Examination of Witnesses (Questions 60-73)
2 MARCH 2004
DR ALASTAIR
BURN, MS
SUE COLLINS,
MS RUTH
DAVIS AND
MR PHIL
BURSTON
Q60 Chairman: —too harsh?
Ms Collins: Too harsh, probably,
but it would be worth exploring.
Chairman: Only a bit too harsh then!
Q61 David Wright: You have drawn our
attention to the likelihood of further, as yet unknown, work that
will need to be carried out by water companies as a result of
a review of consents affecting Natura 2000 sites. How significant
do you think that will be?
Ms Collins: It could be quite
significant in some cases.
Dr Burn: The starting point of
this is the mismatch in timetables between the review of consents
under the Habitats Directive and the AMP4 process and essentially
the process that has been agreed to complete the programme of
investigations by 2008, which of course is far too late for feeding
into AMP4. The way we have approached it—and this is a joint
exercise with the Environment Agency, the Environment Agency's
consents are being reviewed—is to prioritise the review
so that high priority sites are reviewed earlier on in the programme
and those for which there is a lower degree of concern based on
the initial screening process come later on in the programme.
As far as we are able we have looked at the evidence relating
to the higher priority sites and the lower priority sites where
there is evidence available, but there is more progress and investigation
on the higher priority sites at this stage than there is for the
others. That being the case, it is likely that the really significant
stuff is being picked up earlier in the programme rather than
later. Issues relating to nutrient thresholds are much better
worked out for freshwater sites than they are for marine sites
and those may throw up some more problems.
Ms Davis: There is an important
point about the extent to which this is a transparent process
and the extent to which customers are engaged with what is being
delivered during a price review. If we end up in a position where
more and more of the delivery of our international obligations
is shunted into the middle of a programme and is done through
a process of logging up or through interim determinations, the
ability to scrutinise that process earlier and to understand what
the impacts of those bills is and what gets delivered to customers
is reduced. It does not reduce the size of your bill in the long
run but it does reduce and people understand what it is they are
being asked to pay for and appreciate the deliverable outcomes.
I think that is quite important because there is an act of trust
involved here between the regulator, the customers, environmentalists
and everybody else and that is undermined if we attempt to shunt
costs into the middle of a programme as opposed to putting them
off.
Q62 Joan Walley: In view of the meeting
we will have with the water companies tomorrow, can I press Sue
Collins on what you were saying about how the water companies
have costed the nature conservation programmes. What is your view
about how they have done this?
Ms Collins: We very much share
the view put forward by the Environment Agency in the previous
evidence session. We think that the cost estimates that are put
in the public domain by Ofwat are higher than is likely to prove
to be the cost when the schemes are fully worked through.
Q63 Joan Walley: How would you have expected
the water companies to be able to provide transparency about how
they have costed those programmes?
Dr Burn: The main source of information
on how water companies approach this is their draft business plans
and we have been able to work with the other regulators on these.
Incidentally, we have hugely appreciated being part of the regulators'
group this time round which has made for a much more transparent
process as far as we are concerned. We have been able to see how
draft business plans have been developed. The nub of that is that
many water companies have found it very difficult to cost up one
category of nature conservation schemes and that is those to do
with water resources in particular. There are a lot of uncertainties
around that and there are a lot of uncertainties around ways of
costing those schemes. The draft business plans are particularly
deficient in that area across quite a number of water companies.
A few water companies have also challenged some of the water quality
schemes and have not included the higher Levels of Certainty schemes
that we consider are necessary to achieve the statutory outcomes.
Ms Collins: They did not all apply
the joint regulators' guidance in drawing up their business plans
so there is not comparability across the plans. It is really difficult
to work out what is included, what has been excluded and what
has been costed at this stage.
Q64 Chairman: Do you think there is a
degree of deliberate obfuscation going on?
Ms Collins: Nature conservation
is a tiny part of the programme. We are talking about one-tenth
to 15% of the environmental programme. We are talking about something
that is not of major significance to a water company, it may appear
quite small. It is big for us and we believe it is big in terms
of public benefit but it is not the highest thing on their scrutiny
horizon. That could account for some of the obscurity in the programme.
Q65 Joan Walley: Is it part of the debate
that we were having just now about what benefits there might be
from having a more regionalised approach to this or do you think
it is about different kinds of expertise that is available in
some water companies and not available in others, or is it just
that there is not the understanding of the sustainability agenda
in some water companies? Is it a question of expertise and training
or is it a question of not linking the whole issue to what the
issues are on the ground?
