Future Flood and Water Management Legislation

Memorandum submitted by Water UK (FFW 25)

Introduction

1. Water UK represents all UK water and wastewater service suppliers at national and European level. We are pleased to give evidence to the Efra Committee’s inquiry into future flood and water management legislation.

2. In particular, Water UK will discuss some outstanding issues from the Flood and Water Management Act 2010 (guidance to companies on introducing social tariffs and draft regulations on measures to combat bad debt) as well as five recommendations of the industry’s policy document ‘Meeting Future Challenges’ which show that there is much that could be done to benefit our customers, society as a whole, and the environment without a need for further primary legislation.

Which of the key issues covered by the consultation into the draft Flood and Water Management Bill and by the Walker and Cave reviews should be taken forward as legislative priorities

3. The real difficulty some customers face in paying their water bill (the can’t pays) and the burden placed on other customers by those who do not pay their bill (the won’t pays) are key issues for the industry. Amendments to the Flood and Water Management Bill towards the end of the last Parliamentary session began to address these concerns and they were also highlighted by Anna Walker’s Review of Charging for Household Water and Sewerage Services.

Affordability

4. Ensuring that water and sewerage services are affordable for all - especially those in genuine difficulty - is a pressing concern for companies. Section 44 of the Flood and Water Management Act 2010 allows companies to introduce social tariffs or schemes to reduce charges for individuals who would have trouble paying their bill and endorses cross-subsidisation.

5. However, companies cannot act until Ministers issue guidance on social tariffs. Water UK urges the Committee to recommend that this guidance on social tariffs is made available by government as soon as possible.

Debt

6. Bad debt is a major and growing problem for the water industry. Those customers who do pay their bill pay an extra £12 a year to make up for those who don’t pay. Part of the reason for this is that water companies cannot always get the information they need to bill their customers.

7. Section 45 of the Flood and Water Management Act 2010 introduces a requirement for owners of rented properties to supply information to a water company to identify who is the ‘liable person’ for the bill at their property. This is a good first step in tackling the debt problem.

8. We are currently awaiting draft regulations from government to implement this new requirement and would urge the Committee to recommend that the Government brings these regulations forward at the earliest opportunity.

Misconnections

9. A misconnection, in which a household drainage pipe is connected to the wrong sewer, can cause pollution and lead to sewer overloading. Sewer flooding is extremely unpleasant but - although this issue was raised in the consultation on the draft Flood and Water Management Bill - misconnections did not make it into the final Bill.

10. Water and sewerage companies do not currently have the power to redirect a misconnected pipe into the correct sewer. Instead they have to go through a time-consuming process involving the local authority. Water UK supports the proposal that gives water and sewerage companies the power to reconnect a misconnected drain themselves.

Competition

11. There are potential gains from encouraging the trading of water upstream, as highlighted by the Cave Review. More water trading would result in the more efficient use of water resources, giving customers greater security of supply at lower financial and environmental cost.

12. Progress towards capturing these gains does not need to wait for primary legislation – there are things that could be done under the current legislative framework. At present, regulatory incentives discourage companies from developing the existing market for bulk supplies which might make better use of existing supplies and offer efficiency gains by reducing the need for investment in resources and assets.

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

13. In June 2010 Water UK published ‘Meeting Future Challenges: a blueprint for policy action’ which highlights five policy areas in which the industry recommends a way forward to ensure a sustainable water industry for customers, society and the environment. There is much that could be done under the current legislative framework to deliver these key priorities, and it is important that this is done soon enough to have an impact at the next price review in 2014.

· Giving customers more influence in investment and price decisions

14. Water UK believes that there is scope for customers to have more input into the price setting process. This would ensure that customers’ priorities are better reflected in the services they receive and the bills that they pay.

· Ensuring that water and sewerage services are affordable for all

15. We have highlighted the urgent need for guidance from Ministers to allow companies to introduce social tariffs for vulnerable customers to address the pressing problem of affordability.

· A measured pace to environmental improvements which ensures that overall prices are acceptable.

