Environment, Food and Rural Affairs CommitteeWritten evidence submitted by Wessex Water Services Ltd

Q1. Does the White Paper set out the right principles for customers and the water and sewerage industry for taking forward reform of the market for water supply?

1. We welcome the Government’s recognition that water is a successful sector and its commitment to maintaining investor confidence. We agree we need evolution not radical change.

2. We also believe much change can be delivered by improved incentives rather than new regulations.

3. We support many of the market reform proposals, in particular market opening for retail. This adds legitimacy to the sector in customers’ eyes. The implementation of retail needs to be low risk and proceed on a sensible timetable. We should build on the lessons and systems from Scotland.

4. We do not support the proposals for upstream market opening. These are complex and unlikely to deliver improvements to resilience and the environment. This extends to Ofwat’s proposals on sub-price caps and system operators. Instead we believe improved use of upstream resources can be better achieved by incentivising cross-border supplies. This does not need complicated market structures; instead Ofwat needs to change incentives so companies are rewarded when they buy and sell water rather than penalised (as is currently the case). This will see greater co-operation between companies and better use of existing resources.

5. We also highlight the significant issue of criminal liability for supplying wholesome water. With the proposed open access to distribution systems it is unclear how a contamination will be treated by the DWI. Currently, water companies are responsible for the quality of the water at their customers’ taps. However, multiple licensed new entrants blur responsibility. Financial costs of failure can be allocated to a negligent party via contracts, but criminal liability cannot. Any future legislation that provides for upstream entry must address this.

Q2. Are the proposals to protect and enhance water resources, for example on abstraction regime reform, likely to be fully effective?

6. Much has already been done to improve the environment where abstraction has had an impact. Licences have been reduced and mitigation has been provided, for instance by stream support.

7. Going forward, the periodic review process and the Abstraction Incentive Mechanism offer a flexible way to manage change and possible environmental impacts. The EA will also shortly have powers to vary abstraction licences where they cause serious environmental damage. Where appropriate they should use these powers rather than time-limiting all licences, which we liken to time-limiting planning permission: no developer would build a house if it could be taken down after 20 years without compensation.

Q3a. How best can the White Paper’s aims to promote water efficiency be implemented?

8. We have found a range of measures successful.

9. The most significant of these is metering. Fitting a meter when someone moves house reduces average consumption by 15% and peak consumption by over 20%. It also comes at a time when a householder’s wider financial circumstances are changing and is therefore much more acceptable to customers than mandatory metering. Government proposals should be more ambitious here.

10. Other measures include:

helping customers understand the connections between their water use, their environment and their bills—we are piloting a “Smart Community”, engaging with 1,000 customers through smart meters and other technology;

working with Green Deal providers to give customers a holistic service covering both energy and water use in the home; and

further development of water efficiency targets, including a shift from prescribed activities to overall outcomes.

11. Government should also promote more innovative and wide-ranging water efficiency measures, eg water companies installing water efficient devices in customers’ homes as part of their funded investment programme, and educational measures in the National Curriculum to instigate behavioural change.

Q3b. How best can the White Paper’s aims to promote the use of sustainable drainage be implemented?

12. The White Paper was an ideal opportunity for the Government to propose a future review of drainage responsibilities in the UK. We are disappointed that it is quiet on this subject and does not go far enough in challenging the current disaggregated approach to the nation’s drainage infrastructure.

13. Although the Flood &Water Management Act identified responsibilities that were previously unclear, it has not addressed the fundamental problems resulting from disjointed ownership, numerous funding mechanisms and multiple views of flood risk. The current arrangements continue to be a major hindrance in achieving sustainable drainage.

14. To overcome these problems, we advocate a catchment-based model for integrating ownership and responsibility for drainage assets. This would address the increasing inter-dependence between privatized sewerage companies, local authorities, internal drainage boards, riparian owners, land managers and the Environment Agency. Countries that are more progressive in this area restrict drainage responsibility to fewer parties.

15. The private sector can also play a crucial role in providing the required investment to protect the UK from climate change and more frequent flooding.

Q4. Do you support the White Paper’s proposals on affordability of water bills for householders?

16. We are disappointed with the strategy set out to deal with affordability issues. Government has suggested some piecemeal interventions in the short term but not addressed the fundamental problems.

17. We agree that water companies should have the primary responsibility for dealing with water affordability issues, but they need to be given the tools by Government to achieve this. To ensure charges are affordable for all, water companies must be able to ensure those who can pay, do pay, and to direct additional support to those who most need it.

18. Government should allow companies access to benefits data and give landlords incentives to provide details of their tenants. Existing regulatory restrictions on water companies, such as the duty to supply and the ban on disconnection, already make water companies different. In this context new regulations are neither unduly burdensome nor intrusive, and would be valuable to help achieve the Government’s objectives.

19. Introducing social tariffs should also be made easier by reducing the threshold for customer acceptability and by requiring Ofwat to not unreasonably withhold approval.

Q5. Does the White Paper omit any key issues where further policy action is required to ensure sustainable, reliable and cost-effective water supplies?

20. The proposals to allow licence modification by majority voting will result in an increase in risk with consequential increases in finance costs and, ultimately, customer bills. Companies’ individual circumstances and financial structures vary considerably and a licence condition that is acceptable to a majority may still be unacceptable to a few. Individual companies must retain a right of appeal to changes in their particular licences.

20 January 2012

Prepared 4th July 2012