Examination of Witnesses (Questions 60-79)
SIR MICHAEL
PITT
9 FEBRUARY 2009
Q60 Mr Drew: What has the Government
done—we have this natural hazards team yet to be formed—to
draw attention to the fact that some of these in due course of
time ought to be moved?
Sir Michael Pitt: We know that
there are already some good examples of where companies have taken
action to protect particular sites, for example the provision
of barriers around sites to keep them reasonably dry in the case
of flooding. We know that companies have been reviewing all of
their critical infrastructure sites. It is not possible for them
to implement all those changes all at once, but they are now having
capital programmes to provide additional protection for critical
infrastructure. We know that there are single points of failure:
the loss of one site means that large areas of population are
without essential services, and we need to encourage those companies
to provide alternative sources of supply to give high levels of
protection to the populations concerned. Those conversations,
I know, are going on between central Government and those companies.
We have to wait and see the extent to which they will be given
the funding they will need to undertake protection works for that
infrastructure.
Q61 Mr Drew: I suppose my worry is
that this is 18 months on, and the real concern was not that water
was coming over the surface—it is the reality that water
was coming from below the surface.
Sir Michael Pitt: Yes.
Q62 Mr Drew: That is what the real
worry was in terms of the electricity station in Gloucester. It
was flooding from below.
Sir Michael Pitt: That is right.
Q63 Mr Drew: That is indicative of
it being in the wrong place probably.
Sir Michael Pitt: Yes.
Q64 Mr Drew: Let us just park that.
I suppose the other worry is—who pays for this? If I am
a water company and there is the issue of sewers, and that has
to be dealt with, but more particularly the threat to the fresh
water—I have got real capital requirements being put upon
me; similarly with electricity and gas: how do you anticipate
this being paid for and have you any real traction over what you
will be saying to the Cabinet committee on the way in which this
can be done?
Sir Michael Pitt: The capital
expenditure of water and electricity companies and the National
Grid is going to be paid for through the water and electricity
bills that we all have to pay. There is no other source, I suspect,
that can be deployed.
Q65 Mr Drew: You are saying nothing
can be done until the legislation is in place!
Sir Michael Pitt: No, I think
that expenditure can be done as soon as the financial regulators
agree to the adjustments in water bills and electricity bills
to provide enough funding for those capital projects. This does
not rest directly in the hands of Government; it rests in the
hands of the financial regulators—Ofwat for example has
been considering the various bids and proposals from the water
companies, and I know that further work is being done on their
plans to check them out.
Q66 Mr Drew: Have you got one example
where a water company, an energy company, has gone through this
process and said, "We have got to consider a facility for
principal infrastructure; it is in the wrong place; we have got
to move it, or at least we have to replicate it so that if it
goes down there is a pipeline, there is a grid connection that
we can action somewhere else in the system that will allow us
to circumvent that"? Have you got any examples of where that
has happened?
Sir Michael Pitt: There are examples
of where barriers have been placed around critical national infrastructure
sites to protect them from the risk of flooding. The logic of
this is quite straightforward. I would expect those companies
to be reviewing all of their critical infrastructure, right across
the ownership of the whole of the company, making choices about
where value-for-money investments have to be made to protect certain
sites, and then putting forward their proposals to the financial
regulator to see if they can get approval for those programmes
of work; and then the cost of that, as we said before, will fall
on the consumers of the water itself.
Q67 Chairman: Can I stop you there
because there is this sort of easy idea that the customer is ultimately
the fall guy for this! Let me just put this scenario to you. If
you were starting afresh and you were going to start an electricity
or water supply company, and one did not exist; you would go and
get some shareholders' money; you would build your company and
the infrastructure, and you would then offer the services to customers.
It does seem to me that the companies in this case—they
are not starting afresh, but they are having to do something to
protect their ability to continue to do business on behalf of
their shareholders. Why should the shareholders of the company
not take at least some of the burden of protecting the company's
assets to enable the company to carry on being in a position to
offer the product of water or electricity to the consumer? Why
is it automatically that the consumer has to pay, when without
that infrastructure being properly protected the company does
not have a business?
Sir Michael Pitt: I am going to
say at this point that you are asking the wrong person because
I do not know the answer to that question.
Q68 Chairman: Do you have a view?
You may not have the answer but do you have a view? You said,
"and this will be passed on through the Ofwat process to
the customer", and I challenged that.
Sir Michael Pitt: That is my understanding
of how the system normally works. I cannot see an easy way around
this.
