House of Lords - Explanatory Note
Water Bill [HL] - continued          House of Lords

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Clauses 11 to 14: Applications for a licence

52.     Clause 11: Who may apply for a licence. This establishes the qualification necessary in order to apply for abstraction licences: a right of access to the land where the abstraction takes place. Occupation of land continues to serve as evidence of a right of access. Applicants have to demonstrate that they have the right of access for least one year from the date on which the licence is to take effect, or for the intended duration of the licence if that is less than one year.

53.     Clause 12: Abolition of combined licences. Currently, the EA can issue licences for both an impoundment and an abstraction as a 'combined licence', although only a small number of such licences exist. With the proposals to time limit all new abstraction licences and for an impoundment licence to remain in force until revoked, there are unlikely to be situations in future where a combined licence might be issued. This clause therefore repeals section 36 of the WRA, thereby removing the Agency's power to issue a combined licence. Existing combined licences will be converted into separate abstraction and impounding licences.

54.     Clause 13: Applications: types of abstraction licence. Applicants have the initial choice of what type of abstraction licence to apply for. This clause enables the EA to require an applicant for one type of abstraction licence to apply instead for another type, or to group several related applications together. The applicant can appeal to the Secretary of State against the Agency's decision.

55.     Clause 14: Publication of application for licences. Licence applications must be brought to the attention of those likely to be affected by them. This clause enables the detailed publication requirements, including the circumstances in which they are dispensed with, to be prescribed in secondary legislation. Where necessary, publication requirements may be undertaken by the EA, whose costs are reimbursed as a separate element of the licence application fee.

Clauses 15 to 18: Consideration of licence applications

56.     Clause 15: General Consideration of licence applications. This clause provides that where an application for the renewal of a time-limited abstraction licence is sought on terms that would constitute a variation of the licence if the licence were continuing, the licence is considered in two stages. Firstly, those aspects that constitute the variation element would be determined, and then the application is determined for the licence as a whole, so that the impact of the variation element on the protected rights of other abstractors (see clauses 16 and 17) can be assessed for the new licence. Where renewal is sought on the same terms as the expiring licence then this two stage determination is not applied, because there would be no need to reconsider the impact on existing protected rights.

57.     The clause also provides that the EA is to have regard to the statutory duties of bodies such as drainage and navigation authorities brought into the licensing system by Clauses 5 and 7 when considering licence applications from those bodies.

58.     Clause 16: Protection from derogation. Under the current legislation, the EA cannot grant an abstraction or impounding licence that derogates from any "protected rights", except with the consent of the person entitled to those rights,. Those rights recognise an established entitlement to abstract a certain quantity of water, for certain purposes. This clause limits the protection against derogation for new licence holders to rights arising from a full licence. For transfer and temporary licences however, some effective protection of licence-holders' rights is delivered by the continuing requirement upon the EA to have regard to river flow levels and other lawful uses of inland waters when granting licences. Existing licence holders who fall outside licensing as a result of the revised threshold introduced by Clause 6 continue to benefit from protection from derogation. Where an application is made to renew an existing time-limited licence on the same terms, then, new protected rights established after the grant of that licence will not be protected from derogation.

59.     Clause 17: Protected Rights and Clause 18: Register of certain protected rights. Currently owners of land bordering rivers or lying above groundwater have rights to abstract up to 20 m3 of water per day for domestic purposes or agricultural purposes other than irrigation (e.g. stock watering). Clause 17 preserves that right. It also extends it to those abstractors whose licences lapse by virtue of falling below the relevant volume or purpose threshold for so long as they continue to abstract; the protected right lapses after four years of non-abstraction. In addition, where a person transfers part of his licensed abstraction rights to someone else, and that part (or his remaining part) no longer requires an abstraction licence, the right to carry on that part of the abstraction is protected (provided some abstraction occurs within any given period of four years). In water stressed areas, it may be necessary for the EA to have detailed knowledge of all protected rights that it has to have regard to in its licensing activities. Clause 18 provides a power to make regulations to set up a Register of Protected Rights in such areas. Where a Register exists, an abstractor will need to register his protected right for it to continue within two years of the Register coming into existence.

