Select Committee on Delegated Powers and Deregulation Eighth Report


Memorandum by the Department of the Environment, Transport and the Regions

This memorandum explains the proposed use of the delegated powers provisions in the Water Industry Bill.

Outline and scope of the Bill

The Bill provides for a new approach to charging for water and sewerage services in England and Wales. In particular, it proposes to prohibit disconnection of water supply to dwellings and some other premises for the non-payment of water charges, and the related use of limiting devices to enforce payment. It removes a statutory bar on charging by reference to rateable value after 1 April 2000. It requires charges for water and sewerage in respect of dwellings to be made in accordance with charges schemes. And it revises the regulation of companies' charges schemes and makes provision for their customers to be entitled to be charged in particular ways.

The Bill also provides for the establishment of a Water Industry Commissioner for Scotland and the establishment of Water Industry Consultative Committees in Scotland. No regulation making powers are proposed in relation to the Scottish provisions in the Bill.

Clauses relevant to delegated powers

Clause 3 amends section 142 of the Water Industry Act 1991 'the 1991 Act' so that charges for water and sewerage services to dwellings, which has the meaning as in clauses 1 and 2, must be fixed on the basis set out in water companies' charges schemes rather than by agreement. An exception is made for agreements entered into before this provision comes into force. Clause 4 amends section 143 of the 1991 Act, so that charges schemes must be approved by the Director General of Water Services (the Director) each year. Clause 4 also allows for the Secretary of State to give guidance to the Director on the exercise of the Director's power to approve charges schemes, and the Director is to have regard to that guidance. All such guidance is required to be published.

The purpose of Clause 4 is to formalise the existing informal consultation between water companies and the Director over the contents of charges schemes, and to ensure that the protections and benefits for customers which the government wishes to ensure are capable of being delivered.

The Director's powers to approve charges schemes under Clause 4 are subject to the important limitation that they may not be exercised for the purpose of limiting the total revenues of relevant undertakers from charges fixed by or in accordance with charges schemes. The price limitation machinery which determines the allowable return on investment for each water company is set out in conditions made under Part I of the Water Industry Act 1991. This limitation ensures that the main price limit setting mechanism will continue to be that provided by Part I of the 1991 Act.

It would not be possible or desirable in primary legislation to prescribe the contents of each charges scheme. It is necessary to have means to allow for regional variation and variation between companies, so delegated powers of the kind described are necessary. As noted, any guidance given by the Secretary of State is required to be published.

Clause 5 of the Bill contains a requirement for the provisions of any charges scheme made under section 143 of the 1991 Act to comply with any requirements prescribed by the Secretary of State in regulations. The regulations may prescribe items for which a consumer is or is not to be liable to pay a charge, make provision for the methods and principles to be used in calculating and imposing charges, require alternative bases of charging to be made available to consumers, and to require special provision to be made for vulnerable groups.

Regulations under Clause 5 could be used, for example to specify that particular tariffs or charging options should be made available to consumers. For those requiring special provision, the regulations are intended to set out which groups of people are to be given special protection, and how eligibility for this protection should be established. These groups may include those who need special protection because of their age, health or financial circumstances, or due to disability. The Government has announced that the kind of vulnerable groups to which it envisages extending protection by means of these regulations will include large families on low incomes and those with a high water use because of medical conditions. Regulations would allow, for example, such consumers to be given the option of an alternative charge, based on the average measured charge for that water company rather than their own specific use, thus avoiding hardship from high unavoidable uses of water which consumers might not otherwise be able to afford. As well as prescribing those who should receive special treatment, the regulations will outline the nature of the assistance to be offered.

As with Clause 4, the proposed use of delegated powers reflects the necessity to deal with a variety of circumstances and situations in which Ministers would have a legitimate interest in the distribution of charges between customers.

The Secretary of State's powers under Clause 5 would be subject to the same important limitation as the powers of the Director under Clause 4, namely that they would not be exercisable for the purpose of limiting the total revenues of relevant undertakers from charges fixed by or in accordance with charges schemes. It would remain the prime responsibility of the Director to establish the economic regulation of the water industry, in particular deciding the price limits to which water companies should be subject.

Regulations made under Clause 5 would be subject to negative resolution procedure, in line with the general rule established by section 213 of the 1991 Act (see especially section 213(1)). This level of Parliamentary scrutiny is considered both appropriate and consistent with other regulation making powers in the 1991 Act which are also subject to the negative resolution procedure. These include regulations concerning prescribed standards of wholesomeness of water (see e.g. sections 69, 74), water companies' duties as respects constancy and pressure of supply (see e.g. section 65) and water companies' standards of performance in connection with the supplies of water (see e.g. section 38(2)).

In the course of the Bill's passage in the House of Commons, the Government gave undertakings to consult the regulator (the Director General of Water Services), the industry and other interested parties on draft regulations under Clause 5.

Clause 6 allows consumers currently paying their water and sewerage charges on an unmeasured basis the option of requiring their water company to charge by reference to volume (i.e. by installing a meter). Consumers are given the option to revert to an unmeasured charge within 12 months if they find that a metered supply does not suit their needs. Section 144A(5)(b) would allow further conditions to be prescribed which would apply to this right to revert. 'Prescribed' is already defined in section 219(1) of the 1991 Act as prescribed by regulations made by the Secretary of State, and as has been noted, the presumption in section 213(1) of the 1991 Act is that regulations should be made by negative resolution procedure. The intention of regulations made under section 144A(5)(b) would be to specify conditions which would prevent a householder being able to revert to an unmeasured charge. These might include, for example, filling a swimming pool or using a garden sprinkler - which involve a high use of water for non-essential purposes.

Clause 7 gives consumers certain rights to remain on an unmeasured supply of water. Generally this applies to existing unmeasured supplies to homes. Section 144B(1)(c) again allows conditions to be prescribed which could limit the entitlement of such consumers to remain on unmeasured supplies. It is envisaged that any regulations under section 144B(1)(c) would address similar circumstances to those made under section 144A(5)(b), that is, such activities as filling swimming pools or using garden sprinklers might result in a removal of consumers' entitlement to remain on unmeasured supplies. It is considered that the use of delegated powers in both these provisions, Clauses 6 and 7, is both necessary and appropriate, and that the negative resolution procedure provides an appropriate level of Parliamentary scrutiny to the proposed use of delegated powers.

Clause 14(1) and (2) of the Bill provide for the transfer of Ministerial functions under this Bill when enacted to be made by means of an Order in Council under section 22 of the Government of Wales Act 1998. Any such Order in Council would be subject to negative resolution procedure rather than the affirmative resolution procedure provided in section 22(4)(a) of the 1998 Act. As this is a transitional period before the National Assembly for Wales takes up its responsibilities, it is considered that the negative resolution procedure will allow for more convenient arrangements for the transfer of powers and the making of any necessary Order in Council. It is suggested that this nevertheless represents an appropriate level of Parliamentary scrutiny, as Parliament has the opportunity during the passage of the Bill to consider the merits of transferring functions under the Bill.

Clause 14(2) of the Bill would make the Bill when enacted a pre-commencement enactment within the meaning of the Scotland Act 1998. Ministerial functions under the Bill would transfer to Scottish Ministers when they acquire their functions under the Scotland Act 1998.

Department of the Environment, Transport & the Regions

Welsh Office

Scottish Office

February 1999

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