Water Bill

Written evidence submitted by Anglian Water (WB 21)

The Water Bill

Public Bill Committee evidence, 9 December 2013

1. Anglian Water supplies water and water recycling services to more than six million domestic and business customers in the east of England. We employ 4000 people and thousands more are employed through our supply chain. Over the five years to 2015 we will have invested £2.3bn to maintain infrastructure, make quality and environmental improvements and meet the needs of a growing region.


2. The Government’s White Paper ‘Water for life’ drew attention to the need for a new approach to water management. From the beginning we have been wholeheartedly in favour of a policy framework that supports us to deliver a resilient, affordable and sustainable water supply.

3. To make the legislative changes needed to achieve the White Paper’s objectives, Government published the draft Water Bill for pre-legislative scrutiny last year. The Environment Farming and Rural Affairs (EFRA) select committee conducted a thorough inquiry into the draft Bill, and made a number of useful recommendations to ensure the Bill reflected the ambition of the White Paper. We participated in the inquiry, and emphasised the need for Government to do more to secure resilient water and wastewater services. We were also concerned that the proposals for upstream reform may increase the level of financial and regulatory risk within the sector.

4. Government has addressed many of the concerns we raised, and we therefore support the Water Bill. We believe the reforms will better allow the water industry to respond to future challenges, delivering a more customer-focused service.

5. However we have a number of specific comments relating to clauses in the Water Bill, issues raised in the Second Reading, and proposed amendments that we would like to share with the Bill Committee.

Clauses 1 and 4: Types of water supply and sewerage licences and arrangements with water and sewerage undertakers

6. These clauses amend section 17 of the Water Industry Act, allowing Ofwat to issue water supply and sewerage licences. This will allow new entrants into the market.

7. However section 17C of the WIA, which defines "household premises", is unchanged. For customers to know whether they are eligible to choose their supplier, i.e. whether their premises are classed as non-household, both they and undertakers need clarity on how the definition of ‘household premises’ should be applied. The problem is that the definition refers to the "principal use" of the premises, which we have no means of knowing and could change frequently as businesses expand or decline and personal circumstances change. It would be helpful if the definition was made clearer either by applying a simpler definition or by clarifying how the ‘principal use’ is to be determined in respect of the ever increasing number of mixed use premises. Lack of such clarity will likely lead to inconsistencies in how customers are dealt with, may create confusion amongst customers and may result in unwelcome focus on the details of implementation of the reform as opposed to its potential benefits.

Clause 8 Bulk supply of water by water undertakers

8. The new bulk supply regime will be dependent on a Code governing bulk supply agreements and Charging Rules to govern bulk supply prices. We think it is important that the making of the Code is mandatory, not discretionary. If a Code or set of Rules is missing, the risk is that actions taken by water companies may need to be reversed, which could negatively impact customers.

9. Similarly the following Codes and Rules should also be mandatory:

- Section 40B - Codes in respect of bulk supply agreements

- Section 40E - Rules about charges for the supply of water in bulk

- Section 110C - Codes in respect of main connection agreements

- Section 110F - Rules about charges for permitting main connections

- Section 51CA – Codes in respect of section 51A agreements

- Section 51CD – Rules about charges in connection with a section 51A agreement

- Section 105ZC – Codes in respect of section 104 agreements

- Section 105ZF – Rules about charges in connection with section 104 agreement

- Section 144ZA – Rules about charges for connections, etc

- Section 66DA – Codes in respect of section 66D agreements

- Section 117F – Codes in respect of section 117E agreements.

Clause 16 Charges schemes

10. We would welcome greater clarity around the Government’s expectations with regard to the maintenance of regional prices and the protection of rural customers and other more expensive customers.

11. The costs of delivering our services vary considerably in different parts of our region. For example waste water treatment can be three or four times more expensive to provide in some rural communities. Averaging these costs give businesses a regional price for their water supply and sewerage services regardless of where they are located. The expected increasing intensity of competition, both upstream and downstream, could place undertakers under pressure to de-average charges (so that prices are locally cost-reflective) to avoid potential breaches of the Competition Act 1998.This could mean that while some businesses would see prices drop, others would see price increases.

12. Although Defra has produced charging principles (to inform charging guidance), which states that "rural customers must continue to be protected" it is not clear what government intends as to the nature of that protection in relation to pricing to business customers. If it is intended that an element of geographic cross-subsidy is retained then we believe that Government should be clearer about its intent. In addition, the statutory backing for this intent ought to be made stronger by including specific provisions in the Water Bill.

13. In our view, Charging Guidance of the type envisaged is not sufficiently strong for market participants to rely on in considering their pricing in the face of potential action under the Competition Act. In this respect we concur with the comments made by Alan Sutherland of WICS in his oral evidence to the Bill Scrutiny Committee.

