The draft National Policy Statement on Waste Water

Written evidence submitted by Ofwat (WWnps 05)

Executive summary

The draft National Policy Statement for Waste Water has been published under the Planning Act 2008. The Act and the draft statement set out the criteria for nationally significant infrastructure, which is to be considered by the Infrastructure Planning Commission or its successor body. This is intended to avoid delays in delivering this infrastructure that the existing planning process causes.

The threshold for waste water projects is set very high. It will only apply to sewage treatment works that serve more than 500,000 people. Given this high threshold, very few projects will be covered. In fact, only one project of the £12 billion of capital investment in sewerage assets over the next five years is expected to meet these criteria.

The Secretary of State will also be able to use the planning process provided for in the 2008 Act for other projects considered to be of national significance. It is not clear what criteria will be applied when considering which of the additional projects that do not meet the criteria set out in the Act will be included. We would welcome clarity on this issue. At present, the only such additional project to be included is the Thames Tideway Tunnel.

For more than 20 years, our regulation of the water and sewerage sectors in England and Wales has ensured that critical infrastructure is effectively delivered at an efficient, low cost to customers. This has been achieved by providing the stability required to allow the companies to raise affordable finance and by regulating to reward efficiency.

This has meant that the companies have been able to invest both to maintain the levels of service expected of them and to make required improvements and increase capacity. Since privatisation in 1989, the companies have invested about £90 billion, with about £46 billion invested in sewerage alone. Through the double benefit of affordable capital and efficiency incentives, customers’ bills are about a third lower than they would otherwise have been, saving the average household £110 each year.

As the economic regulator we regularly set price limits for the companies. These limits cap the amount companies can charge their customers and set out the outcomes that they must deliver. During this process companies outline their plan for the maintenance and enhancement of their assets. This is known as the asset management plan or AMP. At the last price review in 2009, we approved plans for about £22 billion of investment between 2010 and 2015, including about £6 billion for maintenance of sewerage assets alone.

During the price review process, we examine and challenge the companies’ overall programmes and their necessity, but we do not generally approve specific schemes. Rather, it is for companies to decide the most efficient and appropriate way to meet their objectives and targets. Just because a scheme is listed in a company’s asset management plan, it should not be assumed that we have agreed that it must be done or that we specifically approve of the approach that a company favours. A misinterpretation of our role in the statement would be very unhelpful and could prevent the Infrastructure Planning Commission from applying its own rigorous scrutiny to schemes.

The draft statement also considers the factors that might lead to the development of new waste water infrastructure. In general, these drivers are well considered. But there is scope to include greater consideration of the need for improved resilience-both from natural and man-made disasters-in the sewerage network.

The statement should also include a more balanced approach to other drivers, particularly the age of the existing network. Age is not necessarily a good indicator of the need for replacement. Rather, it is more important to understand the condition of the existing assets before a decision is made to replace or improve them. For example, Victorian sewers constructed to a high standard may be in a better condition than those constructed after World War II. So, the Infrastructure Planning Commission should not simply rely on age when making decisions.

Many projects that the companies carry out are to meet environmental requirements. For example, they may be needed to reduce pollution or ensure that damage caused by changes in climate is reduced. These requirements can sometimes lead to delicate balancing decisions being made, particularly when considering climate change mitigation and adaptation. It is important that the statement recognises that measures to adapt to climate change-for example, the Thames Tideway-can have significant carbon impacts which may undermine mitigation efforts.

When considering infrastructure in the water and sewerage sectors, it is essential to remember that it is customers who have to pay for any maintenance and improvements through higher bills. As such, the full costs and benefits of any investment should be carefully considered. This is particularly relevant if the planning process imposes specific requirements, such as the need for ‘good design’ in the draft statement.

The need to protect customers from bill increases caused by unnecessary, wasteful or inefficient development is one of our primary concerns as we exercise our function to protect consumers.

Introduction

1. We welcome the draft National Policy Statement for Waste Water (‘the statement’), which has been published under the Planning Act 2008.

