Environment, Food and Rural Affairs CommitteeWritten evidence submitted by South West Water

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. South West Water is the appointed water and sewerage undertaking serving 1.6 million people in Devon, Cornwall and parts of Somerset and Dorset.

2. The White Paper recognises how the industry is currently underpinned by stable investment and the substantial benefits this has already delivered to customers and the environment which in the South West include £2 billion worth of new sewerage infrastructure.

3. The Water White Paper sets out a clear vision and direction for the future. The direction of travel proposes reforms to both regulation and market competition which require significant changes from the status quo.

4. Current arrangements offer a clear “source to tap (and bill)” accountability to stakeholders, regulators and customers and although the White Paper has sensibly recommended not to risk whole scale structural change, there is the potential for accountabilities to be blurred with the scale of activity in key sectors of the industry.

5. Key to delivering against the White paper’s stated vision will be appropriate implementation. Given the extensive nature of the reform the gradualist approach set out seems sensible and supportable. If reform is not implemented in a sensitive, evolutionary manner incorporating the voice of the companies, this level of change could unsettle long term investors and put the long term vision at risk.

6. In this context we are concerned about two more immediate issues:

the repeal of the “costs principle” which was established to protect customers not eligible for competition. With particular reference to our large region, there needs to be thought given to the likelihood of “cherry-picking” urban customers, the implications on rural customers and the potential stranding of assets; and

Ofwat’s very recent notice given to water companies to make changes to company licences without due process.

7. There are likely to be significant costs involved in creating the competitive retail market the White Paper envisages—for instance in compatible IT systems which can track customers switching to and from companies—and these hurdles are more likely to be overcome by giving companies a strong, clear voice in the best approach to implementation at every stage.

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

8. The long term vision of the White Paper is welcome and we support a more flexible abstraction regime which better reflects the needs of abstractors and the environment in the South West. Again, forward-thinking regulation which positively involves existing companies is more likely to be fully effective.

9. We wholly support the concentration on long term resources and resilience and welcome the recognition of the investment required to create more network interconnections for a sustainable, consistent, regional and national service.

10. The White Paper’s highlighting of South West Water’s flagship Upstream Thinking programme to restore wetlands in partnership with landowners, farmers, national parks and environmental groups is also gratifying and we are glad to see other companies following our lead.

11. We and others are very likely to be examining the potential for similar projects and any proposals to lessen the need for expensive “end of pipe” solutions will be welcomed particularly by customers. We look forward to Government guidance to Ofwat which should strengthen its development of more flexible, outcome-focused regulation which will help the industry and its partners fully exploit the potential of such schemes.

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

12. The focus on promoting water efficiency and stress on finding sustainable solutions to water pollution and flooding problems particularly in the field of urban drainage is to be applauded.

13. Making water efficiency more financially-attractive to customers, businesses and to water companies is still key and we look forward to the development of more practical incentives for all. Perhaps this can be better developed by fostering a closer partnership (eg—hot water saving measures) at all levels with the energy sector which is already well ahead in this field.

14. The White Paper sets out the right messages on urban drainage but how these might be achieved is still out of focus. There needs to be a thorough review of potential activity programmes in close partnership with local authorities to find the most cost-effective approaches to make the progress all stakeholders want to see on this issue.

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

15. We strongly welcome the Government’s commitment to reduce water bills for our household customers by £50 from April 2013. We are pleased that Government has proposed this as a measure to tackle the unfairness of a small customer base supporting the huge environmental cost of protecting a third of England and Wales’s bathing waters since 1989. However there may be many hard-pressed small business customers in the region who will be disappointed the £50 reduction has not been extended to them also.

16. Affordability particularly for vulnerable customers on low incomes will still remain a high profile issue in the South West and we believe those customers in the most need are best helped by nationally funding already-established tariffs such as WaterSure (and paying the equivalent of the national average metered rather than the regional bill) together with the sensible introduction of new company social tariffs supported across the community.

17. We have already shown our willingness to innovate in the affordability arena with our WaterCare and FreshStart programmes which are designed to engage traditionally “hard to reach” customers these have been recognised by CAB as examples of best practice across a range of business sectors.

18. We are committed to exploring the further potential for well-designed and targeted social tariffs. However we do need to be mindful of the growing strain of cross-subsidising such tariffs from other paying but hard-pressed customers whose support is vital to retain.

19. More short term measures which would help companies better target assistance efficienctly and effectively to customers in need would include access to information held by Government on means tested benefits and tax credits and enacting the provisions on landlord liability in the Flood & Water Management Act

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 broad aims of the White Paper are admirable however the large range of issues covered and recommendations made will require further detailed policy development, legislation and co-ordinated introduction of many change proposals.

21. The quantum and pace of these changes may disturb both smooth implementation and more worryingly disturb investors who are more used to finding stability. It would be beneficial to work more collectively to identify the potentially positive role existing companies can play in taking forward both the White Paper, soothing investors and exploring other policy areas offering a wider national benefit.

22. Funding and maintaining flood defences is a long term issue where water companies with their substantial asset management experience could beneficially be involved if they were perceived more as “infrastructure providers” rather than just narrowly-focussed “service suppliers”. Creating new funding streams is also more likely to lessen the risk of existing investors exiting for opportunities elsewhere.

January 2012

Prepared 4th July 2012