Ms Collins: I think there are
three sets of issues. Firstly, more transparency would be helpful
about what schemes are being included and where. I think more
transparency about the costs would be helpful, but commercial
confidentiality is dogging this. There is privileged information
here that is not always shared. Thirdly, there are two parts to
the technical challenge. Sometimes the solutions are not yet worked
through in enough detail to give you decent costings. If you have
an over-abstraction from a borehole, there may be a range of alternative
solutions to providing the water quantity to meet the need and
therefore there are a series of options which will affect the
cost of the solution. It requires an awful lot of work and detailed
work and that is probably going to be done in the next phase,
but the problem for us is that the political attention is now
and the political decision about affordability may risk being
made on rather insufficient information really.
Dr Burn: There is one other aspect,
which is that this is the first time that the statutory obligations
behind the nature conservation programme have been really upfront.
The CROW Act and the PSA target to achieve that and the Habitats
Directive and the timetable on that really have not been there
in quite the same way with a timescale for delivery. I think some
companies are finding it novel to see these in quite the statutory
light that they really have become. That has led to challenges
on a number of policy issues and it is fair to say that the draft
business plans were among the challenges.
Q66 Joan Walley: I think that is interesting
because this Committee is trying to monitor sustainable development
targets and progress right the way across Government and it is
very difficult because we have been talking about the cutting
edge way of doing things and it is how much it slots into the
depths of the water companies.
Ms Davis: There is an interesting
point there because I think what you are seeing partly is the
clash of some transparency in relation to the statutory drivers,
the clear need in relation to the environment and some more complex
and opaque issues about water company finance-ability and how
they present themselves to those who present themselves and their
customers. I would probably be prepared to be a little bit more
up front than Sue is and say that I think it is reasonable to
assume that some of the variation in company strategies was the
result of a deliberate way of doing things, to present themselves
to the outside world and that is different between different companies.
They have approached the way that they have developed their business
plans with a different strategy depending on how they want to
be perceived, depending on perhaps the way in which their sustainability
appraisal system is incorporated into the company. The difficulty
with that is it makes it extremely difficult then to make rational
political judgments on the back of something which is being driven
by a process that is quite a lot more opaque and complex than
simply a matter of what does and does not need to be funded in
terms of the environment. I do think there are some important
issues about how you achieve a consistent level of approach on
the part of companies in the next round.
Ms Collins: May I just make a
comment on whether or not it is cutting edge in sustainability
terms? We are talking here about phosphates stripping from sewage
works with very well known technology and that is quite an important
part of this programme on Sites of Special Scientific Interest.
So that end-of-pipe technology, cleaning up pollution, is essential
but not sufficient for sustainability. If we are pushing a cutting
edge sustainability approach, we are doing that and we are doing
things to prevent the pollution, which is where the catchment
schemes to choke off soil erosion, the leaching of phosphates
and nitrates from the soil and so on is actually forward looking,
innovative, important and on the right scale, a catchment level
scale which is going to be necessary to get us towards the Framework
Directive way of doing things. There is a tiny bit of innovative
sustainability in the whole programme.
Q67 Joan Walley: The RSPB talk about
each household saving £2 a year under the proposed cuts.
Could you just clarify for us how you arrived at that figure and
how it varies across the country?
Ms Davis: I will leave Phil to
explain the details, but I think it is important to say that we
did not arrive at that figure. Although at times the RSPB get
treated as though we are a statutory agency, in fact we are not
part of the regulatory process, we are rather subject to the crumbs
off the tables, as other people are, in terms of information.
Mr Burston: I think it was touched
upon by the Agency in their evidence. This all comes from the
Ofwat submission to the Secretary of State, that is where we think
the £2 figure comes from. It says, "If, for example,
a total capital investment programme can be limited to £15
billion it would, by my estimate, reduce estimates by 5% over
the five-year period." We judge that to mean the price increase
is about £72 over the five-year period and 5% of that is
£3.60. We have the impression that the environmental aspects
of the planned cap are quite significant and more than 50%, therefore
it is not too hard to imagine that that is where the £2 figure
comes from.
Q68 Joan Walley: A national framework
for this or any benefits from the regional framework where we
could link up more locally and greater awareness of the issues,
which would you go for? Would you go for a more regional framework?
Ms Collins: I think we need both.
I think we need to have a national perspective, because these
are international and national obligations, but it needs a regional
spatial perspective. These water companies do map on to regions
or sub-regions.