Clauses 19 and 20: Form, Contents and Effect of licences

60.     Clause 19: Form, contents and effect of licences. Currently, abstraction licences granted to some types of applicants (notably water undertakers) are not required to state the purpose for which the abstracted water is used or the land on which it is used. This clause places all new abstraction licences on the same footing by requiring them all to state the purpose, but none to state the land on which the water is to be used. This clause also requires every new abstraction licence to state the dates on which it takes effect and expire. Full licences state the quantity of water authorised for abstraction but this is at the EA's discretion in the case of transfer and temporary licences.

61.     Clause 20: Limited extension of abstraction licence validity. If the Agency receives a valid application to renew a full or a transfer licence of more than twelve months' duration on the same terms at least three months before its expiry date, this clause provides that the licence will not expire until the application is determined

Clause 21 and 22: Modification of licences

62.     Clause 21: Modification of impounding licences. At present the EA is under a duty to revoke an impounding licence at the request of the holder, who can thereby avoid any conditions attached to the licence, which impose continuing obligations. The clause changes the Agency's duty to revoke to a power, and allowss revocation of impounding licences to be made conditional on removal of the works or restoration of the site to the Agency's satisfaction.

63.     Clause 22: Proposals for modification at instance of Agency or Secretary of State. This ensures that the EA is able to vary impounding licences in a way that requires that the impounding works themselves are modified as necessary. Specific publication and notification arrangements for licence modification proposals are removed from the primary legislation.

Clause 23 : Transfer and apportionment of licences

64.     Clause 23: Transfer and apportionment of licences to abstract. The current provisions for succession to abstraction licences are replaced by this clause. The condition for allowing transfer is that the transferee has a right of access to the abstraction point. A licence may also be apportioned between two or more people as long as the total quantities of water abstracted by the new holders do not exceed the quantity authorised to be abstracted under the old licence. The holder of a licence and the proposed transferee(s) are required to give notice to the EA of their agreement to the transfer or apportionment of a licence.

65.     Licences are considered part of the estate of a deceased holder, and of the property of a bankrupt, and vested accordingly. If considered onerous property, general insolvency rules apply. The licence would lapse after 15 months if the EA was not informed of the vesting by the person

66.     Impounding licences will also be transferable in the same way as abstraction licences (but may not be apportioned), and similar arrangements apply for licence succession on death and bankruptcy.

Clauses 24 to 27 : Claims and compensation

67.     Clause 24: Claims arising out of water abstraction. This clause establishes a new statutory right of action against an abstractor, whether licensed or not, whose abstraction causes loss or damage to another person. It also removes the existing defence against civil actions in respect of licensed abstractions. This means that those persons who do not have protected right or fishing rights and who have suffered loss or damage as a result of an abstraction may seek financial compensation for that loss or damage from the abstractor. The courts are not able to grant an injunction against a licence holder if that risks interrupting the public water supply, or putting public health or safety at risk. Bearing in mind the new statutory right of action, other civil claims (except for negligence or breach of contract) are now excluded.

68.     Clause 25: Compensation for modification of licence on direction of Secretary of State. Currently, if a licence which has not been used for seven years is revoked or varied, then the holder is not entitled to compensation. This clause reduces the period of non-use for this purpose to four years.

69.     For new licences, this clause removes any entitlement to compensation if a licence is varied in order to protect water availability in the source of supply to which the licence relates. Compensation is not payable where a variation does not reduce the amount of water licensed to below the minimum amount specified in any licence. This provision only applies to a licence that has been granted after clause 18 of this Bill has come into force, and where the variation is made twelve years or more after the licence was granted.

70.     Clause 26: Recovery of compensation from new licence-holder. The EA can already revoke a water undertaker's abstraction licence and grant a licence to another undertaker for water resources management reasons. In such circumstances, this clause allows the Agency to recover costs from the water undertaker granted the licence to compensate the undertaker whose licence was revoked.

