Select Committee on Constitution Minutes of Evidence

Memorandum by WaterVoice


  1.  WaterVoice is the "consumer watchdog" for the 10 water and sewerage companies and 14 water only companies in England and Wales. WaterVoice comprises the nine Ofwat Customer Service Committees in England and the Ofwat Customer Service Committee for Wales set up under the Water Act 1989 (and superseded by the Water Industry Act 1991) following the privatisation of the water industry in 1989. The name WaterVoice was introduced in April 2002 with the support of Ministers and the Director General of Ofwat to achieve a higher public profile among water consumers, the media and other interested bodies and clearer separation from Ofwat.

  2.  The 10 WaterVoice committees have statutory duties to represent the interests of customers of the water company or companies allocated to them and to investigate complaints from customers about their water company. The 10 committee Chairmen form the WaterVoice Council. The Council and its sub-groups deal with issues at national and European level.

  3.  The Director General of Ofwat has statutory responsibility for appointing the Chairmen and, on the recommendation of each Chairman, members of the 10 WaterVoice committees. He also appoints the staff who work for WaterVoice. WaterVoice is funded by the Director General who is responsible as Accounting Officer for WaterVoice's expenditure. Despite these close connections the Director General respects the right of WaterVoice to speak independently of Ofwat in representing the interests of customers.

  4.  In preparing our evidence to the inquiry we have shared it with Ofwat, and vice-versa, to minimise duplication. Our evidence does not attempt to address all of the questions set out by the Committee in its invitation to make written submissions. Instead our evidence focuses primarily on the relationship between Ofwat and WaterVoice and the accountability of Ofwat to WaterVoice and to water customers more generally.


  5.  The statutory duties and powers of the Director General of Water Services, his purpose, achievements and rights of appeal against his decisions are set out in Ofwat's written evidence to the Committee. We are in general agreement with Ofwat's evidence about these issues but we have some additional points to make from our standpoint as the body representing customers' interests.

  6.  The current Director General, Philip Fletcher, who took up post in August 2000 in succession to the first postholder Sir Ian Byatt, was appointed by the Secretary of State for Environment, Transport and the Regions (as was then) and the National Assembly for Wales. The appointment is primarily a matter for Government. However, we record as a matter of fact that there is no statutory requirement for consultation with the official water customers' representative body in appointing the Director General. We also record that we were not consulted informally about the job and person specifications for the post nor were we involved in any other way by Government before the appointment of the new Director General was announced.

  7.  The Government intends to include provisions in the Water Bill to replace the post of Director General by a Water Services Regulation Authority (WSRA). We welcome these plans which are preferable to the Government's original proposals which were to retain the post of Director General but supported by a new Advisory Panel. We were concerned that this Panel could have resulted in confusion and overlap on consumer issues with the role of the new Consumer Council for Water (CCW) (see paragraphs 23-26). In the meantime the current Director General has created a non-statutory Regulatory Board to which he has appointed four Non-Executive Advisory Directors. There was informal consultation between the Director General and the WaterVoice Council Chairman in the making of these appointments.

  8.  The Water Bill provides for the Chairman and members of the WSRA to be appointed by the Secretary of State and the National Assembly for Wales. There is no statutory requirement for consultation with the CCW. However, we believe there is a strong case for informal consultation with and involvement of the CCW by Government in the recruitment process.


  9.  The ways in which the Director General of Water Services is accountable to Parliament, to Government, to the water companies that he regulates, to customers, their representative bodies and other bodies are set out in Ofwat's written evidence. We are in general agreement with Ofwat's evidence about these issues but we have some additional points to make from our standpoint as the body representing customers' interests.


  10.  With the support of the current Director General the separate roles of and the working relationship between Ofwat and WaterVoice were set out for the first time in a Memorandum of Understanding (MoU) signed in January 2002 between Ofwat and WaterVoice. The MoU built on the good practice that had developed since Ofwat was formed in 1989 between economic regulation and customer protection on the one hand and customer representation on the other. The MoU formalised the arrangement whereby WaterVoice speaks independently of Ofwat.