14. On a separate matter, Clause 16 removes the requirement for Ofwat to give prior approval to a charges scheme. However in making this change the Bill also removes section 144(9), which provided:

"(9) The Authority may not exercise the power … for the purpose of limiting the total revenues of relevant undertakers from charges fixed by or in accordance with charges schemes."

15. This is an important safeguard for undertakers and investors, and we would strongly recommend that it is not removed.

Clause 21 Drainage systems relieving public sewers

16. The Floods and Water Management Act 2010 provides for the construction of sustainable drainage systems in connection with new development and for those systems to be adopted by the Suds Approval Body.

17. Clause 21 would enable a sewerage undertaker to construct a sustainable drainage system to deal with surface water from existing buildings, or in other words to retro-fit a sustainable drainage system to existing properties. It could therefore be a very useful power to enable a sewerage undertaker to construct, maintain and operate drainage systems, such as a soakaway or sustainable drainage systems (SuDS), instead of a typical sewer.

18. However sustainable drainage systems are designed to collect and store rainwater and release it slowly back into the environment. A major barrier to the retrofit of SuDS still exists therefore, as neither sewerage undertakers, nor SuDS Approval Bodies have a right to discharge the water that is collected in a SuD system.

19. The current legal framework would require a sewerage undertaker to negotiate or compulsorily acquire rights to discharge along the full length of a scheme. This is likely to make it impractical to use the new power, seriously jeopardising the delivery of any schemes. Therefore we recommend the Bill includes a statutory right to discharge in favour of sewerage undertakers, restoring the legal position as it was before 1989.

20. A statutory right to discharge already exists for highway authorities and water undertakers, and it would therefore make sense to extend it to sewerage undertakers. Where practical, this would allow us to build and adopt SuDS rather than surface water sewers, or explore hybrid designs that combine more traditional methods and SuDS. It would also resolve the current legal uncertainty that has arisen since 1989 with regard to other discharges made by a sewerage undertaker.

21. Without such a change, the Government’s ambitions to foster a more sustainable approach to drainage are likely to be seriously hampered.

Clause 22 Primary duty to secure resilience

22. We welcome the proposal to amend Ofwat’s duties in the Water Industry Act 1991 to clarify the role of the regulatory framework in securing the long-term resilience of water and sewerage services. The focus on resilience will support the water sector in tackling the challenges associated with more extremes in weather and supporting population growth.

Clause 24 Strategic priorities and objectives

23. This clause enables the Secretary of State to publish a statement setting out strategic priorities and objectives for Ofwat. It requires Ofwat to carry out its functions "in accordance with any statement published". We believe this is an important clause to ensure Ofwat’s actions accurately reflect the intent and will of Government.

Clause 27 Water resource management plans for England

24. We strongly support the proposal to clarify the powers of Direction to include the ability for the Secretary of State to specify a level of service that a water resources plan must address. This could help us protect customers by improving the levels of service in our water resources plan. By building increased resilience into our future water resources planning, we can reduce the likelihood that customers would face water-use restrictions (e.g. hosepipe bans) in the event of future drought.

Clause 35 Appeals relating to revisions of codes

25. We welcome this right of appeal relating to the revisions of Codes. The Water Bill gives Ofwat the power to make at least seven different Codes and nine sets of Rules, which will all have implications for customers and businesses. Therefore we believe it is important that they are created in consultation with market participants and customers, and the governance framework is clear and reasonable. A right of appeal will ensure Codes are robust and effective.

Clause 43 Maps of waterworks

26. This removes the duty on the Environment Agency and the Natural Resources Body for Wales to keep and maintain a record of the resource mains, discharge pipes and other underground works. However we believe this duty should remain as there are many organisations that need this information, including landowners, highway authorities and utilities.

27. While reviewing the provisions on maps, it would be helpful if an undertaker’s duties to keep maps were updated (sections 198 – 200 of the Water Industry Act):

a. to provide a time limited exemption for transferred sewers and lateral drains;

b. to permit electronic maps and GIS data; and

c. as to inspection rights and fees for copies, etc.

Other issues

Affordability assistance

28. The Second Reading debate and subsequent evidence sessions have revealed considerable concern and criticism of the industry for not acting promptly to address affordability. We therefore feel it is important to set out what we are doing to support our customers.

29. Anglian Water is planning to keep average bill increases well below inflation for household customers up to 2020, which will see bills reduce in real terms. We also have a number of measures in place to support vulnerable customers.

30. We currently have two assistance tariffs, Water Sure and AquaCare Plus. We introduced our AquaCare Plus tariff in 2001, which is designed to help large families on low incomes. It is available to customers who are metered and eligible for certain income-related benefits, and is therefore available to a greater number customers than Water Sure. In June 2013 we had almost 44,000 customers on these tariffs, and to promote them we have included information as an insert to customers’ bills.

