Memorandum from Northumbrian Water Limited
1. INTRODUCTION
1.1 The Environmental Audit Committee (EAC)
has announced an enquiry into PR04 and the environment. Views
were sought on three key questions. This memorandum provides a
brief response to each of the key questions listed by the Committee
and also some context which may be useful for the Committee.
1.2 Northumbrian Water Limited (NWL) is
a water and sewerage Undertaker supplying over 1.1 million customers
in the North East of England with water and sewerage services.
It also incorporates Essex & Suffolk Water, which supplies
water services only to 720,000 customers in these southern counties.
2. BACKGROUND
2.1 NWL welcomed the EAC report on Water
Prices and the Environment in 2000. Many of the key recommendations
have since been acted upon, including those relating to joint
customer surveys, a new approach to assessing capital maintenance
requirements, and a clearer framework for leakage targets. The
comments regarding the importance of "emphasising the customer
and public benefits" of environmental and quality investment
alongside the upward pressure on prices remain valid.
2.2 NWL considered the recent report by
the Environmental, Food and Rural Affairs Committee on Water Pricing
to be a valuable contribution to the debate on water charges.
We agree with the comment in the report that there are encouraging
signs that the review "is being conducted in a transparent
and mature way".
3. RESPONSES
TO SPECIFIC
QUESTIONS RAISED
Q. What should be the key components of the
environmental programme allowed for in Ofwat's price limits?
The environmental programme is not the only
factor driving higher water bills.
3.1 In considering this question it is important
to consider the wider context of upward pressure on water bills
from a variety of sources. Much of the public debate has focused
on the environmental investment programme often to the exclusion
of other factors such as changes in tax legislation that may have
a greater impact on bills. In fact, the environment programme
is not the only or even the largest driver of bill increases.
Other reasons for increased bills include:
— unavoidable increases in tax, operating
costs and depreciation (arising from a growing asset base);
— the requirement to increase capital
maintenance expenditure to sustainable levels;
— statutory drinking water quality
requirements;
— maintaining security of supply to
meet increases in population and housing development in more variable
climatic conditions (this is particularly important in an arid
area with growing population such as Essex);
— meeting customer expectations that
more should be done to alleviate sewer flooding;
— customer service improvements (in
NWL's case measures to reduce discoloured water complaints);
— increased site security requirements,
particularly at key drinking water installations, and emergency
planning measures, arising from enhanced threat of terrorist activity
and informed by guidance from DEFRA and the UK Security Service;
— meeting increased customer demands
to control odour from sewage treatment works (in line with a draft
DEFRA Code of Practice);
— ensuring that financial returns are
sustainable, so that companies can continue to deliver the required
investment; and
— declining demand for water from heavy
industry due to structural changes in the economy (this is a particular
problem in the North East).
3.2 In addition, there is a significant
divergence in the scale of the anticipated environmental programme
between regions. In focusing on national totals these important
regional variances are often overlooked.
REGIONAL DIMENSION:
NORTH EAST
SPECIFIC POSITION
3.3 The major population centers in the
North East are all on the coast and this is where our major sewage
treatment works are located. There has been a huge amount of investment
in recent years to meet the Urban Wastewater and Bathing Water
Directives with many new or extensively re-built works along the
coast. As a result of this successful investment treatment standards
are very high and the required environment programme for 2005-10
is significantly reduced.
3.4 The preferred scenario in NWL's Draft
Business Plan showed a 70% reduction from the environmental programme
delivered in AMP3. This programme was developed in close liaison
with the EA and met all of the Agency's priority requirements.
It now appears that we may need to invest at further works to
comply with the Freshwater Fisheries Directive. Requirements need
to be confirmed by Ministers. The most likely scenario is that
this would require investment of over £20 million. This would
still mean a reduction of around 60% in the environmental programme
relative to AMP3.
3.5 NWL's forecast AMP4 environmental programme
is around half the company's water quality investment programme
to meet statutory requirements, which is supported by DWI. Indeed
the environmental programme is only around ten per cent of the
total investment requirement in AMP4 with the largest element
being the maintenance of the asset base to secure existing standards.
3.6 The context in the North East may be
different to elsewhere. Northumbrian Water faces a reduced environmental
investment requirement but there are many other drivers, which
collectively produce a requirement for a significant increase
in bills.
3.7 In this context we believe the environmental
programme should ensure the delivery of the priority outputs designated
by the EA and ensure compliance with statutory requirements. We
do not support investment beyond statutory requirements except
where there is strong customer support and a clear environmental
benefit. We have included in our plan a number of studies into
holistic catchment solutions that may alleviate the need for expensive
investment in future. Whilst not statutory these are low cost
and are strongly supported by the EA and English Nature.
3.8 It is important to recognise that maintenance
investment in existing assets plays an essential role in protecting
the environment by safeguarding the achievement of existing high
standards.
3.9 We feel strongly that investment to
tackle sewer flooding should be given a high priority. We are
aware that WaterVoice considers this the top priority for customers.