  11.  Under the existing constitutional arrangements there is a good and close relationship between Ofwat and WaterVoice at working and senior levels. Under the current relationship Ofwat provides us with advice, information and briefing, seeks our views informally and consults us formally when matters are put out to public consultation on a range of regulatory issues including the setting of new price limits for each water company.

  12.  The Director General has a working relationship with WaterVoice at both national and regional level. Of particular note are that:

    (i)    the Director General attends an annual meeting with each of the 10 WaterVoice committees to discuss Ofwat and WaterVoice business and current developments;

    (ii)   the Director General holds an annual two way performance review meeting with each committee Chairman: performance against the Chairman's personal objectives agreed at the start of the year is discussed and new objectives for the year ahead agreed; as part of this process Chairmen have an opportunity to comment on the performance of Ofwat Heads of Division and vice versa;

    (iii)  the Director General normally attends part of every WaterVoice Council meeting to report on and answer questions about his work; and

    (iv)  the Director General and the WaterVoice Council Chairman meet regularly on a monthly basis to discuss policy issues and management business.


  13.  Ofwat in regulating the water industry has to balance the interests of customers and other stakeholders. In general we are satisfied with the way in which the Director General consults on regulatory issues and explains the reasons for his decisions. However as knowledge of and interest in regulation grows so, rightly, do customers' expectations—and our expectations—of what regulation should deliver and how it should operate. Against this background we believe that there is scope for improvement which would increase the extent to which Ofwat is and is seen to be accountable. We offer examples below.


  14.  The technical content, complexity and length of Ofwat consultation documents are not conducive to effect public consultation and participation in the debate, thereby limiting input to those with special knowledge.

  15.  The Ofwat consultation paper "Setting price limits for 2005-10: Framework and approach" published in October 2002 provides a recent example. This runs to 132 pages, uses industry and regulatory terminology but does not include a glossary of terms for non-specialist and less well informed readers. An executive summary was included in the consultation paper and was published separately but this was written in similar language. We would like Ofwat to do more to improve the accessibility of consultation documents, for example by producing more explanatory material aimed at the general public (such as the Ofwat leaflets on annual water bill increases). We were pleased to note that the final "Setting price limits for 2005-10" document published, following consultation, on 27 March 2003 used less jargon in the executive summary and included a glossary of terms.


  16.  Ofwat normally publishes adequate information in support of the proposals or options on which it is consulting and allows a reasonable length of time for consultation, often a period of 12 weeks as recommended in the Government's Code of Practice on consultations. Where the consultation period is shorter, this may be unavoidable because for example it involves a water company merger proposal where the timetable is set by the Office of Fair Trading or matters where the timetable is prescribed in the water company's licence. Ideally the consultation period set by Ofwat should take into account the timetable of WaterVoice committee meetings, so that discussion by the full committee and adequate local consideration can take place.

  17.  In this context we had reservations about Ofwat's handling of a consultation last year on an important proposal to extend the minimum period of notice to terminate a water company's licence from 10 to 25 years. Initially the consultation, limited to an eight week period, took the form of a statutory public notice with little supporting information. Fuller information was provided when we asked for it. Before public consultation Ofwat had consulted and obtained the agreement of Ministers to the proposal and Ministers' agreement was made public at the start of the consultation. We believe that this gave the impression that the outcome of the consultation was a foregone conclusion. Ofwat has said that circumstances of this particular consultation were exceptional and are unlikely to be repeated. We hope very much that this will prove to be the case, and that this consultation will serve as a reminder of how regulatory accountability can sometimes fall short of customers' expectations.


  18.  Ofwat does publish its conclusions following public consultation but we believe that as a matter of good practice Ofwat should always include sufficient analysis and explanation of decisions so that respondents can see to what extent their individual views have been influential. Ofwat has responded to our comments on this aspect of communications in the case of its "Setting price limits for 2005-10" consultation (referred to at paragraph 15) by publishing on 27 March 2003 a full summary of responses and conclusions.