Q69 Paddy Tipping: The company should
pay.
Sir Michael Pitt: The company
should pay?
Q70 Paddy Tipping: Yes, of course
it should. Why should I pay? If they have got dividends, they
have been paying out dividends—let them pay!
Sir Michael Pitt: I guess that
is a commercial decision that the company would have to make,
and I would not feel qualified to make it on their behalf. All
that one can be very clear about is that in order to protect the
population of the country, more money needs to be spent on protecting
critical national infrastructure, and however that is financed—fine,
I do not really mind. All I know is that that is the direction
that has to be taken.
Q71 Miss McIntosh: The market has
changed and it is not so easy to go to the market. That is the
first thing the companies would say; but, more alarmingly, they
have identified with the Environment Agency, as I understand,
a whole raft of programmes in each area that need to be done to
withstand a similar flood to particularly—is it Walham in
Gloucestershire? I hate to think of my friend being under water!
Sir Michael Pitt: ... yes.
Q72 Miss McIntosh: They were under
water. But Ofwat apparently may intervene and say, "this
is too much for the customer to stand".
Sir Michael Pitt: That is right.
Q73 Miss McIntosh: Which comes first,
the safety to prevent people from being flooded should these fail—whether
it is electricity, water or gas—or Ofwat saying—I
take the point that in ideal circumstances they should go to the
market, but if the market is not there for them, then the Environment
Agency, as I understand it, has asked them to do this programme,
and now they might be prevented from undertaking it.
Sir Michael Pitt: My understanding
is that that is exactly what the role of the regulator is, to
make that judgment. I know that the plans that are submitted by
the water companies, for example, are reviewed by Ofwat. They
use consultants usually to check out those plans. They will ask
challenging questions back to the companies about the plans that
are being proposed, and ultimately have to come to a conclusion
about what is affordable from the point of view of the consumer.
It is a very, very difficult choice.
Q74 Mr Drew: I suppose my worry is
that we are 18 months on now; none of us quite knows what has
been submitted, what has been costed and how that will work out
in practice. It is not unknown for a water company to delay this,
for Ofwat to sit on it, for Defra to say "nothing much happening
here, so there is not a problem". I think, in a sense, one
of your key roles—and this will be more than two days a
week—is to sit down and say to a water company, "show
me what you have done; show me where you have moved a facility,
critical infrastructure; show me where you have protected one;
and where are you satisfied that this is not going to be a problem;
you have done a risk assessment—the very small number that
were outside the risk area."
Sir Michael Pitt: I am sure that
there are officials that are doing that work. It is certainly
not something that I am engaged in personally at the moment.
Q75 Mr Drew: So somebody somewhere
is doing it, but we are not quite sure who they are?
Sir Michael Pitt: Yes.
Q76 Mr Drew: Given that we know we
do not have the natural hazards team in place, the Cabinet sub-committee
that has not met—it goes back to what the Chairman said:
who is kicking backsides to say this is really happening?
Sir Michael Pitt: I am sure we
can discover who is involved in this and give you an answer to
that question, but I am not equipped to do that today.
Q77 Mr Drew: Maybe you will write
to us.
Sir Michael Pitt: If you invite
me to write in!
Q78 Mr Williams: Your committee recommended
that reservoir and dam safety be improved. Many of the dams—and
quite a few are situated in my constituency, are of the Victorian
period—and perhaps we should welcome that because probably
the engineering and workmanship was of a very high order! Nevertheless,
people who live in the shadow of dams are obviously from time
to time a little bit concerned. As I understand it, the Environment
Agency mapping areas—that exercise should have been successfully
completed and provided to the category 1 responders by the end
of 2009. Do you think that will happen?
Sir Michael Pitt: I am quite sure
it is. I think that work has progressed very well. There are 2,100
dams and reservoirs that come into the category requiring supervising
engineers and special arrangements, and I understand that very
good progress has been made on the preparation of inundation maps;
and, as you say, they will be made available to category 1 responders
and to local resilience fora. What we have to expect is that those
LRFs are looking at contingency plans—what would happen
if that particular dam or reservoir were to suffer a breach; how
would you evacuate the area; how many properties would be at risk?
I think that this is a really important issue. We also know that
we want to have new legislation in relation to dams and reservoirs
to strengthen the existing arrangements.
Q79 Mr Williams: Would that new legislation
include the same regulations as apply to chemical factories and
nuclear sites and other high-risk areas? I think they are called
the Control of Major Accident Hazard Regulations.
Sir Michael Pitt: Yes.
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