Select Committee on Environmental Audit Minutes of Evidence


Memorandum from South Staffordshire Water PLC

Water Prices and the Environment (HC597)

  South Staffordshire Water PLC are members of Water UK and we understand that you have invited comments on the above Report from interested parties.

  Overall we are happy with the contents of the Report and feel that the Committee's recommendations are sensible and demonstrate a good understanding of the pertinent issues arising from the 1999 Periodic Review of water prices. It is our view that the maintenance of the infrastructure, particularly underground assets, is the most important issue that was not adequately addressed at the 1999 Periodic Review. The Committee's comments in this area are welcomed. Below we have sought to share with you our observations on some of the recommendations contained within your report.


  We welcome the suggestion that independent surveys should be commissioned by DETR. The EAC suggest that the structure and content of customer research should be discussed within the quadripartite group. It may also be appropriate to involve bodies such as the Consumers' Association. (Para 52)


  We are not convinced that it should be the role of Environment Agency to scrutinise the costs of environmental schemes. Ofwat are better placed to perform this role (Para 90).


  Our experience is that water changes are inelastic and hence demand does not change significantly when the price charged changes. However, in the interests of allowing customers to budget for their water bill, smoothed prices are preferred (Para 128).


  The UK Government should encourage new European legislation to be clarified at the earliest opportunity. Our experience is that uncertainty over the extent of new obligations presents unnecessary pressures at the time of Periodic Reviews, especially when there have been premature public statements that water bills will be falling. (Para 142). This view also applies to the UK-driven environmental programme (Para 151).


  We would dispute the conclusion that a suitable framework is in place. During the 1999 Periodic Review it was clear that Ofwat and the DWI had different timetables and that many of the quadripartite members were not communicating well. Even today, over twelve months from the Final Determination, the DWI has not confirmed the necessary Water Company action to deal with EU lead compliance legislation. (Para 172).


  We would like to emphasis the importance of this issue. The Committee's recommendations are welcome, although we feel that it is important to agree deadlines and targets for action to be taken, otherwise the debate over asset maintenance will linger. (Paras 198-211).


  Many of the recommendations relate to a wider, more involved and strategic role for the DETR. This raises two important issues—the independence and resourcing of the DETR. The EAC should consider whether each of these is adequate. Currently the policy-making expertise is at Ofwat, whose resources are far greater than those at the DETR who consider water issues.

  In supporting the vast majority of the Committee's recommendations, we are anxious to understand how their implementation will be monitored. We would hence appreciate clarification of the process to ensure that the quadripartite members take actions to comply with the recommendations.

  We are, for example, concerned that Ofwat have recently concluded that research by MORI into the 1999 Periodic Review process and the two Competition Commission reports (following appeals by two water companies) is evidence that virtually all was well with the price review process, when the EAC's recommendations indicate the process should be improved. In addition Ofwat's draft forward programme for 2001-02, albeit published only shortly after the EAC's Seventh Report, contains few proposals that would comply with the Committee's recommendations.

  Finally, we note the EAC, whilst producing a comprehensive report, did not comment on all of the key approaches used by Ofwat to determine price limits. There was clearly widespread misunderstanding amongst the quadripartite members with respect to the application of issues such as long run marginal cost (LRMC) estimates; supply security/headroom requirements; methodologies to determine an economic level of leakage; demand forecasting techniques; broad equivalence; cost base; cost of capital; and the econometric efficiency models. We hope that is useful to flag these issues with you.

January 2001

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