance
for some of the more technical aspects of the guidance.
While the principle of the CIS has been welcomed
by the water industry, we have a growing concern that the increasingly
voluminous guidance being developed and the way that this is interpreted
in England and Wales will focus far too much on the technical
niceties of implementation at the expense of making practical
progress. This in turn again emphasises the need for the adoption
of a much more focussed and project based discipline in the way
the directive is implemented.
"LAST MINUTE"
IMPLEMENTATION
We understand both from DEFRA and the EA that
the as a matter of policy no element of the water framework directive
will be delivered until the latest permitted date. This is apparently
on the basis that early delivery of European directives has been
described by the government as "gold-plating". By contrast,
the reality is that such a last minute approach is highly likely
to fail to meet the statutory timescale and almost certainly does
not produce the most cost effective way to implement directives
signed up to by Government. For this reason such an approach is
highly likely to result in further legal challenge to the UK by
the European Commission thus damaging the reputation of the UK.
In a directive as complex as this, it is of
critical importance that an early start is made in collecting
relevant information and working out how the various aspects of
the directive can be most cost effectively implemented. A piecemeal
approach resulting from slow and incomplete implementation can
only lead to sub-optimal planning, design and higher overall costs
of implementation.
SOLUTION DELIVERY
TIMESCALES
The directive sets a final date for publication
of the "programme of measures" necessary to meet the
directive objectives of 2009 with all of these measures having
to be operational by 2012. In other words after 9 years of planning,
analysis of the problems and legal transposition, only 3 years
are allowed to put in place improvements in all sectors whether
these be based on engineering or other solutions.
For the water industry, we understand this to
mean that we will have to complete the design and build of new
capital schemes by the end of 2012. The current position of Ofwat
implies that the water industry will therefore have to deliver
a multi-billion pound investment programme in a two year window
between 2010 and 2012. While it may be inevitable that much of
this investment has to be carried out in such a short period,
this is neither a practical or cost effective timescale in which
to design major infrastructure projects. At the very least it
is vital to have a good degree of long term planning to avoid
the risk of stranded assets. For this reason it is essential that
Government set out as early as possible the long term discharge
consent limits that we will have to meet (eg for nitrogen removal)
so that we can adopt appropriate technologies in AMP4 which will
provide cost effective upgrades later if necessary.
Similarly for agriculture which will have a
major contribution to meeting the requirements of the directive
we cannot see how such a short timescale for delivery can be achieved
without much earlier planning and pragmatic decision making.
PUBLIC PARTICIPATION
The WFD is unique in that Article 14 specifically
requires Member States to "encourage the active involvement
of all interested parties in its implementation". We believe
there is currently a low level of awareness about the implications
of the Water Framework Directive across a wide range of sectors
and the public who will eventually have to pay for it. This indicates
the need for more information to be disseminated as a matter of
urgency.
The consultation process for transposition has
started but has already slipped alarmingly. All expert opinion
is that public participation has to be considered at an early
stage to be effective. We would like to know how the government
will fulfil this key requirement.
The costs of implementation are likely to be
substantial across all sectors. If river basin management plans
do not meet with broad public acceptance and are not supported
by key groups within a basin, willingness to pay and in consequence
successful implementation is highly unlikely.
EQUITY OF
COST ALLOCATION
Article 9 of the Water framework directive sets
down certain principles for the recovery of the costs of water
services and water uses. In particular there is a requirement
for "an adequate contribution of the different water uses
disaggregated into at least industry, households and agriculture,
to the recovery of the costs of water services". There are
a number of uncertainties in the way that this requirement might
be interpreted, but we believe that as a minimum it must result
in a fair and transparent allocation between sectors of the costs
of implementing the directive.
Over the last 13 years, the water industry has
been very effective at delivering environmental improvements and
our customers have met the cost through water bills. However,
the directive clearly requires appropriate cost-allocation so
that different sectors bear a fair burden in meeting the directive's
objectives. This is particularly true in the case of diffuse pollution
and in this context, we would like to know how this can be achieved
in the light of the current review of farming economics envisaged
in the Currie report.
WHO MAKES
THE KEY
ECONOMIC DECISIONS?
