Select Committee on Environment, Food and Rural Affairs Written Evidence

Memorandum submitted by Office of Water Services (Ofwat)



  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.


  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.


  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.


  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.


  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.


  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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