Select Committee on Environment, Food and Rural Affairs Written Evidence


Memorandum submitted by Office of Water Services (Appendix 35)

  I should like to offer the Committee comments on two aspects of the Bill for consideration.

POWERS TO ENTER INTO AGREEMENTS

  We are particularly concerned by sections 41 to 45 of the proposed Bill which would allow Defra to pass on its functions to other designated bodies, and the precedent this sets. Section 43 even allows a designated body to pass on a devolved duty to a further third party. Potentially this is a source of regulatory uncertainty which would leave the water industry and its investors unsure in the medium term of who it is responsible to and what is required of it. Each of the designated bodies identified in the bill has its own duties and responsibilities which direct its priorities and approach. These will not necessarily reflect Defra's approach and there is a risk that functions passed on to designated bodies would not continue to operate in the way that was intended by Parliament but in a way that represents the ethos and approach of the body to whom they are transferred.

  The effect of these sections could be wide ranging. We consider that before Parliament accepts such wide-ranging (and to the best of our knowledge unprecedented) powers, more thought needs to be given to how these powers would be exercised, what consultations would be involved and the limitations that would be placed on the functions that are passed on. Enacting these sections could, for example, introduce a situation where Ministers could pass on to the Consumer Council for Water functions relating to the performance and enforcement of standards and the imposition of financial penalties on others that Ministers currently share with Ofwat. The independent Consumer Council for Water's current statutory function is simply to champion the interests of customers. There can be no guarantee that it would operate such regulatory functions in the way that was intended by Parliament when it initially gave those powers to the Secretary of State who, like Ofwat, is expected to balance all the various interests before taking action.

  We recognise there would be scope for Ministers to reconsider and recover functions they had passed to a designated body, but this might not be a speedy process. Meanwhile the very existence of the potential to transfer functions might cause unnecessary uncertainty and might, for example, affect companies' ability to attract funds for investment. I suggest that companies and their customers and investors need clarity in law on which bodies are responsible for regulating the functions of the water industry.

BIODIVERSITY

  We note the proposal in the Draft Bill to give water and sewerage companies, and Ofwat, a new biodiversity duty. Ofwat has willingly accepted the addition of various new duties in the Water Act 2003, including the duty to contribute to the achievement of sustainable development. Like the water companies, Ofwat already has environmental duties. It may be that a biodiversity duty will fit within these existing functions. It is not however clear, for example from the regulatory impact assessment, just what effect the Government sees such a duty as having on the operation of an economic regulator's functions, where the primary duty will continue to be to enable efficient water companies to carry out and to finance their functions.

  We note that water supply licensees (who will be appointed under the Water Act 2003 to stimulate market competition in the section) are not at present included within this proposal. Is it appropriate that the biodiversity duty should apply to only incumbent companies? Should it rather apply to both or neither?

Office of Water Services

March 2005





 
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