SUPPLEMENTARY
MEMORANDUM SUBMITTED
BY OFWAT
(DFWMB 25A).
The Consumer Council for Water have told us
that the draft Bill should not impose additional burdens on water
bills, and do not want to see water customers paying for improvements
that others require or will benefit from. CCW argues that the
regulatory impact assessments do not make clear what it is that
water customers may be asked to pay for, whether those costs are
fairly apportioned and what benefits water customers would receive
for their money. What assessment have you made of the impact of
the draft Bill on the water companies and consumers?.
The impact assessments being carried out for
the Bill have been led by Defra and we have provided data and
information to assist that. An impact assessment of the totality
of the Bill is difficult at this point. We are continuing to discuss
with Defra the potential impact on water customers, because we
are unclear on how some of the clauses will operate. We hope to
address this point in our consultation response to Defra.
Where do you think the draft Bill is unclear
about what costs will fall upon the water companies and consumers,
and how might the draft Bill be made clearer in this regard?.
In our written evidence we highlighted a number
of specific concerns under the heading of flood risk management
and drainage. We think that the clauses highlighted in our written
evidence potentially expose water customers to unquantified costs
for uncertain benefits. Our concern is that where one body, be
it the Environment Agency or a local authority, can make a decision
that a water company must adopt the agencies that are making that
decision are divorced from the cost implications on water customers.
We are working with Defra, Environment Agency
and other stakeholders to resolve our concerns and to make sure
that we all have a clear understanding of the way in which the
bill proposals will operate in practice and how they will impact
on customers.
It has been suggested that Clause 241 would
effectively prevent existing water companies from tendering for
certain infrastructure projects. Could you explain whether that
is correct, if not, how the clause would work, and if so, the
rationale for those provisions?
The legislation gives the Secretary of State
or Welsh Ministers the power to develop regulation. This would
require companies to engage in a competitive tendering process
to procure the services of a specialist third party infrastructure
service provider. Under these regulations the Secretary of State
or Welsh Minister and Ofwat would have the power to specify that
a particular infrastructure project should be financed and carried
out by a third party infrastructure service provider instead of
the company itself.
This would not prevent an associate or parent
company from being involved in a consortium bidding in that tender
process. There would need to be checks and balances to ensure
the procurement process was undertaken in a fair manner and should
the consortium containing the associate or parent company win
the tender process there are provisions in the existing companies'
conditions of appointment to ensure customers of the water undertaker
or sewerage undertaker are protected.
The rationale for these provisions are clearly
set out in the consultation paper accompanying the Bill. It explains
that the proposals offer a framework to maximise competition in
the tendering process for finance costs as well as the construction
and operational costs of large infrastructure projects. It permits
competition by debt and equity providers in the willingness to
price and bear risks in the project. Where appropriate it should
reveal a market tested project cost of finance and a single project
focus could offer greater certainty of outturn cost and project
timetable, which will reduce the risk of major cost overruns and
ease financial concerns.
One of the water companies, when they gave oral
evidence to us recently, suggested that an alternative approach
that might be considered would be for the companies to provide,
operate and maintain SUDs, rather than the local authorities as
proposed in the draft Bill. Could you let us have your views on
the pros and cons of such a proposition?.
We support the use of sustainable drainage systems
(SUDS) are a way of reducing or more effectively managing the
flow of surface water into the sewer network and we support more
use of SUDS. Their increased use will help reduce pressures on
the underground network, prevent future emergence of sewer flooding
risks and improve the way surface water is managed. They may also
provide other benefits such as providing improved water quality
and a better environment which supports more wildlife. Open spaces
used by the SUDS may also be used as an amenity by the local community,
although there may be health and safety issues relating to bodies
of surface water.
We disagree with the assumption in the Draft
Flood and Water Management Bill consultation that responsibility
for the adoption and management of all SUDS.
features should (or could) be made the responsibility
of Local Authorities. The term "SUDS" covers a wide
range of features and assets, with varying characteristics. The
management and maintenance of surface landscape features raises
very different.
Issues and demands to more "engineered"
underground assets. Some SUDS serve dual functions (eg pervious
surfaces act both to provide an appropriate surface and to promote
infiltration) while others are specific to a purely drainage function.
