Memorandum submitted by the Office of
Water Services (Ofwat) (N2)
SUMMARY
1. The Government has set a public service
agreement (PSA) target of 95% for all sites of special scientific
interest to achieve "favourable condition" by 2010.
In February 2004, English Nature estimated that 61% of land is
already in a favourable or recovering condition. Water and sewerage
companies, and hence their customers, are already contributing
to improvements to SSSIs. At the price reviews in both 1994 and
1999 our determinations assumed that companies would take action
to allow environmental sites, including SSSIs, to be maintained
and improved. Water companies have therefore already made a substantial
commitment to investigating and implementing work to improve the
aquatic environment.
2. At this price review water companies
will be funded to take action that contributes to the delivery
of the Government's target on SSSIs. We have now received Ministers'
principal guidance setting out what they want companies to include
in business plans. However, there are many upward pressure on
bills and all future investment needs to be set in that context.
Companies' draft business plans, in August 2003, indicated that
customers will face rising bills without the additional upward
pressure resulting from additional drinking water quality and
environmental enhancements. Recent customer research has demonstrated
a willingness to pay for further improvements by a substantial
proportion of the customer base but this still leaves a significant
proportion who take the opposite view. We all may need to tailor
our expectations for the scale and pace of improvements to what
can be financed efficiently by companies and to what customers
are willing to bear.
3. In order to meet the Government's targets,
actions will need to be taken by all contributors to pollution.
Investment by the water and sewerage companies alone will not
deliver the required improvements. We await the Government's promised
consultation paper on the control of diffuse pollution. Water
customers meet the costs of the companies' investment and should
not be expected to remedy pollution caused by others just because
this is the easiest course of action. The polluter pays principle
should apply. Action by several parties may be needed to deliver
the full potential environmental improvements.
4. Before investment is undertaken it is
vital that the "right" solutions to environmental problems
are identified. The tripartite investigations into the River Derwent
in Yorkshire provide a model for this and are explored more extensively
in our memorandum. Thorough investigations and a full understanding
of the issues are essential before major improvement works are
triggered and customers are asked to finance the costs of particular
schemes to deliver improvement to SSSIs. There are mechanisms
to deal with changes in companies' obligations and consents during
the period 2005-10, when further investigations identify the "right"
solution.
BACKGROUND
1. Ofwat is the economic regulator of the
water and sewerage companies in England and Wales. Our role is
to set price limits that enable a well-managed company to deliver
services in a sustainable and efficient way. Section 3 of the
Water Industry Act 1991 also sets down the expectations on the
water companies and Ofwat for SSSIs. The importance of nature
conservation is set down in the Countryside and Rights of Way
Act 2000 (Section 28G), which echoes the duty placed on Ofwat
by the Water Industry Act 1991.
2. In "England's best wildlife and geological
sites" (December 2003), English Nature identified 4,112 SSSIs
in England covering 1 million hectares, 7% of the land area of
England. The Government's PSA target is that 95% of this land
should be in a "favourable" condition by 2010. English
Nature estimates that 61% (February 2004) of this is already in
a "favourable" or "recovering" position. Around
3% of the land area is inland aquatic SSSIs. Although this is
only a small percentage of the total, it is made up of rivers,
streams and lakes which are high priority. In addition, 8% of
the total comprises water-related areas, such as fens, marshes
and lowland grassland, or shorelines.
3. Water companies are directly responsible
for some SSSIs which they own and manage. More significantly their
activities in providing public water and sewerage services can
also have an impact on aquatic SSSIs.
WATER AND
SEWERAGE COMPANY
ACTION
4. Although English Nature report that the
water sector owns or manages 43,000 hectares or 4% of the land
area under SSSIs, very little is aquatic habitat. The majority
is owned or managed by water companies with upland catchments.
The sites they manage/own are mainly upland heath in the collection
areas for reservoirs. The majority (55%) of this land is not in
a "favourable" condition. However, this is not due to
direct activities arising from providing water and sewerage services,
much of the damage was caused by industrial air pollution in the
past. It is not within the powers of the water companies, or any
land management practice, to bring this back into a favourable
condition soon. Water companies are only directly responsible
for a small proportion of aquatic SSSIs, chiefly reservoirs and
open water.
5. There has always been an awareness that
delivering the public water supply and dealing with disposal of
sewage from a population of almost 52.5 million people in England
and Wales means that water enterprises do have an impact on the
aquatic environment and specifically on SSSIs. At each price review
since privatisation the companies have set out in their business
plans their strategies for dealing with this.
6. The first programme of work to deal with
the impact of abstraction for the public water supply on low flow
rivers was initiated at the price review in 1994. This continued
at the price review in 1999, and on the water service 57 projects
(£75 million) on solutions and investigations into abstractions
affecting low flow rivers and SSSIs were provided for in price
limits. On the sewerage side, £43 million worth of work was
identified for improvements required under the Habitats and Birds
Directive and also work on SSSIs. Water companies have already
made a substantial commitment to investigating and implementing
programmes of work to alleviate their impact on nature conservation
sites.
7. We are now defining the work programmes
to be expected from companies in the next five years 2005-10.