2. As the economic regulator for the monopoly water and sewage sectors in England and Wales, we are responsible for setting price limits that enable the companies to meet their customers’ needs by financing efficient capital and operating expenditure. Between now and 2015, the companies will invest about £12 billion in sewerage assets alone (from a total of £22 billion for the period for which current price limits apply). This will help to maintain and enhance sewerage assets to meet the challenges of new water quality legislation, climate change and population growth.

3. It is very important that the appropriate planning processes are in place. This will allow the appropriate parties to make effective and timely decisions on significant investment in this essential infrastructure.

4. Because we do not approve individual schemes, it is not appropriate for us to make assumptions about when assets should be replaced based on our price limit settlement. We recommend that the statement examines each relevant scheme on its merits.

5. The 500,000 the population equivalent threshold set out in the Planning Act 2008 is high. This restricts the number of waste water schemes that are applicable using the statement. In fact, proposals for just one sewage treatment works (Deephams) meets this criterion for the five-year period for which we set price limits in November 2009.

6. As the draft statement recognises, the Thames Tideway scheme does not meet the criteria in the legislation. There are two reasons for this-it does not meet the population equivalent threshold set out in the Act and it is not a treatment project. Including this project raises questions about the criteria the Secretary of State will use when determining which types of scheme (other than those as set out in the legislation) will be considered using the statement. We would welcome greater clarity on the types of schemes which may be covered in the future.

7. We have comments on a number of specific questions set out in the consultation, which are set out below. We also have some general comments on the criteria as set out in the Planning Act 2008 and the draft statement. We do not address questions that we consider are not relevant to our role. As with the draft statement itself, where we refer to the Infrastructure Planning Commission (IPC) our comments will be equally applicable to the successor body.

Response to consultation questions

Question 6.1: Do you think this draft Waste Water NPS clearly establishes the need for such infrastructure for those considering nationally significant projects in this area?

8. The draft statement sets out the need for nationally significant waste water infrastructure projects by identifying the main drivers of the required investment.

9. We would suggest adding resilience to the list of drivers. This is because of the potential need to extend or improve the companies’ existing assets so that levels of service can be maintained (either fully or in part) in the event of flooding or some other disaster.

10. While the need for nationally significant projects exists, justification is on the merits of each case. The statement should not make or imply assumptions about asset lives and replacement needs based on our price limit settlements.

11. We expect each company to properly maintain and manage its assets in the most economic and efficient manner. It is their responsibility to identify, prioritise and carry out the necessary work to ensure that they do this.

12. We mainly use our annual serviceability assessments to hold the companies to account. This ensures that the assets remain fit for purpose for both customers today and future generations.

13. Since privatisation in 1989, the water and sewerage sectors have invested substantially to improve and maintain their assets, as well as to meet the requirements of new water quality legislation. Investment to maintain service and environmental performance has risen in recent years. As part of the £12 billion that the companies will invest in sewerage between now and 2015, about £6 billion will be spent on maintenance-an increase of some 44% in real terms.

14. Our assessments show that sewerage assets in England and Wales are stable in more companies then ever before. But we are not complacent. That is why we allowed for this investment in the sewerage service at the last price review to maintain the stable position for the next five years. We expect that continuing investment of this order will be needed to maintain existing assets.

15. A key issue for sewers is capacity in the networks. This requires high-quality routine maintenance to ensure the sewers are kept clear so that the waste water can flow freely. Cases for sealing sewers against infiltration (which takes up significant capacity) occur occasionally, but they have rarely featured prominently in the companies’ business plans.

16. The main issue that determines the levels of re-investment is the overall rate of deterioration and the effect this has on the service capability of the assets concerned. This should be reflected in the statement. Specifically, the companies seek the optimum level needed to offset the rate of deterioration to maintain service to customers both now and in the future.

17. This requires two things-an understanding of where deterioration is taking place and a forecast of the impact of that deterioration if there is no re-investment in the assets. Price reviews provide the companies with the opportunity to present the case for re-investment. They are expected to use the industry-standard risk-based ‘common framework’ approach to capital maintenance planning.