71.     Clause 27: Withdrawal of compensation for certain revocations and variations. This clause provides that, with effect from 15th July 2012, an existing abstraction licence without a time limit may be revoked or varied without compensation. This power is confined to cases where the Secretary of State is satisfied that it is necessary in order to protect any waters or underground strata, or any flora and fauna dependent on them, from serious damage.

Clauses 28 and 29: Water resources management

72.     Clause 28: Water resources management schemes: other abstractors. This clause gives the EA the power to enter into arrangements with holders of abstraction licences other than water undertakers for securing the proper management of the waters they use and the reservoirs and works under their control. The arrangements may require reference of any questions arising under the arrangements to the Secretary of State or the Authority for determination.

73.     Clause 29: Water resources management schemes: referral to Secretary of State. Water undertakers or other abstractors may be unwilling to enter into or maintain (or vary) water management arrangements with the EA. This clause gives the Agency the power to refer to the Secretary of State the question whether such arrangements should be entered into, renewed or varied and, if so, what their terms should be. The Secretary of State may refer such issues to an appointed person for determination.

Clause 30 : Enforcement

74.     Clause 30: Enforcement notices, and related procedures and offences. Where abstraction or impounding takes place without a licence or does not comply with the terms of a licence, this clause gives the EA the power to issue an enforcement notice. This can only take place where it appears to the Agency that the licence breach or failure to comply is causing or could cause significant damage to the environment. The enforcement notice requires cessation of the breach or failure to comply and the carrying out of specified works or operations to remedy or mitigate the effects. The Secretary of State may make regulations about enforcement notices. A person who fails to comply with an enforcement notice is guilty of an offence and liable, on summary conviction, to a fine not exceeding £20,000 or, on conviction on indictment, to a fine. If necessary the Agency may take proceedings in the High Court to secure compliance with the notice. The Agency may also carry out the works itself at the expense of the person on whom the enforcement notice is served, if the person fails to comply with the notice. The Agency may also carry out the works itself at the expense of the person on whom the enforcement notice is served, if the person fails to comply with the notice.

Clauses 31 and 32 : Miscellaneous

75.     Clause 31: Bulk supplies. This clause permits the EA, in consultation with the Authority, to propose to a water undertaker that they enter into a bulk supply agreement with another water undertaker where that is necessary for the proper use of water resources. The Agency would be able to take any refusal to enter into such a bulk supply agreement into account when considering whether to grant abstraction and impounding licences.

76.     Clause 32: Visiting forces. This clause ensures that visiting forces are placed in no more favourable a position than UK forces when Crown exemption from abstraction/impoundment licensing is lifted.


Clause 33 - 37 and Schedule 1-3: Establishment, etc. of new bodies

77.     Clause 33 and Schedule 1: Water Services Regulation Authority. This clause adds a new section 1A to the Water Industry Act and repeals Section 1 and Schedule 1A of that Act.

78.     New Section 1A establishes the Water Services Regulation Authority, and provides that it is a body corporate that performs its functions on behalf of the Crown. The Welsh name for this Authority is specified as the Awdurdod Rheoleiddio Gwasanaethau Dwr.

79.     Subsection (2) inserts a new schedule 1A into the Water Industry Act which sets out the provisions for the appointment and conditions of members of the Authority, stipulating that the Authority comprises a chairman and at least two other members, to be appointed by the Secretary of State in consultation with the Assembly. The Schedule also provides for the appointment of staff to serve the Authority, for proceedings, including the delegation of functions, within the Authority, and for a code of practice.

80.     Subsection (3) abolishes the office of the Director General of Water Services.

81.     Clause 34 and Schedule 2: Consumer Council for Water. This clause adds two new sections 27A and 27B and a new Schedule 3A to the Water Industry Act 1991.

