5 Value for money
38. A number of witnesses recommended that the impacts
on water customers' bills from the construction of new waste water
projects should be considered by those tasked with examining planning
applications for Nationally Significant Infrastructure Projects.
For example, Isabel Dedring, the Mayor's Advisor on the Environment
at the GLA, told us that, while it was good for the costs of a
project to be lower than the benefits, the real question to ask
was "is it the best value thing that you could have done?"[71]
In reference to the Thames Tunnel, she considered that it was
important for the IPC to look at alternative means of developing
the project that brought down costs while "still delivering
everything it needs to deliver." She added that this information
should be publicly presented.[72]
The project costs for the Thames Tunnel have increased from an
estimated £2 billion when the scheme was originally proposed
to some £3.6 billion now.[73]
Thames Water told us that the original figure provided to Ministers
in 2007 was only a "high-level estimate" based on initial
work, and that they were "confident" that the project
could be delivered within the current estimate.[74]
Nevertheless, the scale of these cost increases is a matter of
concern and there is no certainty that costs will not rise still
further in response to as yet unforeseen problems that may arise
during construction.
39. The Consumer Council for Water (CC Water) wanted
customers, who would ultimately pay for projects, to be involved
in the decision making process for new infrastructure and for
a full cost-benefit analysis of the options to be set out.[75]
Ofwat also noted that customers have to pay for the improvements
and therefore the full costs of any investment should be carefully
considered, particularly where the planning process specified
requirements above the minimum, such as for 'good design' purposes.[76]
Ofwat's Chief Executive, Regina Finn, told us that there was a
lack of clarity in the draft NPS and that a transparent "cost-benefit
assessment process or methodology" should be put at its heart.
This would take into account social and environmental costs and
benefits and give a clearer framework to allow impacts to be considered
holistically.[77]
Defra's Deputy Director for Water Supply, John Bourne, said
that Ministers had considered such an approach but that the NPS
was not intended to be part of a business-case system and Defra
did not therefore intend to pursue this "very complicated"
approach at present.[78]
40. Ofwat did not provide us with sufficiently detailed
evidence on which to assess the extent to which it would be practicable
to incorporate cost-benefit assessments of specific projects without
adding lengthy processes to what is intended to be a streamlined
spatial planning system. Approval of the costs which can be
passed on to water and sewerage company customers is rightfully
a core Ofwat function under its current regulatory remit and it
is hard to see the benefits to be gained from duplicating this
activity within the spatial planning process. In view of the alarming
increases in estimated costs, Ofwat must fully utilise its regulatory
powers to scrutinise the economic case for the Thames Tunnel project
and be rigorous in determining which costs should be passed on
to Thames Water's customers.
Cost-benefits of impact standards
41. The draft NPS specifies standards for certain
impacts which are to be achieved by any waste water NSIP regardless
of the costs and benefits of meeting these standards in the local
circumstances of an individual project. Many witnesses, including
Water UK, challenged the standards proposed for odour since the
costs of achieving the specified standard would be "disproportional
to the benefit". The standard should be "open to discussion
and based on cost benefit analysis and customers' willingness
to pay".[79] Southern
Water Services considered that any standard on odour should be
site-specific, should be based on modelling for odour dispersion
in the locality of a proposed development, and should take into
account the willingness of customers to pay.[80]
Additionally, many technical submissions to Defra focussed on
whether the proposed odour standards were correct.[81]
42. The Planning Act requires an NPS to set out criteria
to be taken into account in the design of projects but some witnesses
questioned the unqualified requirement that applicants should
design infrastructure to be "as attractive ... as they can
be," including visually.[82]
Many witnesses wished to see this requirement for good design
balanced with the costs of achieving it. For example, Ofwat noted
that while the benefits of good design would accrue to those living
and working in the immediate vicinity of projects, it was the
whole customer base of the relevant water company which would
bear the cost in the form of higher bills. The regulator argued
that the draft NPS's reference in paragraph 5.5.2 should more
strongly reflect the need for other constraints to be taken into
account and recommended that the IPC should be required explicitly
to "have regard to the affordability of the design driven
by aesthetics and to weigh the associated costs against the benefits".[83]
It expected companies to challenge any stringent planning requirements,
including on design, if they wished to have costs of projects
allowed in regulatory price limits. The regulator permitted only
"reasonable net additional costs associated with the Secretary
of State's final decision" to be passed on to customers.
It cited examples of excessive costs such as the £50 million
green roof imposed in 2008 on the Brighton sewage works and a
50% increase in project costs arising from a planning requirement
to enclose a new sewage treatment works in the Anglian Region
in 2002.[84] In contrast
some organisations, such as the GLA, considered that the draft
NPS wording should be strengthened since some developers would
"not try hard enough to design infrastructure to minimise
its visual and other impacts".[85]
43. It is in the interests of water and sewerage
company customers as well as project applicants that the NPS should
not impede the IPC's use of its own skills and experience in judging
the standards to apply to projects. We recommend that Ministers
clarify that the NPS does not fetter the IPC or other decision
makers' ability to apply their judgement so as to impose the standards
most appropriate to the local circumstances of specific projects.
71 Q 118 Back
72
Q 119 Back
73
"Thames Tunnel sewer costs could double", Water Briefing,
23 September 2010. www.waterbriefing.org Back
74
Q 72 Back
75
Ev w4 Back
76
Ev 45 Back
77
Q 7 Back
78
Q 206 Back
79
Ev w7 Back
80
Southern Water Services, Submission to Defra NPS Consultation,
February 2011. Back
81
For example submissions from Thames Water, Chartered Institute
for Environmental Health, Ofwat. Back
82
Draft NPS, p 30, paras 5.5.2 and 5.5.3. Back
83
Ev 46 Back
84
Ev 45 Back
85
Ev 57 Back
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