18. The draft statement contains several references to ‘old’ and ‘Victorian’ infrastructure. This implies that significant levels of re-investment are needed simply because of the age of some of the assets. But, while significant re-investment is and will continue to be required, the age of infrastructure is generally a poor indicator of need.

19. Section 2.3.2 of the draft statement says that:

"most of the combined sewer stock is old and vulnerable to infiltration of groundwater, levels of which may vary in response to rainfall events. Without further investment in sewerage systems, we can expect to experience more frequent overflows from CSOs which could potentially lead to water quality and flooding problems if adequate investment in sewage systems is not made."

Section 2.3.7 says that

"there is also a need to maintain older infrastructure, some of which dates back to Victorian times, and where appropriate, undertake end of life cycle replacement, particularly in large towns and cities."

20. At the 2009 price review, only 16% of sewers in England and Wales were reported as Victorian. London has a larger proportion with about 21%. But it would be wrong to assume that there is a simple correlation between the age of the assets and the point at which it needs replacing.

21. Age reflects the degree of exposure to deteriorating agents. This includes:

· the ground conditions where pipes are laid:

· ground movement;

· traffic volumes; and

· the corrosiveness or abrasiveness of the liquids carried.

22. The focus is on addressing the utility or service that the sewerage networks provide.

23. So, it follows that location is the key factor that affects the rate of deterioration of individual sewers. It also determines the point when they require maintaining or replacing. Some larger assets-such as brick sewers that are large enough to walk through-can also be maintained in an appropriate condition through regular inspection and repair.

24. Some parts of these extensive networks last for longer than others and continue to provide satisfactory service. Regardless of age, sewers that perform badly are usually fixed through repair, refurbishment or renewal. The better ones have lasted. Many Victorian assets, such as the large brick sewers, perform better than uPVC (plastic) ones built after 1945. So, having ‘Victorian’ assets can be either a good or a bad thing depending on how they perform now, and, as with all other assets irrespective of age, their performance going forward.

Question 6.2: Do you think the draft Waste Water NPS adequately sets out for the Infrastructure Planning Commission the key assessment principles to inform the assessment of future waste water development applications?

25. It is important to understand that including a particular scheme in a company's asset management plan does not necessarily mean that we have approved of that individual plan or how it should be carried out. Each company uses its asset management plan to set out its future investment needs to ensure they can deliver the services they are required to provide and the improvements required of them.

26. We challenge and scrutinise each company’s plan. But they are also free to find more efficient, economic or sustainable solutions during the five-year period. They can also plan and implement additional schemes, for which we have made no allowance when we set price limits.

27. In fact, most of the companies’ investment plans are not specific to particular schemes. Of the £22 billion that the companies will invest between 2010 and 2015, about £13 billion is for capital maintenance of which about £6 billion is for sewerage services. This is not specific to particular schemes, and it is for each company to determine how it will deliver its investment plans within our price limit assumptions.

28. In a few cases (called ‘exceptional items’), we will set a specific output. This is relatively uncommon and not in the public domain. It would be for the company to advise the IPC if we were treating one of its schemes as an exceptional item.

29. Our price limits also allow for service enhancements and additional capacity for growth. While we challenge these needs through the price review process, the spending assumption is at company level and is not necessarily scheme specific. In some cases, we set the objectives-for example, the service enhancement to reduce the risk of flooding from sewers. It is the companies’ responsibility to determine its priorities and the work required to achieve them.

30. In short, just because a company lists a scheme in its asset management plan, it should not be assumed that we have agreed that it must be done or that we specifically approve of the approach that the company favours. We (and others) set the outcomes that the company must deliver. Decisions on what work is needed is a matter for the company.

31. So, we would expect the IPC to consider applications in this context. We would also expect it to examine and challenge (if necessary) the supporting evidence. The IPC must satisfy itself of the need and scope of the particular projects proposed in each case, rather than assuming this has been done as part of the price review process.