82.     The intention of this clause (along with Schedule 2) is to establish a new independent Consumer Council for Water (CCW), which may be known as 'Cyngor Defnyddwyr Dwr' in Welsh.

83.     Subsection (1) adds new sections 27A and 27B to the WIA. New section 27A creates the CCW as a body corporate and requires the Council to allocate undertakers to regional committees.

84.     Subsections (4) to (6) in new section 27A give the Secretary of State and the Assembly (for undertakers wholly or mainly operating in Wales) power to direct the allocation of undertakers to regional committees for a six month period. Thereafter the Council may establish or abolish a regional committee, or alter an undertaker's allocation, only with the consent of the Secretary of State or Assembly.

85.     Subsections (9) to (12) in new section 27A set out the remit of regional committees and provides definitions of 'consumers', 'the interests of consumers' and 'consumer matters' in relation to the Council's responsibilities. Broadly, the interests of consumers means the interests of existing and future consumers of water and sewerage services (via the public networks).

86.     New section 27B requires the Council to make arrangements with the Authority, the Assembly and the Secretary of State to secure co-operation and to exchange information, and for consistent treatment of matters of concern. Arrangements are to be set out in a Memorandum of Understanding and are to be kept under review by the parties. Every memorandum should be circulated to the other bodies, and the Secretary of State is required to lay a copy of each memorandum before each House of Parliament.

87.     Subsection (2) adds Schedule 3A to the WIA. This provides for the internal operation of the Council, including membership of the Council and the terms of appointment and remuneration of members, staff, annual reports to the Secretary of State, financial provisions and accounts, and committees, including regional committees.

88.     Subsection (3) abolishes the existing customer service committees.

89.     Clause 35: Transfer to Authority and Council of functions, property etc. This clause (along with Schedule 3) transfers the functions of the Director to the Authority and removes all references in the Water Industry Act to the Director General of Water Services (or "the Director"), and replace them with Water Services Regulation Authority (or "the Authority"). It also allows the Secretary of State to make transfer schemes for the transfer of property, rights and liabilities from the Director to the Authority or to the Council.

90.     Clause 36: Conditions relating to costs of water regulation. This clause gives the Authority power to modify conditions of appointment of a company as a water or sewerage undertaker to provide for the recovery of the expenses of the Council, the expenses incurred in setting it up and the expenses incurred in abolishing the existing customer service committees.

91.     Subsection (6) requires the Authority to consult water companies before making any such changes in their appointments.

92.     Subsection (7) sets out that this power is only exercisable within two years of commencement.

93.     Subsection (8) states that the Secretary of State may (after consulting the NAW) issue directions to the Authority on the inclusion of payment conditions in the conditions of appointment

94.     Clause 37: Forward work programme and annual reports. This clause adds two new sections (192A and 192B) to the WIA and repeals sections 193 and 194 of the same Act.

95.     New section 192A requires both the Authority and, separately, the Council to publish before each financial year a forward work programme. The forward work programmes should contain a general description of projects apart from routine activities, which the Council or Authority plans to undertake during the year, including associated objectives and an estimate of the overall expenditure for the year. The Authority and the Council must both consult on drafts of the programmes.

96.     New section 192B requires the Authority to produce, for the Secretary of State, an annual report on its activities, and those of the Competition Commission in respect of any references made by it, during the previous financial year. The report shall include a general survey of development of matters falling within the scope of its functions, a report on progress of projects described in the forward work programme for that year, a summary of orders and penalties imposed and a report on any matter which it is required to report on as a result of a requirement by the Secretary of State or the Assembly.

97.     The Secretary of State shall lay the report before each House of Parliament and publish it. A copy of each report must be sent to the Assembly, Council and Drinking Water Inspectorate.

98.     Subsection (8) in new section 192B provides that the Authority shall have regard to excluding information which might be prejudicial to the interests of an individual or body.

