Examination of Witnesses (Questions 180-199)
CHARTERED INSTITUTE
OF WATER
AND ENVIRONMENTAL
MANAGEMENT AND
RWE THAMES WATER
25 JANUARY 2006
Q180 Chairman: Good afternoon and welcome.
Thank you for making time to come to the Committee. We have got
until 3.30 to get through our session with you so we will proceed,
I hope, with reasonable zip. Can I start by referring to the memo
in which the Chartered Institution expressed disappointment with
the way in which the Sustainable Communities document dealt
with some of the water issues. I wonder if you would like to say,
given the pressure that there is on water resources in the South
East generally, and the flood risks associated with the Thames
Gateway particularly, whether there are parts of the South East
which would have been less at risk of flooding and better able
to cope with additional calls on water resources than the ones
which have been chosen?
Mr Pettifer: I am talking on the
flooding issues. I think the point is, yes, but the main thing
is that there is a parcel of land which has been earmarked or
allocated, in our opinion without too much study in terms of what
the actual flood risk is. Most of the Thames Gateway, most of
the Thames Estuary is at a flood risk but it is protected. It
is not a direct flood plain but it is protected. Any protection
can be over-topped to any degree, in an extreme case it can collapse,
as we have seen in New Orleans. What we are saying is yes, you
are going to have housing, you must have housing, you have to
put it in the South East, what needs to be done is more study
on what the actual flood risk is in those areas to identify where
it is probably at less risk of flooding. The other thing we are
a bit concerned about, if you do put housing in the flood plain
and take account of it, we do not think there is enough being
looked at in the structure of sustainable housing. If you are
going to put it in a flood plain, it needs to be of a fabric that
can sustain the flooding if it should occur in the lifetime of
somebody. You can have electricity points at a height, for instance,
you can have a fabric that if water does come in it does not disintegrate,
something I have seen recently, in a flood event. These are the
things which have not occurred. It is "there is the area,
that is where we are going to put the housing". I agree there
will be areas less vulnerable in that flood risk area than others
but not enough study has been done to identify those.
Q181 Chairman: Is that Thames Water's
view as well?
Mr Aylard: Yes. We would not want
to comment on flooding which is not particularly our area of expertise.
We would look at water supply and waste water. Some of the biggest
problems are around waste water disposal. Once we have treated
the waste water it needs to go back into the environment. In some
areas we are being forced to put water back into the headwaters
of streams and rivers which have a very low dilution capability
so it is more of a problem which means we have to treat the effluent
to an even higher standard, which requires a long lead time and
more investment.
Dr Fenn: If I can add on the water
resources, the South East is clearly the dynamo of the nation's
economy, as it is, but it happens, also, to be the driest region,
that with least headroom between resource and demand, that which
is most vulnerable to climate change. So water resource availability
is a material factor in the environmental limits and sustainability
of the development. I suppose that was the issue of concern we
expressed.
Q182 Chairman: This leads naturally
on to the question about whether water issues are sufficiently
taken account of in the whole planning process. Do you have a
view about that?
Dr Fenn: Water is fundamental
to the infrastructure and carrying capacity of any development,
whether it be household or industrial and commercial. Water is
clearly a material factor in that process, particularly as we
reach the point in the nation's development of our water resources
where there is not a great deal left to be had. The water companies
really ought to be statutory consultees in the process. They do
need to be involved early, such that proper design can take place
early.
Ms Parker: A further issue, which
is often a problem, is providing the services within a lay-out.
This is frequently totally neglected until the detailed design
is complete. It is then passed to the water companies or their
consultants to do the detailed design. It is often extremely difficult
and sub-optimal, so pipes are laid in places where it is expensive
to come back and make repairs or it is expensive to install them
in the first place. That is not sustainability.
Q183 Ms Barlow: The Environment Agency
have estimated that you will need four to five new reservoirs
built in the South East over the next 15 years. Do you think that
is correct?
Mr Aylard: Certainly as far as
Thames Water is concerned, we are going to need a major new resource
by about 2020, to serve both Swindon and Oxford, and more particularly
London. We are revisiting a number of studies that have been done
over the years but our current provisionally preferred preference
is to build a new reservoir near Abingdon to take water from the
Thames in the winter, when there is plenty of water available,
store it, put it back into the Thames, again in the upper reaches
in the summer, and then allow that water to work its way downstream
under gravity and abstract it in London, treat it and put it into
supply.
Q184 Ms Barlow: Is that the only
one that you are planning to build?
Mr Aylard: That is the only one
Thames Water has designs to build but I know that other water
companies are looking in the South East, also. I do not know the
details though.
Dr Fenn: Yes. The Environment
Agency's original view was that the plans that the various water
companies have in their Water Resources Plans, currently accepted
by the regulators, provide sufficient capability to be able to
meet the extra demand, provided that the reduction in consumption,
mooted in the Sustainable Communities Plan, was in fact
delivered. That 25% reduction in per capita consumption is an
absolute requirement. The kinds of capacities that we are talking
about—it would come not just from new reservoirs and new
resources' schemes but also from demand management and demand
reduction and even continued leakage management to the economic
levels—would all be necessary, not just in new homes but
in those that exist already.