32. The draft statement refers to population growth and urbanisation as a driver for new infrastructure. We think that while large-scale development will require new infrastructure, growth from existing customers, infill and increased impermeable areas can be addressed at a local level. Local enhancements to the existing infrastructure can make better use of existing capacity. This may include works to exclude or reduce the impact of surface water from the sewerage system.

33. We are also concerned that the draft statement does not outline the extent to which the IPC should challenge the underlying information it receives. This is particularly significant for information that is supposed to justify the need, timing and scope of projects put forward. For example, it is not clear how much the IPC will challenge the underlying basis supporting any forecasting, including any surrounding uncertainties.

Question 6.3: Do you think the draft Waste Water NPS adequately sets out for the Infrastructure Planning Commission on how they should consider alternatives when it comes to particular projects?

34. Despite efforts to mitigate climate change, past emissions will inevitably lead to further changes to the environment and the climate. We think that any consideration of schemes and possible alternatives should consider the long-term uncertainty and risks of future climate change. We have explored this further in our response to question 6.5 below.

35. We also believe that the statement should make it clear that any appraisal of alternatives should consider the carbon impact from both operational and embedded emissions. The scope for energy and carbon savings of any alternatives should be made explicit.

Question 6.4: Do you think the draft Waste Water NPS gives appropriate guidance to decision makers on how they should assess the need to consider ‘Good Design’ for waste water infrastructure?

36. The draft statement emphasises the importance of good aesthetic design. It states that, while regard should be made to regulatory and other constraints, developments should be "as attractive… as they can be". In principle, we consider that decisions on whether to impose stringent planning requirements on treatment works should rest with Government rather than local planning authorities and the water companies. It follows that the IPC should have this responsibility in the case of nationally significant infrastructure.

37. Stringent requirements are those that would result in substantial costs over and above those for more conventional solutions that have been tailored to reasonable local needs. Although the benefits of visually appealing development will accrue to those living and working in the immediate vicinity, it is the entire customer base of the relevant water company that bears the cost in the form of higher bills.

38. For this reason, if a company wants the costs arising from stringent planning requirements to be recognised in price limits, either at a price review or in an interim determination, we require it to challenge the planning authority’s decision. In such circumstances, we would regard the reasonable net additional costs associated with the Secretary of State’s final decision as a ‘relevant change of circumstance’.

39. There are some particular examples of how high the costs of planning requirements to improve the aesthetics of a waste water development can be. In 2002, enclosing a new sewage treatment works in the Anglian region to eliminate odour reportedly cost about 50% more than that of an open works. Even though the population equivalent served by the works was only 66,000-barely 13% of the threshold at which the Statement applies-the total cost of the project was reported to be £76.3 million. The ongoing operational and maintenance costs of this sewage treatment works was also far higher than normal. This is because of the need to deal with the toxic and corrosive effects of the atmosphere contained within the structure.

40. The delayed Brighton sewage treatment works (discussed in more detail below) provides a more recent example. Here, landscaping requirements involving earthworks and a planning requirement for a ‘green roof‘ imposed in 2008 have added approximately £50 million to the cost of the new treatment works under construction.

41. So, we think that unqualified statements in the guidance such as "the development should… be as visually attractive as possible" could lead to confusion. In light of the high cost of stringent planning requirements, we consider that references to "other constraints" in section 5.5.2 should be strengthened significantly. We think that the statement should be explicit in requiring the IPC to have regard to the affordability of aspects of the design driven by aesthetics and to weigh the associated costs against the benefits.

42. Section 5.12 of the statement considers national security issues. But it does not discuss the Cabinet Office’s recent work on the protection of critical national infrastructure from natural hazards. We think this is relevant as security is much wider than just protection from physical attacks. The statement would benefit from referencing the Cabinet Office’s guidance.

43. The guidance was issued for regulators in the form of a strategic framework and policy statement in March 2010. This recommended standards for protecting critical national infrastructure against extreme flood events. There are similarities between the definition of critical national infrastructure and the definition of infrastructure under consideration in the draft Statement. So, it would be sensible to ensure that the standards the Cabinet Office recommended are considered as part of the statement.

