Memorandum submitted by Office of Water
Services (Ofwat)
CLIMATE CHANGE AND WATER SECURITY
SUMMARY
A. The results of the UKCIP02 report "Climate
change scenarios for the United Kingdom" indicate that winters
may become wetter and warmer and summers drier and hotter. The
expectation for the UK water industry is that more frequent and
heavy winter precipitation could lead to more incidents of sewer
flooding arising from severe weather conditions. Hotter summers
will give rise to greater demand for water for garden watering,
irrigation, washing etc and changing weather patterns could affect
the natural water resources on which we depend.
B. Water resource plans enable companies,
the Environment Agency and Ofwat to assess the implications of
climate change and to consider the companies proposed response.
Periodic reviews of price limits for the companies facilitate
the raising of funding to finance expenditure needed to implement
an agreed response. Together they ensure that water security issues
are taken account of in response to the available evidence of
existing and potential issues.
C. The business plan reporting requirements
that we use at price reviews include the companies' expectations
of the impact that climate change will have on their resources
and their ability to meet future demand for water. The water resource
plans, which have a 25-year horizon and are produced every five
years with annual updates, underlie the business plans. Companies'
capital maintenance plans should reflect a similar timeframe.
In their draft business plans (August 2003) companies indicated
that they wished to double expenditure to deal with supply/demand
issues in the price review period 2005-10.
D. Companies are submitting their final
business plans for the current review throughout April. Early
in May they will publish the public summaries of their plans which
will indicate the impact on customers' bills of proposed additional
expenditure on managing their supply and demand.
E. In arriving at our draft price limits,
to be published in early August, we will make judgements on what
expenditure companies will need to make to meet their obligations.
We do not consider that we need to be taking major precautionary
steps to deal with problems that may arise from climate change.
An incremental approach is most appropriate for what is an incremental
problem, as our national understanding of the impacts of climate
change develops.
F. However, we are not complacent about
climate change. We expect there to be changing requirements on
companies that need to be taken into account at future reviews
as their potential impact becomes more certain.
COMPANIES' BUSINESS
PLANS
1. In their business plans companies will
set out their plans for developing strategic water resources.
Due to late delivery of Ministers' principal guidance, companies
are phasing the submission of their business plans. We will not
have received all plans until the end of April. Early in May we
expect companies to issue the public summaries of their plans
which will indicate, at a high level, what the companies consider
they need to invest to maintain security of supply to their customers.
In August, we will issue our draft decisions on price limits for
the period 2005-10. In making our decisions we will make clear
what investment we have assumed for companies to maintain their
security of supply.
2. In their draft business plans companies
projected a doubling of expenditure for the period 2005-10, compared
to 2000-05, to maintain security of supply to all customers for
both water and sewerage. This equated to an additional £12
addition to the average bill during the period 2005-10 arising
from £2.8 billion capital investment. At the 1999 price review
we assumed £1.7 billion capital investment to ensure the
supply of water and sewerage services met essential demands without
over-abstraction. It is too early to say at this review what investment
will be needed in the period 2005-10, but we expect it to rise
to meet housing growth, customers' demands and to put in place
measures to ensure companies' networks are developing to cope
with longer-term pressures including climate change.
3. The UK WIR study on climate change, based
on UK Climate Impacts Programme 2002 scenarios, suggests that
river flows and groundwater recharge may be affected by climate
change by the 2020s. Companies are building this into the programmes
in their business plans, where appropriate, and more generally
by ensuring that their plans are robust over the longer term.
Guidance issued by the Environment Agency, in consultation with
us, sets out how water companies are expected to address climate
change pressures in their water resource plans.
4. In "Setting water and sewerage price
limits for 2005-10: Framework and approach" we set out our
expectation that companies' business plans should include an appropriate
allowance in their planning forecasts where they expect climate
change to lead to a material change in their water resource plans.
Where this is the case we have asked companies to include evidence
of appropriate hydrological modelling and an assessment of how
the yield of key water resources in the relevant zones are likely
to be affected. In scrutinising companies' assumptions we will
work closely with the Environment Agency and make use of the principles
set down in the UKCIP/Environment Agency guidance on handling
risk and uncertainty in decision-making for climate change.
5. In our methodology paper we said that
it may be sensible to design sewerage assets with a view to higher
flows (or demands) in future. We expect companies to present evidence
based on established trends to support cost forecasts in their
plans, and to justify their proposals by reference to housing,
population trends and development plans.
6. We expect that further work will be needed
to develop the sewerage assets in response to climate change in
the future. Work is going ahead. We are a member of the national
working party for sustainable urban drainage systems. This group
is looking at the potential to reduce flooding by using natural
systems that take pressure off the sewerage system. We also await
the findings of the Audacious (Adaptable urban drainage—addressing
change in intensity, occurrence and uncertainty of stormwater)
Project. Our approach will also be informed in due course by the
river basin management plans arising from implementation of the
Water Framework Directive.