At the time of writing this submission, Government
has still not yet made a decision on who will be designated as
the competent authority. Our view has always been that the making
of decisions which are essentially of a political or economic
nature, particularly those which impose costs on the public directly
or indirectly through cost pressures on business, the water industry,
or farming, can only be taken by Government or similar bodies
which have a democratic mandate to do so. This is particularly
important since we believe that the costs of implementation are
likely to be substantial.
The previous Government consultation document
proposed that the Environment Agency should be identified as the
Competent body for implementation of the Directive. Whilst for
many technical support and regulatory tasks related to the implementation
of the directive this may be appropriate, for the reasons set
out above we believe that this should not extend to making what
are essentially political or economic decisions.
The economic requirements of the directive are
complex but at one level are based on a number of key tests. For
example:
— Assessment of cost effectiveness
of the different options to meet "good status".
— Assessment of whether those costs
are disproportionate and thus can be deferred (but not ignored).
— Ensuring the fair and transparent
recovery of costs.
It will be of critical importance that decisions
in this area are made by the appropriate bodies but only after
full and active involvement by those that have to pay ie the public.
This role cannot in our view be undertaken by the Agency and so
we would welcome advice from Government on how such decisions
will be made.
Finally it is worth noting that nowhere in the
Directive does the phrase cost-benefit occur. This is despite
our concern that any directive such as this has to demonstrate
value for money to the public who must pay. Our understanding
is that all Member States have an obligation to meet "good
status" in water bodies, subject to certain exemptions. This
emphasises yet again the urgent need for pragmatic implementation,
which achieves the goals of the directive but in the most cost
effective way.
We hope the Committee's inquiry will help promote
a constructive debate about how this may be achieved. The water
industry is willing to play its part, but we are only one of a
large number of bodies which has this responsibility.
SPECIFIC RESPONSE
TO QUESTIONS
PRESENTED BY
EFRA
1. By what means and over what timetable
the Government intends to implement the Directive in the United
Kingdom.
As stated earlier we have significant concerns
about the practicality of the means of implementation and the
apparent lack of progress.
2. What will be the costs of implementing
the Directive, how the costs will be met, how they will be apportioned
and the implications for water pricing policy.
A significant part of the cost of the Directive
could be driven by the technical detail of the way that its requirements
are interpreted in the UK. This argues for an early assessment
and decision about how this might be achieved. However any such
technical consultation must include an assessment of the cost
implications of the different options. Such an assessment does
not feature in the current consultation by the EA on certain technical
aspects of the Directive.
Nevertheless, it is anticipated that the costs
of the Directive will be very substantial, not just for the water
industry and its customers but for all water users. For this reason,
it is vital that water industry costs are planned over more than
one AMP cycle and in particular the next two. Many of the further
improvements that are necessary in the water sector follow logically
on from the AMP3 investment programme. These should be the subject
of early investigation so that if affordable within price limits
they can be properly funded and included as part of the planning
for AMP4 with the remainder being planned for AMP5. After 2015
there would be merit in linking further investment to the 6 yearly
review cycle of the Directive.
For the future, we would particularly like to
see Ofwat recognising that each AMP review should be part of a
continuous planning process, which can deal with the long-term
investment which is such a critical feature of a viable and sustainable
water industry. Continued piecemeal ratcheting up of standards
every five years is not a cost effective or sustainable way to
plan vital water infrastructure.
3. The role the Environment Agency will take
in implementing the Directive.
For the reasons set out earlier, we believe
strongly that the Environment Agency should not be involved in
taking decisions which are of a political or economic nature.
While they are clearly experts in the environmental field, and
are thus well placed to support Government in the implementation
of the Water Framework Directive, their role cannot extend into
areas for which they have no democratic mandate.
It is therefore of critical importance that
any decisions connected with implementing the Directive which
impose cost on others, should only be taken by properly elected
and accountable bodies. In our view this can only be through Government
in a transparent and accountable way. If this approach is not
followed, there is a risk that decisions will be driven by specific
interest groups, rather than the general public who have to bear
the costs.
