Examination of Witnesses (Questions 520
- 523)
WEDNESDAY 28 NOVEMBER 2007
MS REGINA
FINN AND
MR JONATHAN
HODGKIN
Q520 Chairman:
Could I close by asking you a question about who will pay in future?
In our last report in this area we obviously acknowledged the
challenge of water poverty, and whatever anybody says it is going
to cost more in future for water and sewage services to be rendered;
whatever you think about the water standard side of it there is
going to be more expense. Given also there is quite a differential
around the country about the state of the system and taking into
account the potential that extreme weather events are going to
become a regular rather than irregular part of life over this
25 year scenario, is it right that we maintain the current pricing
formula that sees individual water companies effectively visiting
upon their customers whatever costs are incurred in meeting their
forward plans, including taking into account extreme weather events,
or is there a need to think of another model where you say that
10 per cent—and I pluck that number purely for illustrative
purposes out of the air—of future investment is going to
be required to proof the system against extreme weather events
so we have to deal with that in a collective fashion, whereas
there are other types of investment, the replacement of breaking
down sewers, new water systems, curing leaks—all the other
things—which, if you like, pertain to a particular company's
area? Does the current formula make an easy bedfellow for these
potentially high levels of spending, or do we need another model?
Ms Finn: There are two aspects
there. One is the more general flood defences for society as a
whole, and certainly our view as the economic regulator would
be that water customers should not be asked to pay for that; that
the costs borne by water customers should reflect the efficient
and fair costs of ensuring that those water and waste water customers
receive a service that they are willing to pay for. That is the
broad equation that we would see as being fair and equitable.
I think the issue of water poverty along the lines of fuel poverty
is a separate social issue, and it is an issue for the United
Kingdom as a society, and there is a question as to whether or
not issues around water poverty should be dealt with like fuel
poverty or through the benefit system or mechanisms like that.
So our view broadly would be that the investment needed to protect
the continued service to water and waste water customers should
be funded by water and waste water customers to the degree they
are willing to pay for the services they receive, but that water
customers should not bear the costs of extra work outside of what
is delivering the service for them.
Q521 Chairman:
That is a very interesting statement but it is going to be quite
difficult to define the difference, if you like, between what
I would call the normal service of delivering and taking away
waste water and the protective element that has to be built into
the system to cope with potentially more extreme conditions. You
counselled us that, if you like, the norm has grown up on 1:30
year events; you counselled us that a massive rebuilding of our
sewer systems might not be the best value for money, but it is
clear that there may have to be some expenditure over and above
the norm of keeping the system turning over to cope with potential
extreme weather events, and what I cannot quite work out is how
we are going to differentiate in the future about who pays for
what under that kind of scenario?
Ms Finn: I would caution against
an automatic assumption that there has to be a huge leap in investment
in the infrastructure. I think there is a job for us all to sit
down and critically appraise what infrastructure needs to be protected,
prioritise it, and figure out how much it will cost and then test
whether customers are willing to pay for that level of protection,
and I would not jump to the assumption that that would be huge.
I think we are at the stages of developing the framework to get
the industry to do this critical evaluation, and we need to see
what the impact of that would be before making any assumption
around what it would do to bills, and I certainly would not assume
it would be a massive hike.
Q522 David Lepper:
Are you confident that, within the timeframe that we have here
of 2009 for companies submitting their proposals for the next
five-year period, the kind of work that you have been describing
to us this afternoon can be done by the water companies? I do
not mean the capital work being carried out; I mean the planning,
et cetera.
Mr Hodgkin: Insofar as water companies
are responding to the changing challenges arising from global
climate change this is a long-term issue, and maybe it would be
wrong to rush in and commit to capital works in the first five
years without having thought through a lot more about what really
needs to be done. It is the beginning of a long-term programme.
But it is worth remembering that in this event the vast majority
of the sewerage system was very robust and resilient. There were
occasions where critically focused assets, in this case pumped
drainage of sewage, caused issues, and they need to be addressed.
The Mythe flooding was, if you like, a river flood defence issue.
There are issues of resilience but we are not looking at the whole
sewerage system and saying the whole system is not fit for purpose.
Q523 Chairman:
Thank you very much indeed for a thoughtful contribution. I am
sure when it comes to looking at what you are going to be doing
about pricing in 2009 the Committee may want to probe you further
on that, but against this background this session has been very
useful. So thank you very much indeed.
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