Future Flood and Water Management Legislation

Memorandum submitted by Severn Trent Water (FFW 19)

Executive Summary

1 Severn Trent Water is pleased to submit evidence to this EFRA Committee inquiry.

2 Overall, we believe the Flood and Water Management Act contains much which will benefit the management of water resources and flood protection in England and Wales.

3 There are a number of areas, however, where we feel legislation is still required to ensure we can deliver the best overall outcomes for our customers and the environment. These include recommendations about facilitating water trading to deliver cost-effective water resources and better provision of services for those customers unable to afford their water bills.

4 We also believe there are a number of areas where progress towards more affordable outcomes could be made which would not require legislation, such as ensuring we invest in environmental and other service improvements only where it is clearly cost-beneficial to do so.

5 There are also provisions in the Flood and Water Management Act, where guidance is still awaited from Ministers before progress can be made, such as guidance on social tariffs.

6 Severn Trent Water recently published Changing Course (www.stwater.co.uk/changingcourse), which sets out six key recommendations for change which would ensure more sustainable outcomes in the future for customers, the environment and investors and which we believe are relevant to this inquiry. These changes are:

a. Flexible implementation of the Water Framework and other EU Directives.

b. Development of competition through water trading.

c. A more flexible approach to environmental consenting.

d. An improved price-setting process.

e. Companies driving innovation.

f. Prioritising national outcomes to deliver the sector’s strategy.

Key issues from the consultation into the draft Flood and Water Management Bill and the Walker and Cave reviews which should be taken forward as legislative priorities.

7 As a result of the Walker Review, two provisions were added to the draft Bill at a late stage, Section 44, which allows companies to introduce social tariffs to help those unable to afford their bills and Section 45, which introduced a requirement for landlords to provide information to the water company to enable identification of the liable person for the water and sewerage bill. Both of these provisions require further guidance from Ministers and we would urge that this guidance is provided at the earliest opportunity to enable companies to better tackle affordability and bad debt issues.

8 The Flood and Water Management Act gave the Environment Agency an overview of all flood and coastal erosion risk management and unitary and county councils the lead in managing the risk of all local floods. There is a concern that progress on developing and undertaking these new duties may be affected by the Government’s spending review. We believe it is important that the Environment Agency and unitary and county councils are properly resourced and funded to undertake these roles effectively.

The further policies which are required to ensure flood and water management which delivers optimum social, economic and environmental outcomes.

9 In April 2010, Severn Trent Water published Changing Course. This report recognises that regulation has achieved much success since the water industry was privatised in 1989, but sets out the new challenges which face the sector in the twenty first century, including climate change, affordability and the continuing need to finance significant investment programmes. We suggest that six key changes are required to ensure companies can continue to deliver the most sustainable outcomes for customers, the environment and investors:

a. Flexible implementation of the Water Framework and other EU Directives.

b. Development of competition through water trading.

c. A more flexible approach to environmental consenting.

d. An improved price-setting process.

e. Companies driving innovation.

f. Prioritising national outcomes to deliver the sector’s strategy.

Our modelling shows that, by adopting these changes,

· Bills would be 11% lower in 2030 than if we continue with the current course.

· Carbon emissions would decline, rather than rise, and be some 13% lower than otherwise.

· Financing would become more sustainable with lower investment and debt levels than the current course.

10 Implementing these six recommendations would not necessarily require primary legislation, but would require Government, Regulators and companies to change the way in which they work and engage with each other on policy issues.

11 On competition, we are supportive of upstream competition, as we believe it could bring the most benefits to customers and we believe that the real benefits of upstream competition (that is, the better allocation of water resources) could be accessed without the potential disbenefits of vertical separation (such as the impact on investor confidence). We have proposed a trading model which is incremental to the current industry structure and which would require minimal change to implement. Our model was quoted in the Cave Review’s final report and we have discussed it with Defra and our Regulators.

12 The Cave and Walker reviews, and Changing Course, advocate a strengthened role for customers in the price-setting process. We believe that customers should be properly represented and engaged with regarding investment and service priorities and the consequences for bills. UK Water Industry Research (UKWIR) has worked with companies, regulators and consumer bodies to scope a project on how this might work in practice and this is now being commissioned.

Any issues related to the Flood and Water Management Act 2010 (including sustainable drainage systems (SUDS) and the transfer of private sewers and lateral drains)

13 As set out in Paragraph 7 above, we are awaiting guidance from Government on social tariffs (Section 44 of the Act) and regulations on measures to combat water debt (Section 45 of the Act) and we would urge that these be provided at the earliest opportunity.

14 We are responding to Defra’s consultation on the transfer of private drains and sewers and are working to ensure we are ready for the transfer date of 1 October 2011. We support the transfer of private sewers and lateral drains to water and sewerage companies as we consider that this transfer will remove the risk of future liability and repair costs to the benefit of our customers. As well as removing uncertainty for customers, the transfer will also help promote the integrated management of the sewerage network and support the development of surface water management plans - a key recommendation from the Pitt Review to reduce the risk of flooding in urban areas.

Conclusion

15 Severn Trent Water is pleased to have this opportunity to provide evidence to the Committee. We would be delighted to provide any further detail required on the issues set out above and look forward to the Committee’s report.

7 October 2010