Clauses 38- 41: Objectives of Regulation of Water Industry

99.     Clause 38: Objectives and duties under WIA. This clause amends section 2 of the WIA.

100.     New subsections (2A), (2B) and (2C) amend the general duties which affect the manner in which the Secretary of State, Assembly and Authority exercise their specified functions under the WIA. They are given a new consumer objective to protect the interests of consumers of regulated water and sewerage services, wherever appropriate through promoting effective competition. They are under a duty to further that objective, to secure that the functions of water undertakers and sewerage undertakers are properly carried out throughout England and Wales, , to secure that companies holding appointments are able (in particular, by securing reasonable returns on their capital) to finance the proper carrying out of the functions specified in the conditions of their appointments, and to secure that the activities and functions of licensed water suppliers are properly carried out.

101.     In determining the "interest of consumers" for the purpose of the consumer objective, the regulator should take into account the interests of all customers. However, the regulator should also have for consumers who are disabled or chronically sick, are of pensionable age, have low incomes or reside in rural areas. In addition, the regulator should have regard for customers of undertakers whose premises are not eligible for supply by licensed water suppliers. This is intended to enable the regulator to balance the interests of these and eligible customers.

102.     New subsection (2E) empowers the Authority and Secretary of State, in exercising any function in relation to water, to have regard to any interests of consumers of gas, electricity and telecommunications services, which are affected by the carrying out of that function.

103.     New subsection (3) provides that, subject to the primary duties in new section (2A), the Authority or the Secretary of State should carry out their duties in such a manner as to

  • promote efficiency and economy on the part of companies appointed as water and sewerage undertakers;

  • ensure that there is no undue discrimination in the fixing of water and drainage charges;

  • secure that the interests of customers and potential customers of such companies are protected as regards the sale of land;

  • ensure that the interests of customers and potential customers are also protected in relation to any activities undertaken by their water or sewerage undertaker that are unrelated to their functions as statutory undertakers, or in relation to the activities of any person who appears to be connected with the undertaker, including through the presentation of accounts in a suitable form; and

  • contribute to the achievement of sustainable development.

104.     Subsection (9) provides for the provisions of this clause not to detract from other duties imposed on the Authority or Secretary of State.

105.     Clause 39: Guidance to Authority on social and environmental matters. This clause adds a new section 2A to the WIA. Similar provision was made in the Utilities Act 2000 for the gas and electricity industries.

106.     The clause allows the Secretary of State, or for water and sewerage undertakers whose areas are wholly or mainly in Wales, the Assembly to issue statutory guidance to the Authority. The subject of the guidance is how the Authority might contribute to social and environmental policies.

107.     Subsection (2) in new section 2A requires the Authority to have regard to any such guidance when discharging its statutory functions.

108.     Subsections (3) to (7) in new section 2A set out the conditions under which the Secretary of State or the Assembly may issue guidance.

109.     Subsection (8) in new section 2A requires the Secretary of State and the Assembly to publish any guidance.

     110.     Clauses 40 and 41: Standards of performance in relation to water supply and sewerage service. Clause 40 amends section 39 of the WIA. It extends the existing arrangement whereby the Secretary of State can make regulations in response to proposals for new or amended standards of performance only in response to a specific proposal from the Authority. The amendments made by this clause will allow the Secretary of State to initiate such proposals as long as a number of criteria specified in the amended section are met.

111.     A new subsection (A1) is inserted into section 39 of the WIA to allow the Secretary of State to make regulations either on application by the Authority, or otherwise under certain conditions.

112.     Subsection (3) amends the list of bodies that must be served notice of an application by the Director to include the Council and any other persons or bodies the Secretary of State may consider appropriate.

113.     Subsection (6) inserts new subsections (4) - (8). These subsections allow the Secretary of State to make regulations under section 38 if no such applications have been made, as long as he considers that the regulations will contribute to the attainment of policies relating to public health and the environment, or if not, that there are exceptional reasons why it is otherwise in the public interest that the regulations should be made. The subsections govern the procedure.

114.     Similar amendments are made to section 96 of the WIA in relation to sewerage service, by clause 41.

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Prepared: 24 February 2003