Q185 Ms Barlow: Is that not rather
pushing the buck on to the consumer? Do you agree that the Environment
Agency's predictions are correct if we do not have that reduction?
I am thinking particularly also about the cost implications. I
do not know how much yours is going to cost?
Mr Aylard: It will be in the region
of £800-900 million to build but then it will be supplying
water for 200 years, on the experience of our reservoirs so far.
I think I should explain why we anticipate needing this new resource.
It is really three things. First of all, it is the impact of climate
change, which we expect to be getting really quite severe by 2020
with longer drier springs and summers. The second thing is population
growth. In our supply area alone we expect to have an extra 800,000
people to supply water to by 2016, that is in 10 years' time.
The third thing is that our existing customers are using around
1% more water every year which compounds over time. More and more
people are using power showers, most people now have dishwashers,
water use is going up despite our best efforts with water efficiency
campaigns and also, of course, our top priority which is to get
leakage down in London.
Dr Fenn: There is a need for us
as a nation to encourage our people to value water more highly
than they currently do. There does seem to be this view that there
is an obligation and a right upon each and every household to
have water to the extent required, whatever the conditions, whatever
the weather, and frankly that is not a sustainable proposition.
It is not a statutory duty upon the water companies to fulfil
either. They have a duty to supply water for essential needs not
for any need. Proper addressing of education and awareness, the
need for us to arrest, perhaps, this rush towards this profligate
water using lifestyle, is a message that needs to be balanced
alongside the necessary resource development.
Q186 Mr Vaizey: We are going to talk
about water conservation later on in our questions to you. Can
I ask a number of questions related to the reservoir because,
in fact, the reservoir Richard identified is slap bang in the
middle of my constituency, so it is something I have an interest
in. First of all, I understand that one of the other options would
be desalination plants. I wonder, Richard, if you would talk about
Thames Water's attempts to build a desalination plant in the Thames?
Mr Aylard: The reservoir is designed
to be producing water by about 2020. We have, also, a pressing
short and medium term need to bridge the gap between the amount
of water that we can guarantee to supply in a drought year and
the expected demand. A desalination plant on the tidal Thames
is, in our opinion, the best and most sustainable solution to
plug that short and medium term gap. Now, the Mayor of London
does not like this. He says it is using too much energy. Our argument
is that if we had a less energy intensive option we would use
it, and, secondly, that the energy is much less than people think
because we are not treating sea water, we are treating brackish
water. We take the water from the river on the ebb tide, so it
is mainly fresh. This plant only uses one-third of the energy
it would need to use to treat sea water. The second thing is because
this is expensive in energy terms we will only use it when we
have to. Our energy bill is a concern to us, as it is to everybody
else. It gives us the capacity to provide a top-up to supplies
when we are in the middle of a drought or anticipating one. That
is our short and medium term solution. In the longer term a reservoir
is, indeed, a more sustainable solution. We could not, even starting
now, get it built before 2020.
Q187 Mr Vaizey: In terms of water
conservation and Thames Water leakages, what sort of reduction
in per capita water usage would need to be seen in order not to
have a reservoir or any reservoirs in the South East? What sort
of reduction in leakages? Thames Water is first or second, I think,
in terms of leakages.
Mr Aylard: We have a particular
problem with leakage in North London. Outside London, Thames Valley,
our leakage record is very much the same as the other water companies,
and indeed better than some. In London, a third of our pipes are
more than 150 years old, half are more than 100 years old. North
London is the worst area. We spend a lot of money every year finding
and fixing leaks in the London mains but that does not get leakage
down, it just stops it going up. Three years ago we started a
programme to replace all the mains in some of the worst affected
areas. In this five year regulatory period we are going to be
replace 850 miles of mains, and we have accelerated that programme
to do it in four years because we want to get leakage down as
quickly as possible. That will make a real difference. The areas
which have been completed so far, we are getting significant reductions
in leakage, very much along the lines that we predicted. We are
confident that as we roll that programme forward, we can get London's
leakage down quite significantly. In terms of the percentages
involved, I think I should look to my colleague.
Mr Harrison: If we look at our
plans over the next period to about 2029-30, if we did nothing
on demand management then demand would rise by about 21%. By tackling
leakage, by metering, by water efficiency measures, that increase
is reduced to 7%. A very significant part of our water resource
and supply demand plans is water efficiency and leakage management.
Q188 Mr Vaizey: That includes population
growth in your predictions?
Mr Harrison: That includes the
population growth that Richard alluded to.