Ms Davis: Sadly, like with all
boundaries and all systems, there is not enough overlap as one
would like in relation to things like Environment Agency regions
or spatial strategies. Am I right in thinking that what you are
getting at in a sense is the unequal distribution of costs in
relation to the benefits that you might generate from the environment
programme? I think that is a very difficult question because if
one says that in the past the costs have fallen very heavily in
the south-west because of the large areas of important beaches
that they have down there, if one starts to slice that off and
consider the idea of distributing that in some national way, fundamentally
it changes the nature of the process in the sense that the impacts
of an individual company are not then related to the way in which
they arrange prices and manage their enterprise. That is the attractiveness
about the way that the process works. It is as close as we are
likely to get to something like the "polluter pays"
principle in relation to these companies. The attractiveness of
it is that you would not then find a situation where something
like a clean beach is being very heavily subsidised by some parts
of the population which are less able to afford it. I think our
general feeling is that there are two points to that. We feel
that generally speaking the economic benefits of improving the
water environment are felt very much by the local populations
who pay for that. So if you take something like the south-west,
substantial parts of the economy are dependent on tourism and
dependent on the quality of those beaches. We do feel that quite
a lot of that benefit is recycled back into that region. The second
issue is that we feel to some degree the issue about protecting
vulnerable groups and protecting people on low incomes has become
rather muddled with the idea of whether or not we can somehow
afford to provide those same people with a good quality environment.
We heard from the Agency earlier that there are a range of mechanisms
for trying to make it easier for people to deal with their water
bills if they are in vulnerable groups. It is a very important
issue. Rather than dealing with it by taking a blunt instrument
to the environment programme and essentially saying people in
poor regions cannot afford to have a good environment, we would
much rather that it was dealt with by taking a more flexible approach
to looking at the way in which customers are billed so that you
could protect the low income parts of those populations.
Q69 Joan Walley: We heard from the Environment
Agency about the Periodic Review. Do you think there is a case
for an on-going review as far as the environmental programme is
concerned?
Ms Collins: I rather share the
views put forward by the Environment Agency. I think the investors
and the water companies need a degree of certainty that comes
from a Periodic Review rather than a continuously rolling review.
I think it is a question of what period you choose to review over.
Five years is a fairly pragmatic period within the longer timescale
that the EA advocated for if you are looking at it, but we do
think that maybe the logging up process is not very effective.
Maybe there need to be some interim looks along the way as these
investigations come in. Maybe there ought to be more formal processes
for making sure that these investigations do occur early on in
the process and that that expectation is fulfilled and that Ofwat
scrutinise that maybe, or the four regulators' groups scrutinise
it in two years and say to the boards of companies, "Have
you done your investigations? What have they found? What are the
implications?" I think that sort of mid-term review within
the five-year period would be a prudent thing to do.
Q70 Chairman: We will see if we can put
that to the water companies as well. Dr Burn, you wanted to come
in on the previous issue.
Dr Burn: It was a small point
in relation to the question you raised about regional prospects.
The vast bulk of the nature conservation programme is down to
statutory obligations. I am struggling a bit to see how we could
arrive at a different type of programme looked at from a regional
perspective than we would from a national perspective. The other
thing to say is that all the schemes are driven by the local need
effectively. It is not divorced totally from the local constituency
in that sense, but we would use the same criteria for deciding
on the necessity of the scheme wherever it was.
Q71 David Wright: Is this not about information?
It is an information problem.
Ms Collins: It is how you organise
them.
Q72 David Wright: I live in Severn Trent.
When I am billed by Severn Trent I do not get, as far as I can
remember, any information on what kind of impact these programmes
are having in my region.
Ms Collins: Water company reporting
is increasingly taking on biodiversity reporting. The BIE index
has now got some biodiversity reports. Increasingly water companies'
annual reports will include some quite useful information on the
biodiversity outcomes from their investment programmes and I think
that is the appropriate place for it. I think it would be quite
interesting and useful for those concerned with regional economic
strategies for instance in the RDAs to look at what is happening
in terms of outcome in their region in this sector of the economy.
They ought to look harder at agriculture, but that is a different
story. They could look at water outcomes because, as the RSPB
have said, the water environment and the quality of it and so
on is a vital asset that underpins the economic and social welfare,
which is the stuff of regional economic diversity strategies.
It is not irrelevant, but I do not think we want to change the
process so that it is all regionalised.
Q73 Mrs Clark: I do not think the average
person in my constituency in Peterborough is going to read the
annual report of a water company. I think what my colleague, David
Wright, was talking about was actually making this type of information
much more accessible, whether we are talking about local papers,
the media, etcetera.
Ms Collins: Perhaps they could
put in a flyer with the bills.
Chairman: I sense we are going to drift
steadily back towards recycling. May I thank you very much for
your time. It has been a very helpful session. We are grateful
to you for that and also for the written evidence which you have
both submitted to us.
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