31. Anglian Water put forward proposals for an Affordability Tariff both in 2005 and 2010 as part of our Charges Scheme submission. However the proposals were not approved by Ofwat principally because on review of the Charges Scheme there was deemed to be no legislative basis at the time on which to set aside Condition E. The Floods and Water Management Act 2010 dealt with that obstacle.

32. Following recent customer consultation, we are proposing to introduce a new social tariff from 1 April 2015. Eligibility for the new tariff will be based on independent financial assessment by a third party advisory agency. This will ensure we reach those most vulnerable and in need of help and support. We are in preliminary discussions with the Citizens Advice Bureau about the process for carrying out assessments and we will be carrying out further customer consultation on this proposal, as required by legislation, over the next few months. All affordability tariff proposals need careful design. Although our research for our PR14 Business Plan revealed that many customers are not willing to pay more to subsidise the bills of others, our experience of designing such tariffs in the past suggests that acceptable and meaningful proposals are possible.

33. We will also increase our annual contribution to the Anglian Water Assistance Fund from £750,000 to £1m, to help customers who have historic debt get back on track. We provide metering and practical water efficiency devices and advice, for free, to help customers reduce their bill. We also offer a series of payment options to help customers to budget and best manage the payment of their bills.

Voluntary exit of the retail market

34. We would support an amendment for undertakers to be able to voluntarily exit the business retail market. While the Bill is intended to remove barriers to market entry, to create a functioning market we believe barriers to exit should also be removed. On this point we support the comments made by Ofwat and WICS in their oral evidence to the committee.

Provisions for landlords to share information on tenants

35. We urge the Government to implement the measures in the Flood and Water Management Act 2010 for "all property owners to provide the details of their tenants to water and sewerage companies or to assume liability for payment". Whilst we have supported the voluntary approach, take up has been low and so we believe a mandatory approach is now needed.

36. We would also recommend that the scope is extended to all properties, as the Flood and Water Management Act only covers residential premises. By improving our ability to tackle willful non-payment, the resulting burden on bill payers would be reduced.

Ofwat’s powers to issue directions could stifle innovation

37. We are concerned that Ofwat’s powers to issue directions could force all companies to act in the same way, thereby stifling any innovation and restricting the benefits of competition. Ofwat is given a very wide discretion to make Rules and publish Codes. This will provide a uniform framework, which developers, market entrants and others can then rely upon. Compliance with the Codes and Rules is to be expected, but Ofwat is also given a very wide power to issue "directions" whenever it "considers" that a company may be doing something, or not doing something, as required by the Code. This is very prescriptive, and we are concerned that it will take away commercial freedom or discretion, stifling innovation and competition and therefore restricting the benefits these could bring for customers.

38. Several clauses include a power to issue such a direction, which reads broadly as follows:

"If the Authority considers that a [water/sewerage] undertaker is not acting as required by [a code/the rules], the Authority may give the undertaker a direction to do, or not to do, a particular thing specified in the direction."

39. This power of direction applies to the following clauses:

- Section 40B - Codes in respect of bulk supply agreements

- Section 40E - Rules about charges for the supply of water in bulk

- Section 110C - Codes in respect of main connection agreements

- Section 110F - Rules about charges for permitting main connections

- Section 51CA – Codes in respect of section 51A agreements

- Section 51CD – Rules about charges in connection with a section 51A agreement

- Section 105ZC – Codes in respect of section 104 agreements

- Section 105ZF – Rules about charges in connection with section 104 agreement

- Section 144ZA – Rules about charges for connections, etc

- Section 66DA – Codes in respect of section 66D agreements

- Section 66E – Rules about Charges

- Section 117F – Codes in respect of section 117E agreements

- Section 117I – Rules about Charges

40. As a private company, Anglian Water has offered various non-statutory terms which have benefitted developers and others. Under the framework in the Water Bill, these could be seen as departures from the Code/Rules and could therefore have to be reversed.

41. Therefore we would recommend that these clauses say "satisfied" instead of "considers". In terms of process, before a direction is issued there should be a requirement to consult and take into account representations that are made as to why the company thinks it is compliant.

Revisions to Codes and Rules should not be retrospective

42. As currently written, the legislation implies that revisions to Codes and Rules could apply retrospectively. For example, section 40B (Codes in respect of bulk supply agreements) provides:

"(9) A revised code may include provision for applying any of its revisions to bulk supply agreements made before the revised code comes into force."

43. Although this is only stated in respect of a revised Code, there’s the potential that a revised Code could require alterations to bulk supply agreements made before the first Code or before the Act. There is a general presumption against Acts of Parliament applying retrospectively, but this wording would seem to allow it. This could lead to uncertainty, as companies will not know whether a revised Code will require alterations to something that has previously been agreed between two parties.

December 2013

Prepared 13th December 2013