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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