Q189 Emily Thornberry: Ed, as an
MP for North London, can I just ask a couple of questions about
this. What proportion of water in North London has been lost through
leakages? It is very easy for people to say that we should be
persuading the public to use less water but when we are awash
with it, when we are constantly having leaks, and it really seems
like Thames Water is not taking it seriously, it is very difficult
for us to persuade the public that water is precious. What is
the proportion? Can I just say, I am the MP for Islington South
so you know just why I feel quite so strongly about this.
Mr Aylard: I do understand that.
Mr Vaizey: More power showers.
Q190 Emily Thornberry: No, we are
just walking around in great puddles.
Mr Aylard: We do take reducing
leakage very seriously indeed. It is our absolute top corporate
priority bar anything else we do as a company.
Q191 Emily Thornberry: That sounds
nice but what are you doing?
Mr Aylard: We are replacing 850
miles of mains at a cost of £540 million in the next four
years. We are spending £90 million a year on finding and
fixing leaks. We have had our efforts on leakage independently
audited to make sure we are doing everything we possibly can.
We have hundreds of people, literally, working on leakage all
the time. Sometimes you will see a surface leak which does not
get attended to immediately but that is because somebody has been
there, they have assessed there is no damage to property and the
amount of water is smaller than leaks being dealt with somewhere
else.
Q192 Emily Thornberry: What proportion
of Islington water, therefore, is being lost through leakage?
Mr Aylard: It is probably about
a third.
Q193 David Howarth: Can I bring you
back, briefly, to this question of the planning system and the
value of water. When water was privatised, a very long time ago
now, the reason why the water companies were not given the place
on the planning system that the water authorities had was because
the legislation set up a system of infrastructure charges and
connection charges, both of which are regulated. There has been
criticism especially of the infrastructure charge, that it has
been kept artificially low and therefore does not produce enough
money to pay for infrastructure. At the same time, also, it does
not act as any disincentive to development. I would like your
comments on that? Are those charges too low and does the whole
system of infrastructure connection charges need looking at again?
Dr Fenn: I cannot profess any
great knowledge of this but I would refer to the statements made
in the Code for Sustainable Buildings where there is reference
to should we be going for piped solutions or for sustainable drainage
systems. The kinds of performance indicators that were proposed,
and measures to encourage developers to go for systems that would
attenuate run-off by peak and by volume, I thought were very sound.
Q194 Colin Challen: I want to ask
whether or not building new capacity would deliver more shareholder
value than reducing demand?
Mr Harrison: The way in which
we plan to provide for new resources is on a least cost economic
programme. What we do is balance the economics of further reductions
in supply with new resources. The question of whether or not there
is a choice in terms of shareholder value does not come into it.
In fact, Ofwat, our regulator, gives very close scrutiny to our
plans to ensure that they are the least cost from an economic,
environmental and social point of view.
Q195 Colin Challen: Ofwat does act
as a bit of a brake on your plans?
Mr Harrison: They ensure that
our plans are the most economic to meet our statutory and regulatory
obligations. They scrutinise it very closely at each of the periodic
reviews.
Q196 Colin Challen: If it was up
to you which delivers the better value pounds per litre, is it
new capacity or is it reduced demand? I know this is a bit of
a hypothetical question but it is quite important.
Mr Aylard: The role of the regulator
is to make sure that we provide the most efficient, cost effective
service to customers. He will challenge everything in our business
plan to make sure that we are providing that value.
Dr Fenn: The regulatory system
does build in incentives. When the allowed return on capital on
an asset on a balance sheet is greater than the cost of capital,
there is an incentive by virtue of the regulatory system to go
for that solution as opposed to an operating one. If the converse
is true then, obviously, the operating solution would be preferred
to the capital.
Q197 Colin Challen: You debate this
with Ofwat, obviously? You do not wait for Ofwat to tell you what
to do and leave it at that. How do you respond to Ofwat's demands
in this regard?
Mr Aylard: We have a daily dialogue
with Ofwat on a whole range of issues. Ofwat is our financial
regulator and watches everything we do. We have an independent
reporter who links us to Ofwat as well and gives us a challenge
to our plans. It is not something that we look at once every five
years, it is literally going on on a daily basis.
Q198 Mr Caton: Mr Aylard and Mr Harrison,
the website for the London Thames Gateway Development Corporation
lists the various partnerships it has formed to help it deliver
the regeneration. We could not find your name there.
Mr Aylard: We are working with
them on one or two things to do with the Olympics at the moment,
so we are talking to them. I am surprised we are not on their
website, and I will talk to them about whether we should be.
Q199 Mr Caton: What are you delivering
for the regeneration of that particular area?
Mr Aylard: We are working, particularly
around the Olympic sites, to make sure that we deliver it as efficiently
as possible. For instance, the water-hungry phase of the Olympics
will be the construction rather than the operation; we want to
make sure that all that concrete is not mixed with drinking water.
We are looking to establish a non-potable water supply to be used
during construction which would then form the basis of a grey
water network for the Olympic site as it is developed.
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