There is currently a lack of integrated planning
of quality and quantity aspects of water resources within the
Environment Agency and this will need to be addressed in order
to implement the Directive. For instance the Environment Agency's
CAMS procedure needs to take account of quality concerns. It also
has to be able to demonstrate in a transparent way that regulatory
decisions affecting abstraction licenses do achieve the desired
environmental effect.
4. Whether the definitions of for example
what constitutes a river basin and significant human activity
have been clarified sufficiently to allow management plans to
be formed.
River basin management is a fundamental part
of the Directive. The UK is well placed to work within river basins,
which is not the case any many parts of Europe. Establishing river
basin management where it does not already exist will be time
consuming. It is therefore essential that those countries, which
already have river basin planning do not become disadvantaged
compared to those countries where it may take longer to achieve.
River Basin Management Plans are a key part
of the implementation of the Water Framework Directive. Their
production must, however be part of a transparent process which
fully involves all stakeholders, particularly those, which are
likely to have to incur costs in implementing the Directive. We
believe that active public involvement is an essential part of
the process, which is just as important as the actual production
of the plans itself. It is particularly important that as far
as possible, any consultation involves a degree of genuine choice
for the public. It must also include an assessment of the true
costs of any programme of measures and an indication of who will
bear those costs.
The aim of the Plans is to explain how the programme
of measures is working to meet the Water Framework Directive objectives
within the river basin. It is not sufficient to just produce a
document, this also needs to be effectively communicated to stakeholders
in the catchment including particularly the general public, rather
than simply special interest groups.
In our view the critical issue is to ensure
that the Programme of Measures is both fair, balanced and proportionate.
It is quite clear that one of the main problems faced in implementing
the Directive will be the impact of diffuse pollution. Such pollution
not only adversely affects the ecological potential of watercourses,
but directly affects water suppliers through the degradation of
the quality of water which we abstract to produce drinking water.
The problem of diffuse pollution is also one
of the most difficult issues to tackle. An action programme to
tackle this issue therefore needs to be commenced now. This must
address the need for some fundamental policy shifts in land use
planning, agri-environment measures and development planning control.
We recognise of course that water companies,
such as Severn Trent will also need to play our part in the Programme
of Measures, but this must be part of a balanced and equitable
set of solutions. It would be totally inappropriate if our customers
were in effect asked to subsidise the failure of other forms of
pollution control.
There are a number of issues that arise regarding
classification of surface waters. In particular the definition
of "heavily modified" which could be open to widely
differing interpretations. The Midlands is almost unique in that
the major conurbations of Stoke, Birmingham and the Black Country
are all located on the headwaters of the River Trent system, thus
providing very limited dilution to effluents. Nevertheless, the
investment by Severn Trent and other pollution control measures
have transformed the River Trent into a position where it is not
only of high quality with a thriving ecosystem and growing otter
population, but is also clean enough to be suitable for abstraction
for drinking water production.
In this context it is particularly important
that expectations about future targets for urban rivers need to
be realistic. It seems likely that many such watercourses could
be defined as heavily modified although this does not necessarily
mean that they cannot achieve a very acceptable quality and ecological
status.
In developing catchment plans, we would also
strongly urge that a realistic scenario is adopted to take into
account the growing reality of climate change, which is a major
indirect effect of human activity. In particular, there is growing
evidence about the potential impact of more frequent and high
intensity storms, which can totally overwhelm the capacity of
existing sewer systems, which were designed to tackle historically
very different rainfall patterns.
5. What the tangible benefits of the Directive
are likely to be and whether its objectives can be achieved in
a cost effective way.
If implemented in a practical way that focuses
on environmental outcomes rather than process, there is the potential
for the Directive to be a key part of a long term, integrated
planning framework to secure vital water resources in the most
cost effective way and with full transparency of public involvement.
If implemented in a piecemeal way with too great
a focus solely on the technical detail, it is highly likely that
there will be a good deal of wasted effort and cost, with little
real tangible improvement in water resource sustainability. That
does not mean that the specific requirements of the Directive
should be fudged, but that a proper value for money analysis should
take place to ensure maximum benefit from the lowest practicable
investment.
Severn Trent Water Ltd
20 September 2002
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