Environment, Food and Rural Affairs CommitteeWritten evidence submitted by the Kelda Group

1. 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?

1.1 We welcome this comprehensive contribution on the future of the water sector and the recognition of our sector’s success. This success has been built on the principals of delivering customers with the highest levels of customer service whilst preserving the best value for money. We also welcome the changes to the special mergers regime which will allow high performing companies to deliver an even better service to a wider customer base. There are however areas where we feel the White Paper could have gone further to address the challenges facing the industry.

1.2 We welcome the White Paper’s commitment to the existing Regulatory Capital Value (RCV) mechanism and that there will be no structural change in the industry. The White Paper recognises that the stable regulatory system has built investor confidence and that future investment needs to be sought in an increasing competitive market. When implementing legislative changes stemming from the White Paper, Government must bear in mind the need to maintain stability. Increasing perceptions of risk in the minds of investors directly affects financing costs and could have a detrimental impact on customer bills.

1.3 We recognise that business customers demand a different service to domestic customers and we welcome proposals to reform this market. However, it is vital that domestic customers are not disadvantaged by the implementation of competition for business customers, and that industry risk is not adversely impacted.

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

2.1 We welcome proposals to protect and enhance water resources through abstraction regime reform and bulk trading. But these solutions must form part of a wider water resource management process and not seen in isolation. Dynamic permitting would also help to protect water resources whilst also addressing wider issues such as flooding. When considering bulk supply trading, the carbon cost of such a solution must be measured in order for the best overall environmental and economic solution to be selected. This integrated water management model could serve to address issues more holistically and this is outlined in the attached Appendix.

2.2 Population forecasts and climate change mean that water scarcity and sustainability are major national issues. We are keen to play an active part in addressing these fundamental challenges. Yorkshire Water has experience in this area, having constructed a Yorkshire water grid to improve security of supply in our own region. We also engage in some limited water trading with Severn Trent Water on our southern border, and would be happy to share our experiences of this in more detail should this be helpful to the Committee.

3. How best can the White Paper’s aims to promote water efficiency and the use of sustainable drainage be implemented?

3.1 We support water efficiency measures which have an important role to play in addressing water resource issues. Metering is the fairest way to charge for water. Water companies should be incentivised to move towards universal metering as soon as practically possible.

3.2 The regulatory duty of water companies to promote water efficiency should be strengthened. A water efficiency levy or obligation on bills could encourage customers to recognise the true value of water. More support on water efficiency is needed from outside the water industry. This could be achieved through strengthening building regulations and further incentives for water efficiency in the home.

3.3 Flooding is an issue of concern to our customers and we believe the White Paper could have gone further to tackle sustainable drainage and related issues. Sustainable drainage could be best implemented if more responsibility is given to water companies. In light of the tight squeeze on public sector finances we believe the water sector could play a greater role in addressing surface water management, for example responsibility for Sustainable Drainage Systems could be transferred to water and sewerage companies.

3.4 The White Paper focuses on resilience, but question why it does not address resilience to flooding? Managing and mitigating flood risk remains a critical issue in our region and we are willing and able to play a greater role in delivering these vital public services. We urge the Government to consider further integration which allows for greater resilience and this is covered in the attached appendix.

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

4.1 We welcome proposals to support vulnerable customers in the Water White Paper and were pleased to see Yorkshire Water’s Resolve Scheme and Community Trust used as case studies in the Paper.

4.2 Whilst water companies should be responsible for the effective implementation and management of social tariffs, the decision on who receives assistance is a matter of social policy. We strongly believe that this is a matter for Government to decide, clearly outlining which customers should benefit from a social tariff.

4.3 A national approach must be taken to identify those customers at greatest risk. If companies must dictate which customers will benefit, then access to local authority and/or government data on individual household benefits and pension credit would provide a consistent approach.

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

5.1 The White Paper could go further in ensuring that the water we provide is sustainable and safe. The integrated nature of the water cycle and the threat of increasing flooding incidents are not addressed. The Paper also fails to take into consideration the environmental/carbon cost of collecting, treating and distributing water.

5.2 Electricity costs are forecast to increase significantly over the next 18 years (to 2030). We believe these rising costs coupled with the increasing levels of market volatility are significant threats to the sector being able to provide stable, cost effective water supplies. Harmonising carbon accounting would help to cut red tape, costs and minimise emission levels.

5.3 The sector should be encouraged to do more to improve the overall environmental performance of its activities. We have the potential to generate significant amounts of renewable energy but are restricted by the current regulatory regime. We believe we should be allowed to generate energy to power our sites through means such as wind as part of the regulated business. Incentives to innovate and invest in technologies that convert waste products into energy to power our operations would be welcome.

5.4 We would like to see a water sector that is incentivised to contribute to the UK carbon emission challenge. We believe there is a greater role that the sector could play. Scottish Water is seen as being key to Scotland’s journey to a low carbon economy. We have similar resources in England and should be encouraged to support the transition to a low carbon economy.

APPENDIX

INTEGRATED WATER MANAGEMENT

Through a holistic understanding of the water cycle, our operations and the environment, we can simultaneously optimise our water resources, improve water quality and manage wastewater. We call this integrated water management and we do this by…

Building Resilience

In Yorkshire we have demonstrated that connecting a network of assets provides resilience. Our grid enables us to move water around the region to ensure security of supply. We have also invested in computer modelling to enable us to plan according to water resource need. The Water Resource Allocation Plan allows us to optimise our assets to ensure security of supply at the lowest cost. Successful bulk trading across borders will be achieved through the ability to forecast demand and plan resources.

Improving Water Quality

The White Paper endorses our integrated catchment approach to tackling water quality issues at source rather than focusing on expensive and carbon intensive treatment solutions. This approach is more sustainable, avoids increases in costs for customers and supports other ecosystems services such as biodiversity and carbon storage.

Integrating Wastewater

In Yorkshire we have found that further benefits can be brought by looking holistically at the real time management of river catchments. Our rtRIVERi (Real Time River Integration) project seeks to integrate both the water taken from rivers for drinking water and the waste water discharged into a dynamic and optimally controlled system. The intention is to deliver increased water supply security, river quality and environmental improvements as well as significant reductions in energy consumption.

Managing Surface Water

The threat that surface water can pose is all too real to communities in Yorkshire having experienced major flooding events in 2007. A subsequent flooding event in Goole in August 2011 illustrated that surface water management remains an issue despite new legislation being put in place. Further integration is needed in flood mitigation and flood risk management in order to better protect our communities.

Protecting our Communities

We would like to play a greater role in protecting our communities for the long-term by helping to deliver vital public services. Society faces ever increasing environmental challenges coupled with a squeeze on public finances. Capturing surface water before it goes into the sewerage network can prevent flooding and pollution incidents.

Generating Renewable Energy

It is our aspiration to maximise opportunities to generate energy from renewable sources to power our operations. This helps to cut the cost to both our customers and the environment. We have a track record of generating renewable energy sources at our sites though wind, anaerobic digestion and hydro; including the first screw hydro-generator ever to be installed in a waste water treatment works.

23 January 2012