  19.  Commercially sensitive and other confidential information to which Ofwat and WaterVoice have access requires appropriate care to safeguard it. The Director General is willing to share such information with WaterVoice on a strict need to now basis normally, where a specific water company is concerned, with the relevant WaterVoice committee Chairman but not with the Council.

  20.  While we welcome the Director General's approach, this has limitations as WaterVoice moves towards becoming the Consumer Council for Water. It means that other Council members with expertise are unable to offer advice or to be consulted. It also means that where a confidential issue, such as recently the resolution of Vivendi's proposed acquisition of Southern Water, has wider implications for the future of mergers between water companies, the Council cannot discuss or influence the issue before the Government's and Ofwat's advice has been published. We will consider this matter further with Ofwat in light of any views on this sensitive area that may be expressed by the Committee in the report of its inquiry.


  21.  The Ofwat Board comprises the Director General (who chairs it); Ofwat's four Directors and the four Non-Executive Advisory Directors appointed by the Director General. The Ofwat Board hold its meetings in private and the agenda and minutes are not published. We invite the Committee to consider, as Ofwat exists to regulate in the public interest, the extent to which information about the nature of the Board's business and the advice given by the Board to the Director General should be published. The same issues will arise in respect of meetings of the new Water Services Regulation Authority to be set up subject to enactment of the Water bill. Bodies as diverse as the Environment Agency and NHS Trusts already publish the minutes of Board meetings, as does the Monetary Policy Committee. The minutes of our Council and regional committee meetings are also published.


  22.  Ofwat has a duty as regulator to minimise the serious problem of sewer flooding. Section 94 of the Water Industry Act 1991 places a duty on sewerage undertakers to provide, improve, extend and maintain a system of public sewers so that its area " ... is and continues to be effectually drained". Breach of this duty is enforceable by Ofwat; however, enforcement action has never been taken in response to sewer flooding or for any other reason. In contrast water and sewerage undertakers have been prosecuted by the Drinking Water Inspectorate and the Environment Agency for failures in drinking water quality and in wastewater treatment and disposal. The Committee, in the course of its inquiry, may wish to seek Ofwat's views on the use of enforcement action in relation to section 94.


  23.  The current system of consumer representation in the water industry is subject to change under proposals introduced by Government in the Water Bill published on 20 February 2003. Subject to enactment of the Bill the Ofwat Customer Service Committees will be wound up and replaced by a new independent Consumer Council for Water (CCW) and new regional committees in England and Wales. The Government has decided that these reforms should not be implemented before April 2005 to avoid changes to consumer representation during Ofwat's periodic Review of water companies' price limits which is due to be completed in November 2004. We welcomed this decision.

  24.  The proposed CCW should give water customers a stronger, independent voice for their interests which Ofwat, as regulator, has to balance with the interests of the water industry and other stakeholders. However, we have expressed concerns to Government that it is not sufficient for the CCW to have statutory independence; it must have strong powers to carry out properly the role expected of it.

  25.  In some areas the powers proposed in the Bill fall short of what experience tells us is required. For example, the CCW must be able to obtain information from the water companies. But in the event of a refusal the Water Bill provides for Ofwat to decide whether the water company should be ordered to supply the information requested from it by the CCW. Ofwat will also be able to decline to supply information requested from it by the CCW. A further example is that Ofwat will not be subject to a statutory duty to consult and take account of the CCW's comments in the regulatory decision-making process.

  26.  The Water Bill contains provision for a Memorandum of Understanding (MoU) between the CCW and Ofwat covering amongst other matters, arrangements for co-operation in the exchange of information. We do not think an MoU is a proper substitute for strong powers for the CCW on the face of the Bill if it is to have an effective role to play on behalf of water customers in holding the regulator to account.

Roy Wardle

Council Secretary on behalf of WaterVoice

31 March 2003

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