Select Committee on Constitution Minutes of Evidence

Memorandum by Sir Ian Byatt, Former Director General of Water Services

  This evidence is submitted as a result of my experience as Director General of Water Services (DWGS) from August 1989 to July 2000. It follows, broadly, the questions set out by the Committee in their Call for Evidence.


  1.  I acted under clear legal duties set out in legislation:

    —  my primary duty was to secure that water companies properly carried out their functions and could finance them;

    —  my secondary duties were to protect customers, promote efficiency and facilitate competition.

  My duties could be changed by legislation as, for example, in the Competition and Services (Utilities) Act 1992 and the Competition Act 1998.

  2.  My office was financed from fees levied on water companies. These fees were limited in the licences granted to the water companies and subject to approval by the Treasury.

  3.  The need for regulation of the water companies—and its nature—is decided by the Crown acting in Parliament, i.e. by primary legislation.

  4.  I was appointed by the Secretary of State. I appointed Chairmen of Customer Service Committees (CSCs), in consultation with ministers, and members of Customer Service Committees. In making appointments I sought to achieve a balance of capabilities and interests.

  5.  I was appointed to carry out statutory duties. The successes of water regulation are set out in various OFWAT publications. They are summarised in the attached OFWAT fact sheet.

  6.  My price determinations were subject to appeal to the Competition (earlier the Monopolies and Mergers) Commission. Two companies appealed against my Determinations at the 1994 Periodic Review and two (different) companies at the 1999 Periodic Review. My actions (or inactions) were subject to Judicial Review; one case was heard against me.


  7.  The DGWS is required to send an annual report to the relevant Secretaries of State (then, for the Environment and for Wales) and it was presented to Parliament in pursuance of Section 193 of the Water Industry Act 1991. I appeared on a number of occasions before parliamentary Committees.

  8.  I made myself accountable to the companies I regulated by providing them with the evidence on which I made decisions, and by explaining the reasons for such decisions. I always listened carefully to their representations and made myself personally accessible to them on all major matters. I consulted with companies—and more widely—on all major aspects of methodology and process, including timetables. All price sensitive announcements were made through a process agreed with the Stock Exchange. I consulted publicly on all mergers before advising the Director General of Fair Trading. I gave evidence to the Monopolies and Mergers Commission on larger water/water mergers.

  9.  I believed that I should be accountable to water customers and the public generally. I consulted publicly on major issues and provided regular background information through a series of publications. We encouraged companies and others to conduct market research to establish their customers and did some research ourselves.

  10.  I worked particularly closely with the CSCs. I visited them regularly, both to brief them and to listen to their views in order to devise complementary strategies. I paid particular attention to their views on determining prices at both the 1994 and 1999 Periodic Reviews. I worked closely with the Chairman of the CSCs, first in the Chairman's Group and then in the OFWAT National Customers Council (now Water Voice). I encouraged ONCC to develop its independence without prejudicing the advantage of close working between the CSCs and the Regulator.

  11.  The results of public consultation had a material effect on my decisions—subject to complying with statutory duties. The views of the public influenced the balance between water quality and environmental obligations and prices paid. But the public's view had little effect (as far as I can judge) on important decisions made in the EU.

  12.  Regulators, who are part of government, are given statutory duties. They must discharge them independently of ministers. But they need to work closely with ministers, for example, in defining the water quality and environmental obligations to be placed on water companies. They need, also, to advise ministers on matters such as charging policies and metering.

  13.  Their independence could be compromised if ministers were to try to make improper (ie extra-legal) use of their political strength.

Ian Byatt

21 January 2003

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