Our customer research confirms this viewpoint. Ofwat classifies
this as a service enhancement rather than environmental investment
but we believe that this needs to be considered alongside the
environmental quality programme.
3.10 NWL has worked very closely with WaterVoice,
the EA and DWI to develop our investment proposals. We believe
that PR04 should recognise local circumstances and reflect regional
variations. For instance, it would be inappropriate to impose
a national economic cut off on investment on sewer flooding. NWL
has relatively few properties affected but many of these would
be relatively expensive to deal with. Given the small number of
properties the total investment and impact on bills would be modest.
We would like to tackle all properties in the North East at risk
of sewer flooding in AMP4 but accept this approach may not be
affordable in all regions.
Q. Has the guidance given by the Environment
Agency and DEFRA to date, on the size and scope of the environmental
programme been adequate?
4.1 The Draft Business Plan presented data
in three scenarios. Reference Plan A included largely statutory
minimum requirements. Reference Plan B included those drivers
in Reference Plan A plus a number of further drivers. Some of
the additional drivers in Reference Plan B were in excess of the
statutory minimum and some concerned areas where Ministers would
have to make choices (eg Freshwater Fish Directive) In addition
companies provided their Preferred Scenario. The Reference Plans
required a huge amount of effort from EA and DWI as well as companies.
This exercise produced much useful information.
4.2 The EA, DWI and Ofwat have all advised
Ministers on their perspective on required investment for AMP4.
In developing its plans NWL has worked very closely with colleagues
at EA, DWI and WaterVoice. We have had regular meetings with each
of these organizations individually and collectively. We have
worked particularly closely with the North East Regional EA on
the size and scope of environmental obligations as they affect
our region. We are grateful for the close co-operation extended
by the EA and WaterVoice in our region, which we consider a model
that others could follow.
4.3 We believe the EA has made its position
clear. Initial guidance from DEFRA on the objectives for the review
and on the longer-term framework for the water industry was helpful
although left many questions unanswered. However, a key point
in the PR04 timetable is the issue of main Ministerial Guidance.
This is already late and as a consequence there is a risk that
the PR04 timetable will need to be reconsidered. This may unduly
constrain time for decision-making and consultation since price
limits must be issued by mid-December if bills are to be issued
on time.
4.4 We believe that decisions on the environmental
programme should not be taken in isolation and need to consider
the wider context described above. Arbitrary cuts in maintenance
investment would put the huge improvements in environmental performance
in recent years under threat and would in themselves only have
a marginal impact on bills.
Q. What is the extent of the environmental
achievements delivered as a result of the 1999 Periodic Review?
5.1 We have already mentioned the huge improvements
in sewage treatment throughout the region. We summarise here the
improvements made over the last few years under the main statutory
drivers for investment.
(a) Urban Waste Water Treatment Directive
(UWWTD) and Bathing Water Improvements.
Installation of high quality sewage treatment
facilities has continued in AMP3 to comply with the UWWTD. Improvements
to 88 No. sewage treatment works will be delivered by 2005. This
will result in a total of over 96% of the company total population
equivalent (pe) of 3.7 million having the high level of secondary
treatment.
We have installed ultraviolet disinfection of
discharges to comply with mandatory bathing water standards and
to assist in achieving blue flag status at key holiday resorts.
NWL has delivered major improvements to the quality of coastal
and estuarial discharges in the North East during AMP2 and the
early part of AMP3. These substantive works were completed in
2002-03. Six major discharges (Bran Sands, Hendon, Howdon, Marske,
Billingham and Seaton Carew now have ultraviolet disinfection
(53% of the company total population equivalent of 3.7 million).
The North East has the highest proportion of its discharges disinfected
(by percentage of population equivalent) in England and Wales.
This has major benefits for bathing waters and the Tyne and Tees
Estuaries.
(b) Freshwater Fish Directive
Improvements are being delivered to 26 sewage
treatment works during AMP3, with a combined pe of 0.1 million.
The key output is the removal of ammonia.
Improvements are being delivered to 2 sewage
treatment works by 2005. The key output is the removal of both
nitrates and phosphates.
(d) River Quality Objectives
This concerns improvements to reduce current
shortfalls on River Quality Objectives as identified by the EA.
The key output is 100km of river protected from deterioration
of standards and 72 kilometres of river improved. A total of 26
No sites will be improved by 2005.
(e) Unsatisfactory Intermittent Discharges.
The company also has a major programe ongoing
to improve unsatisfactory intermittent discharges (sometimes called
combined sewer overflows or CSOs). This programme has increased
in AMP3 from that included in the PR99 Determination in the light
of new information. A total of 236 outputs will be delivered by
2005, instead of the 199 included in the PR99 Final Determination.
This still leaves around 175 unsatisfactory intermittent discharges
to be addressed in AMP4 and we believe that provision in the PR04
Final Determination should be made for these outputs.
5.2 The environmental improvement brought
about by work in AMP1 and AMP2, together with the benefits that
will accrue in AMP3, are substantial in the North East of England
and the remaining potential improvements are by comparison low.
February 2004
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