16. The water industry and its customers have contributed greatly to improving the water environment over recent years. Looking forward, we must ensure that overall sustainability is not threatened by customer resistance when small environmental gains are delivered at disproportionately high cost, and that an appropriate balance is struck between managing local environmental impacts and the global environmental impact of greater energy usage.

· Renewing incentives for efficient and sustainable delivery

17. There is considerable scope for the current regulatory regime to be improved in order to deliver more for customers and the environment for less. Examples include removing the bias between capital and operating solutions, improving incentives for operating savings and incentivising exemplary environmental and sustainability performance. An innovative approach to regulation is needed to encourage sustainability and innovation.

· Ensuring access to the capital markets

18. To deliver sustainable water supplies and sewerage services, as customers expect, the industry will need to continue to attract additional financing in the coming years. It is important that the regulatory regime continues to support investor confidence and to provide companies with scope to pay new and existing investors a reasonable rate of return on investment. Without that confidence, the rates of return required by investors would increase which would inevitably impact either on sustainability programmes or on customer bills.

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)

19 As detailed above, Water UK urgently seeks guidance from Government on social tariffs (section 44 of the Act) and awaits regulations on measures to combat water debt (section 45 of the Act).

20. Water UK is responding to Defra’s consultation on the transfer of private sewers to water and sewerage companies and has been working with Defra try and resolve the many complex issues involved in the transfer. These include technical, legal and financial matters.

21. One outstanding concern in connection with the Flood and Water Management Act relates to the automatic right of connection to the public sewerage system. The Pitt Review called for this to be ended - in order to reduce surcharging, flooding and pollution from sewers - but the industry is still concerned that this recommendation is not adequately reflected in the Flood and Water Management Act 2010. Water and sewerage companies need greater discretion to permit, or disallow, connections to the public sewerage system.

Conclusion

22. Water UK is delighted to submit evidence to the Efra Committee whose report will influence the development of the Water White Paper, to be published in the summer of 2011, and looks forward to examining the issues in more detail with members of the Committee in oral evidence.

Summary

1. Water UK represents all UK water and wastewater service suppliers at national and European level.

2. Water UK highlights some outstanding issues from the Flood and Water Management Act 2010 as well as 5 recommendations of the industry’s policy document ‘Meeting Future Challenges’.

3. Section 44 of the Flood and Water Management Act 2010 allows companies to introduce social tariffs or schemes to reduce charges for individuals who would have trouble paying their bill. Water companies cannot act until Ministers issue guidance. Water UK urges the Committee to recommend that guidance on social tariffs is made available as soon as possible.

4. Section 45 of the Flood and Water Management Act 2010 introduces a requirement for owners of rented properties to supply information to a water company to identify who is the ‘liable person’ for the bill at their property. This is a good first step in tackling the bad debt problem which costs those customers who do pay their water bill an extra £12 a year. Water UK urges the Committee to recommend that draft regulations to implement this new requirement are made available as soon as possible.

5. A misconnection, in which a household drainage pipe is connected to the wrong sewer, can lead to sewer flooding which is extremely unpleasant. This issue did not make it into the final Flood and Water Management Bill. Water and sewerage companies do not currently have the power to redirect a misconnected pipe into the correct sewer and have to go through a time-consuming process involving the local authority. Water UK supports the proposal to give water and sewerage companies the power to reconnect a misconnected drain.

6. The Pitt Review called for an end to the automatic right of connection to the public sewerage system. This recommendation is not adequately reflected in the Flood and Water Management Act 2010. Water and sewerage companies need greater discretion to permit, or disallow, connections to the public sewerage system.

7. ‘Meeting Future Challenges: a blueprint for policy action’ highlights 5 policy areas in which the industry recommends a way forward to ensure a sustainable water industry for customers, society and the environment. Much could be done without a need for further primary legislation and it is important that this is done soon enough to have an impact at the next price review in 2014.

8. The industry’s priorities are:

· Giving customers more influence in investment and price decisions

· Ensuring that water and sewerage services are affordable for all

· A measured pace to environmental improvements which ensures that overall prices are acceptable.

· Renewing incentives for efficient and sustainable delivery

· Ensuring access to the capital markets

7 October 2010