Given their heterogeneity, and in many cases their dual function,
we believe it is an oversimplification to attempt imposing all
responsibility for all SUDS features onto a single body. We would
also anticipate that any attempt to legally define "SUDS"
would raise a range of difficult practical and definitional issues.
The current Interim Code of Practice for SUDS
(developed by the National SUDS Working Group) contains details
of how different kinds of SUDS can be adopted and maintained by
local authorities, highways authorities and sewerage undertakers.
In principle this appears operable and the reasons holding back
the more widespread use of SUDS may relate more to issues such
as:
The lack of incentives on developers in particular
to install SUDS features (which could be subject to major change
by amending the automatic right to connect to the public sewer).
The lack of clear regulatory guidance for sewerage
undertakers (which we would be willing to engage in addressing
from a regulatory perspective)
Lack of understanding of the role of SUDS and
likely maintenance demands among local authorities (which could
be addressed through the development of the SWMP system).
Most SUDS are likely to be built at the time
land is developed or redeveloped. In these cases the developer
is likely to be responsible for the construction of the drainage,
but arrangements will need to be made for the long term operation
and maintenance of the SUDS. Without maintenance the SUDS effectiveness
will be reduced and ultimately may no longer provide any drainage
benefits.
We would favour developing current arrangements
alongside a review of the right to connect. We believe that the
following considerations are relevant:
Local authorities appear best placed to take
responsibility for adopting and maintaining landscape features
and surfacing that are designed into open or public spaces within
developments. This fits with local authorities existing urban
landscape management functions.
Highways authorities appear best placed to adopt
and maintain features that are directly driven by management of
surface water from highways surfaces and that form part and parcel
of the design of public highways.
Sewerage undertakers appear best placed to adopt
engineered features and equipment that connect to the public sewer
network and can be adopted under the provisions of the Water Industry
Act (this includes those SUDS components and features outlined
in the SUDS code of practice). This lines up with their existing
statutory duty to develop and maintain sewers. We do not believe
that sewerage undertakers are well-placed to take on responsibilities
for managing public spaces and landscape features, particular
on land which they do not own and over which they do not control
access. Attempting to load responsibility for "all SUDS"
(however that might be defined) onto sewerage undertakers would
constitute a major change in the role and responsibilities of
undertakers, and carry the risk of significant ambiguity and overlap
with local authorities existing roles.
Ofwat recently published a "Review of regulatory
and legal options for reducing surface water in sewers" this
review was undertaken by Mott MacDonald consultants who were engaged
by Ofwat. The report was published on Ofwat's website on the 27 May
2009 alongside RD 09/09.
The report covers many of the issues raised
by your query and includes a review of the various ownership structures
which could be adopted. Section 4.5 of this report covers
the ownership models and the positive and negative benefits of
each approach.
Demand management of surface water runoff at
source is critical to the future management of drainage and flooding
issues. The drainage of highway and public spaces currently contribute
significantly to surface water runoff however there is currently
no financial linkage between cause and effect (and hence no incentive
to manage or reduce surface water runoff). The creation of such
charging regimes is currently being explored by the Walker review,
we believe there is some merit in this approach as it potentially
incentivises a reduction in surface water runoff by the management
of rainwater at source. We would encourage further exploration
of this incentive mechanism in order to understand the benefits
to consumers.
We will to continue to work with relevant stakeholders
to clarify whether there are legal or regulatory barriers to the
effective uptake of SUDS, and to promote the uptake of an appropriate
role by sewerage undertakers.
This current review of arrangements for SUDS
should work towards ensuring that all the relevant parties gain
a clear understanding of roles and responsibilities. The same
arrangements should apply nationally.
Clear ownership and responsibility of existing
sustainable drainage systems is needed, and the parties responsible
apportioned. This would ensure that any schemes continue to work
in the way they were designed. All schemes should be implemented
by, and take account of, a holistic view of surface water drainage.
It needs to be understood by parties benefiting from SUDS that
the schemes are in place to manage water and should not be seen
as a total flood defence solution.
Ofwat
June 2009
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