Information from the Environment Agency in November 2003 indicated
that companies may need to carry out significant extra work as
they review consents for both medium and low priority sites. In
our public letter to the Secretary of State (annex 1) [Not Printed],
we indicated that the range of costs for water companies to deliver
the improvements included in companies' draft business plans (August
2003) was between £200 million and £500 million for
the water service and about £900 million for the sewerage
service, for 2005-10.
8. We do not expect this investment to deliver
a significant contribution to the achievement "favourable"
status of sites in England. Much other work is needed to reduce
the level of nutrients at aquatic SSSIs fed by moving or static
water. Point source discharges chiefly comprising sewage effluents
deliver just under half of the phosphorus to these sites and less
than one-third of the nitrates. Work also needs to be carried
out to reduce other contributions of nutrients to the aquatic
environment, such as those from diffuse (chiefly agricultural)
pollution, other sources of run off and other point sources. At
present water and sewerage customers are financing by far the
major part of action plans in this area.
9. For example, Wessex Water has told us
that at one site on the Hampshire Avon it has reduced nutrient
levels in sewage effluents, and now its sewage effluent contributes
only a third of the phosphorous present. The company estimates
it may cost over £50 million to reduce phosphorus levels
further in the Hampshire Avon and Frome catchments. However, unless
action is taken to deal with the majority arising from diffuse
(mainly agricultural) pollution water customers' investment will
not result in the improved water quality necessary for the desired
aquatic habitat.
INVESTIGATIONS
10. We believe it is essential for the dynamics
of ecosystems to be thoroughly understood before major investment
is undertaken. For example, abstraction from the Derwent in Yorkshire
for the public water supply was initially considered to be environmentally
detrimental and Yorkshire Water would need to find alternative
sources. However, a tripartite investigation (English Nature,
the Environment Agency and Yorkshire Water) into the Derwent found
that it is the management of the catchment and the natural water
courses that is paramount. Abstraction for the public water supply
had a minimal impact on the environment. Without this comprehensive
research the company could have been required to invest in major
new sources, without achieving the desired environmental benefits.
This is summarised in Annex 2.
11. Where it is unclear, at this stage,
what action each company should take to deal with SSSIs there
are mechanisms that will allow decisions to be made during the
period 2005-10. Particularly where further investigations will
lead to more effective solutions. New requirements on companies
can be financed through an interim determination application or
through logging up the net additional capital costs to be financed
at the 2009 periodic review. The protocol that we put in place
at the 1999 price review for dealing with changes in companies'
obligations and consents provides the blueprint for this. This
protocol will be updated in the next few months for use in the
2005-10 period.
MEETING TARGETS
12. On its website English Nature identifies
many reasons why SSSIs are in an unfavourable condition. The key
factors are overgrazing—a factor in 45% of "unfavourable"
sites and moor burning—27% of sites.
13. Diffuse pollution contributed to 3%
of unfavourable sites; direct pollution, including pollution from
sewage effluents, to 2% of sites; and abstraction including the
public water supply, less than 1%. We recognise that these relatively
low percentages are due to aquatic SSSIs being only a small, albeit
very important, subset of the total. However, this illustrates
that it will be possible to address the current unfavourable status
of a large number of SSSIs only if action is also taken to address
problems arising from, for example, management of grazing, drainage
and moor burning. Action by the water companies can, at a maximum,
improve only 3% of sites. Water customers through the periodic
review process are already paying significant amounts in water
bills and will be expected to pay more after 2005. These payments
are not one-off but will run in perpetuity. In order for the PSA
targets to be realised polluters and others having an impact on
both the aquatic and other SSSIs should also contribute within
the same timescales.
14. We welcomed the EFRA Committee's recognition
of this in its report following its inquiry into "Water pricing"
(HC21).
". . . where a particular problem has several
causes and action by a water company alone would not be enough
to significantly improve the situation, there is a case for delaying
the requirement on the water company to act until the other causes
are also addressed. Second, while the requirements for environmental
improvements are likely to keep increasing, customers' willingness
and ability to pay ever larger bills are not."
NEXT STEPS
The Environment Agency and English Nature are
identifying the actions that must be taken by the water companies.
The economic regulation of the water companies via the periodic
review process ensures that these obligations will be delivered.
It is essential that comparable and effective measures are now
taken urgently for other sectors to play their part, so that the
full environmental benefits can be realised.
Annex 2
Case study—Yorkshire Water—The lower
Derwent project (Derwent Ings)
The sustainable management of the water resources
of the Lower Derwent Valley—Yorkshire
English Nature wanted Yorkshire Water to curtail
its abstraction from the River Derwent. This is a major source
of resources for Yorkshire, two abstraction points taking a maximum
of 305Ml/day.
A study was undertaken by English Nature, the
Environment Agency and Yorkshire Water. This study is a very thorough
investigation of the River Derwent, and the surrounding flood
plains, wetlands and meadows. It shows the complex interrelationship
between the abstraction and operation of other parts of the drainage
system, barrage and tides. This whole interaction needs thorough
research before radical changes to abstraction, or any other area,
are made.
At this stage the joint study shows—
"maximum permissible abstractions were found
to have no, or little adverse impact or, in some cases, a slightly
beneficial impact on the river ecological indicators."
This study demonstrates the value of studies
that investigate and monitor in this multi-agency way, before
making decisions.
This is a useful model to use for recommending
full investigations in future before going ahead with pre-conceived
schemes which are not fully justified and supported.
11 March 2004
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