Examination of Witnesses (Questions 35-39)
MR PAUL
GIBBS, MS
JEAN SPENCER
AND MR
MARTIN SILCOCK
31 OCTOBER 2006
Q35 Chairman: Good morning. Welcome to
the Committee. We are grateful to you for coming and talking to
us. Generally to start off, we have read your memorandum, thank
you for that, and it is quite positive in tone in many ways. Could
you say a general word about your experience of RIAs as they have
affected Anglian Water's business?
Ms Spencer: Mostly, we see the
consequences of regulatory impacts and almost all of our activities
are regulated in some shape or form whether it is drinking-water
quality, environmental quality or economic regulation and so on.
In terms of the RIAs that go behind those regulations, I think
our experience, by and large, is that they look at specific aspects
of regulation but they do not look at all of the impacts. If you
take examples of environmental regulation, it is looking at water
quality but it does not look at all the other impacts that come
as a consequence of those regulations particularly things like
carbon impacts, the production of sludge and methane, and transport
sludge and so on which come from that, they look very narrowly
at the particular aspects of regulation that they are trying to
address. While most of the Regulatory Impact Assessments have
been carried out, I think our concern is they are not looking
at all of the impacts of those regulations. By and large, we do
not see regulation as a bad thing, there are examples where we
would want to see more regulation where it can have positive impacts.
I think the issue is they are being carried out, but it is the
scope of those impact assessments and whether or not they are
considering all impacts that affect us.
Q36 Mr Vaizey: Your memorandum gives
the impression that you are in favour of environmental impact
assessments on the basis they fit in with the RIA system, but
they are not "very advanced", I think was the phrase
you used. What signs of promise do you see in terms of environmental
assessments? What more positive aspects do you see in the situation
as it is at the moment?
Ms Spencer: I think one of the
issues is that you should not have environmental impact assessments
separate and stand-alone. Impact assessments need to be looked
at from all aspects so if it is improvement in water quality,
you also need to look at the carbon impacts that go with that
in particular. That is particularly focused on the need to address
the carbon effects of new regulations and there are a number of
reasons for that. In terms of climate change impacts I think,
as a water sector, we are particularly affected, so you are looking
at climate change effects, you have got costal erosion, flooding,
increased storm events, drought, all of those impact directly
on our activities. What we are seeing is a vicious cycle: we see
new regulations that require us to put in technological solutions
which require intensive energy, chemicals, transport, that in
themselves then cause the effects we are having to address in
terms of water and environmental quality. All of those things
have to be brought together. As an example of the overall level
of the impact on our activities, in 2005 our energy consumption
was about 730 gigawatt hours per annum, that is forecast to increase
to 900 gigawatt hours per annum by 2010 and that is a consequence
of the new quality regulations that we have to meet.
Q37 Mr Vaizey: I do not know if you
were here when we had the earlier debate. Do you think it would
be better if we had a stand alone carbon impact assessment?
Ms Spencer: There should be an
assessment of the impact of carbon but as part of the other economic
costs and benefits. I do not think you can look at it in isolation.
Those impacts need to be measured but I think our view is that
they then need to be monetised so that you can put them into the
overall assessment of those impacts.
Q38 Mr Vaizey: I think you answered
this question to a certain extent in your memorandum but do you
get the feeling that Regulatory Impact Assessments at the moment
are tacked on at the end to justify a policy as opposed to happening
early enough in the process to influence the policy?
Mr Silcock: I think the observation
that we would make is that it might be the case that Regulatory
Impact Assessments are being done earlier in the process, but
it is hard to see that. There is an element of transparency which
is missing there so where policy decisions are being made, have
they been subject to some sort of assessment which is akin to
an RIA. That is one point. You are right in interpreting our response
to mean that, yes, we are keen for those assessments to be done
as early as possible in the process where the policy decisions
are being made, that would seem to be the sensible time to do
them.
Ms Spencer: In many cases for
the water industry that is actually in Europe because many of
the regulations that we are having to comply with are driven by
European directives and I think it is not clear that European
directives are subject to robust RIAs. Picking up on the end of
the last discussion, it is then a question, once those European
directives are in place, that EU Regulatory Impact Assessments
are then carried out in translating that into UK legislation.
I think we do find that they are seen as statutory requirements
and, therefore, a robust Regulatory Impact Assessment is not needed
because Europe says we have to do it. There is the need to review
that because there is some flexibility in there. It might be worth
perhaps Paul taking you through some of the impacts which we are
seeing, in particular around the implementation with urban waste
water and the removal of phosphorus from our works, to give some
colour around how we see that working in practice.
Mr Gibbs: The issue is that we
tend to look at end of pipe solutions, so we have a peak consent
that we need to meet, we look for the end of pipe solution and
what we end up doing is bringing in chemicals from the other side
of the country at a high cost to the environment to meet a directive
set by Europe at the end of the pipe. What it leads to is that
we put in more complex treatment. For example, if we take a works
that we have in our region which is very sustainable, very low
energy use, simple technology, been around for a long time and
meets the needs of the environment as it stands, if we have a
new directive come in that we are required to put in place phosphorus
removal and what we do is ship in chemicals from Wales at a high
cost and we have to put new treatment technologies in place at
the works to meet that standard and that means increasing the
energy consumption significantly at the works, putting in more
concrete structures and more complex treatment processes. I think
what we have failed to do is look at the overall impact on the
environment of making that decision. We look at the directive
and the need to meet the standards that the directive imposes
but we do not consider the overall carbon impact on the solution
that we put in place. What we would like to see is a bit more
joined-up thinking with all of the agencies working together to
look at the overall impacts that we are having on the environment
when we make these decisions.
Ms Spencer: I think part of it
is because we are regulated when consents are set at works in
terms of discharges that we can put out. They are very rigid consents
and that causes us to respond by putting in those technological
solutions to make sure we absolutely meet those consents because
there are penalties and we can be prosecuted if we do not meet
those consents whereas a more sustainable solution would be something
like reed beds but where the outcome is less certain in terms
of meeting the consent at all times. It is not to criticise the
Environment Agency in the way in which they regulate us because
they would see it as a requirement that we always meet those consents
and if we do not there will be consequences in terms of not meeting
the EU directives and possibly infraction proceedings. It is not
a criticism of the Environment Agency but, as I say, we need to
work together to look at where there is flexibility and to see
whether it can come up with overall more sustainable solutions.
Q39 Chairman: Just on that example
which you gave of the increase in electricity usage from 730 to
900, was that figure identified in advance or has it only emerged
latterly?
Ms Spencer: It was not identified
in the impact assessments. It would have been identified in terms
of the economic regulation because we would have identified the
energy increases and therefore the operating cost effects that
needed to be funded through the periodic review process, but that
certainly was not taken into account and explicitly identified
as part of that impact assessment. Thinking ahead, we are at the
point now where we have to implement the Water Framework Directive
and I think what is key is that all of those impacts and costs
are identified. We are not seeing that at the moment because it
is focusing on the pound notes costs. It is taken into account
indirectly because in looking at the costs, the energy costs are
taken into account, the operating costs, but it is not putting
a price on the external costs, the carbon impacts. I think it
has been difficult to do that, how do you come up with the pound
notes for carbon and methane production and so on. It is perhaps
easier if we could use Nicholas Stern's estimate going forwards,
but I think it has got to be explicit.
Chairman: If the RIAs are supposed to
have a sustainability dimension to them, not exposing an increase
in electricity requirements of almost a quarter seems to me to
drive a coach and horses through the whole idea. Whatever the
costs might be, the fact is that is not a sustainable policy change
to achieve other perhaps desirable objectives.
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