44. Innovation can often reduce the unfavourable aesthetic impacts of waste water infrastructure, as well as helping to control costs. We think it would be helpful to test the scope for innovation-and economic ‘good’-by asking how much of the proposal comes from employing traditional means and the extent to which it improves the environment or productivity by applying a new process or positive management action.

Question 6.5: It is a requirement of the Planning Act that an NPS must include an explanation of how the policy set out in the statement takes account of Government policy relating to the mitigation of, and adaptation to, climate change. Do you think the draft Waste Water NPS adequately fulfils this requirement?

Mitigation

45. The consideration of climate change mitigation through reducing greenhouse gas emissions in the draft statement could be strengthened. The overarching context only describes a policy instrument that may not be relevant to the sewerage sector in England and Wales.

46. The draft statement refers to the objective to "help deliver the UK’s obligation to reduce greenhouse gas emissions by 80% by 2050 and work to carbon budgets stemming from the Climate Change Act 2008, within the context of the EU Emissions Trading System". This is a Europe-wide cap and trade scheme where companies are obliged to purchase allowances for the emissions for which they are responsible. But the scheme only covers half of the UK’s emissions and most water company sites are not covered by it. We are surprised that there is no discussion of other policy instruments that incentivise emissions reduction.

47. We think that the treatment of mitigation in the statement would benefit from a much clearer link between the Government’s overall objectives and the specific objectives for waste water. The link could be made through reference to Departmental Adaptation Plans (DAP). In this case it is Defra’s DAP which includes emissions from waste water.

48. There is also no discussion of embedded (embodied) emissions in the draft statement. This is an important issue because:

· embedded emissions are large for the water and sewerage sectors-making up about a third of the total. This accounts for about 0.4% of the UK’s total emissions; and

· large asset-intensive projects, such as the Thames Tideway, have significant embedded emissions associated with them which can run contrary to wider environmental objectives.

49. We discuss these issues further in our response to question 6.10.

Adaptation

50. As mentioned above, we think that it would be prudent to test all the options that are under consideration against future climate change scenarios. Carrying out this exercise could reveal that some options are actually more ‘climate proof‘ than others in the face of future extreme weather events.

51. It is also recommended that ‘critical design features‘ of the preferred solution should be tested against radical changes in climate that lie outside of the UKCP09 scenarios. This could prove to be a very difficult task to carry out as the science in this area is continually changing and improving.

52. Also, this exercise may be unnecessary as there could be far greater non-weather related risks to the infrastructure that are not being specifically scrutinised. We think that it would make more sense to apply a risk-based approach to whether more radical climate scenarios are used.

53. As a result, we think that the recommendations to look at both UKCP09 and more radical climate change scenarios send out mixed messages. It would add clarity to recommend one key source of climate change data.

54. We also think that consideration of climate change adaptation measures would benefit from including the ‘adaptation pathways‘ approach (that the UK Climate Impacts Programme has promoted). This approach involves testing the robustness of solutions against a variety of future climate change scenarios and considering what adaptation measures could be applied at various points in time to cope with pressures. This would help to highlight the potential adjustments and levels of flexibility that apply to the chosen option.

Question 6.6: Have all the potential environmental impacts of waste water development, and options for their mitigation, been identified in the Assessment Principles and Generic Impacts chapter of the draft Waste Water National Policy Statement?

55. One of the key objections to sewage works is the level of odour that can come from them. This can be mitigated to some extent, but at a cost. While the draft statement requires the companies to consider odour, we think it would be helpful to provide guidance on what is to be regarded as reasonable levels of odour control. The guidance should also consider the proximity to residential and industrial premises.

Question 6.7: Do you think the draft Waste Water National Policy Statement considers all the significant potential impacts of waste water development? If not, what do you think is missing and why?

56. See our response to question 6.6 above.

Question 6.8: Do you think that the two schemes outlined by the draft Waste Water National Policy Statement capture the level of need for nationally significant infrastructure in this area? If not, what further schemes should be included?