7. The six-yearly reviews of river basin
management plans will allow changes in the characteristics of
these basins or pressures on them to be identified in a systematic
way. Measures identified to address ecological and water quality
problems, including any resulting from climate change will be
an integral part of this process.
8. There are particular resource and supply
issues in some areas, for example the south east of England. Along
with companies that supply customers in the south east and the
Environment Agency we are members of a working group on water
resources in that region. This group considers resources and supply
issues in the medium to long term and how they can be addressed
in a co-ordinated way.
9. Companies' draft business plans also
set out their proposals to introduce more metering, over and above
the customer driven process of optional metering. A number of
companies' plans identified their proposals to accelerate metering,
especially in the south east of England. Higher levels of water
metering will, in the long term, increase our ability to manage
demands in line with pressures created by climate change.
IMPACT ON
RESOURCE MANAGEMENT
10. According to companies' draft business
plans, the majority of customers will be metered in the next 30-40
years. Plans to increase metering are centred on those areas where
water resource issues are greatest. This is particularly the case
in the south and south east of England and where climate change
studies suggest there may be lower summer rainfall in the future.
11. Folkestone and Dover Water has said
publicly that it intends to apply to become a water scarce area.
This is a tool that is available to all companies to deal with
water resource issues and we expect them to consider it as part
of their long-term planning. Companies can apply to the Department
for Environment, Food and Rural Affairs (Defra) for water scarce
status which allows them to pursue compulsory metering in their
area as a means of managing their resources.
FLOOD MANAGEMENT
AND MITIGATION
12. Heavier winter storms increase the likelihood
of sewer flooding as a result of extreme weather because many/most
sewers carry storm drainage as well as sewage. Sewer flooding
is one of the worst service failures that a water or sewerage
customer can experience. At this price review we expect companies
to include significant investment on environmental and water quality
improvements in their business plans, including proposals to address
sewer flooding. We will assess their proposals carefully in the
light of competing investments for funding in the period 2005-10.
We expect companies to prioritise their programmes to take account
of the impact on customers, including the severity and frequency
of sewer flooding incidents.
13. Since privatisation the industry has
made significant reductions to the numbers of properties at risk
of sewer flooding and suffering from sewer flooding. However,
severe storms have given rise to sewer flooding incidents. For
example on 14 June 2002, 456 properties in United Utilities' area
flooded as a result of a severe storm. In developing their business
plans for 2005-10 we expect companies to consider investment to
solve or reduce sewer flooding problems for customers who have
already suffered internal flooding and are at risk of repeat floods.
We also expect companies to take action to address cases of external
flooding of equal severity. In examining companies' proposals
we will take account of the costs and benefits and views of customers.
We expect companies to develop their plans for 2005-10 within
a longer-term framework.
14. We plan to work on promoting best practice
in the use of mitigation measures that will reduce the occurrence
or effects of flooding. For example, disconnection of cellar drainage,
fitting air brick protectors, fitting non-return valves in sewers
and bolting down sewer pipe inspection covers.
15. Our approach to dealing with the impacts
of climate change is developing as more information becomes available.
Like the Committee we await the findings of the Foresight Project
on Flood and Coastal Defence with interest. However, we consider
the regulatory regime has the tools in place to ensure that we
are able to respond to issues arising from climate change. We
expect more activity to deal with the impacts of climate change
in future, but we expect this activity to be based on thorough
studies and exploration of solutions.
IMPACT OF
CHANGES IN
WATER AVAILABILITY
ON BIODIVERSITY
16. In developing its principal guidance
Defra has taken account of English Nature's advice on the impact
of changes in water availability on biodiversity. In its guidance
Defra recognises that some schemes cannot be confirmed as necessary
until the outcome of further investigations is known. It identifies
the need for action to be agreed by the conservation agencies
and the Environment Agency to meet targets under the UK's Biodiversity
Action Plan where the costs and benefits justify the action. We
expect investment to be fully justified before customers are expected
to meet the costs in their bills.
CONCLUSION
17. It is early days at present and we consider
the industry should take an incremental approach to what is an
incremental problem. As the Environment Agency commented in its
2001 report "Water resources for the future—A strategy
for England and Wales", "Our understanding of the relationship
between weather and water use is not perfect, so it is not possible
to be certain how climate change will affect demand". As
our understanding of the issues associated with climate change
develops so can the activities to deal with its effects. Equally
we agree with the Environment Agency's comment that "Some
decisions may involve significant investment; it is hard to justify
expenditure that may turn out to be unnecessary".
Office of Water Services (Ofwat)
April 2004
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