57. As we discussed in the introduction, the criteria that must be met for infrastructure to be included in the statement means that very few schemes are likely to be eligible. Had this statement been in place at privatisation in 1989, it is unlikely that more than one or two of the several thousand waste water treatment projects since then would have been included in it. So, it would appear that the statement has no implications for most of the investment programmes that the companies have carried out. It would also appear that any benefits brought about by the statement are largely theoretical.

58. One of the principal aims of the statement is to "remove the need for lengthy planning inquiries on fundamental policy questions at the application stage". But, the implication of the population equivalent threshold is that the existence of such a statement would have done nothing, for example, to accelerate the delivery of the long-delayed construction of the Brighton & Hove sewage treatment works, which will serve a population equivalent of about 300,000. We now expect completion of this scheme in 2013, some 13 years after the legal deadline in the Urban Waste Water Treatment Regulations. This scheme is the subject of current infraction proceedings by the European Commission against the UK because of the protracted delay.

59. As we have already noted, in future the Secretary of State may wish to add types of schemes that do not strictly qualify under the criteria. Greater clarity on the assessment criteria likely to be used in these circumstances is essential.

Question 6.9: Do you think that the Government should formally approve ("Designate") the draft National Policy Statement for Waste Water?

60. Subject to our comments in this consultation response, it would be appropriate for Ministers to approve a National Policy Statement for Waste Water under the requirements of the Planning Act 2008.

Appraisal of sustainability report

Question 6.10: Do you believe that the appraisal identified the likely significant sustainability effects associated with the draft Waste Water NPS? If not, what effects do you feel are not correctly identified and why?

61. We think that combining climate change adaptation and mitigation together risks making a fair appraisal very difficult. Combining the two could be counter-productive, with the positives and negatives cancelling each other out. This is clearly the case for the specific assessments of the Deephams sewage treatment works and the Thames Tideway, where positive adaptation impacts hide the negative mitigation impacts. The sustainability assessment would be greatly improved if climate change adaptation and mitigation were split into separate categories.

62. This is illustrated in section 5.3 of the sustainability assessment where it states that "there are no significant adverse effects identified". This is clearly not the case for climate change mitigation where a large increase in operational and embedded emissions is associated with the schemes. But when the assessment methodology impact is applied, this negative impact is shrouded by the positive adaptation benefits.

63. The appraisal of sustainability report contains no discussion of the trade-offs that have to be made between improving local environment quality, through meeting standards set by European Directives, and global environmental damage from greenhouse gas emissions. This is a strategic level issue and we think that the statement is an appropriate place to set out these key issues and make recommendations on how to balance them in a sustainable way. We are concerned that this may be a significant omission from the sustainability assessment.

64. In the full sustainability assessment (Annex 3c, E1.7), it states that:

"Consideration should be given to making explicit the requirement for on-site renewable energy provision up to 2020 and beyond including through the use of obligations. In addition, policy wording could be included to give favourable consideration to new development that incorporates the use of leading edge renewable energy technologies."

65. Clearly, while the statement should not block carbon reduction measures it is important to note that the companies have a range of options available to them to reduce their greenhouse gas emissions. It may not be the most beneficial solution to carry these out as part of schemes that the statement is considering.

66. It also may not be appropriate to use certain technologies in some situations. So, we do not recommend that statement includes wording to encourage specific solutions. This may give the impression that it is "picking winners" when it comes to technology selection.

67. In the summary for climate change for the TT (Annex 3.c E1.7.2) it states:

"However, there are likely to be negative effects in relation to an increase in emissions from traffic during both the construction and operation of the scheme (as summarised under the air quality objective)."

68. In the air quality objective it is clear that greenhouse gas emission are not included in the discussion. Therefore, the above text, given its position in the climate change section, may be misleading as it gives the impression that more consideration of greenhouse gas emissions takes place elsewhere, when it does not seem to.

Question 6.14. Do you agree with the conclusions and recommendations of the Report of the Appraisal of Sustainability of the draft Waste Water NPS?

69. As discussed above in our response to question 6.10, we think that the consideration of climate change mitigation is incomplete. We recommend that climate change adaptation and mitigation are treated separately in the appraisal of sustainability report.

January 2011