Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence

Examination of witnesses (Questions 140-159)



  140. But I am still left slightly in the dark as to exactly what regulatory framework you would like.
  (Ms Taylor) What we would like is clarity as regards the role that Ofwat should play, clarity as regards the DWI and clarity as regards the Environment Agency. What we would like is not for all of them to have the same responsibilities; we would like clarity as regards their separate responsibilities, so that Environment Agency is concerned with the environment; Ofwat is concerned with economic regulation and so on. What we would then like is a responsibility for DETR to bring those together—to hold the ring, if you like, publicly. What we do not want to see is regulators—

  141. Do you want the Secretary of State to be the Regulator?
  (Ms Taylor) No, what we want is the Secretary of State who, after all, is elected—

  142. But you want the Secretary of State to bring together those competing responsibilities?
  (Ms Taylor) Exactly. We want those competing responsibilities to be brought together in the open in such a way that everybody who has an interest in water—and that has to be the citizens of the UK—can see what is being done. So that is why we would like the ring to be held by the DETR. We would like them to take that responsibility.

  143. How?
  (Ms Golay) Where we would like the Secretary of State's intervention is where there are conflicting objectives. Obviously there are areas where the Environment Agency and Ofwat each pursue their objectives and do not impinge on each other's and so forth. That is not where we think the Secretary of State's intervention is required but when the sustainability of the activities of the water industry do bring into conflict the environmental, economic and social objectives, then choices and trade-offs have to be made. It is at this stage that we think the Secretary of State needs to intervene because those choices are choices rightly made by political processes. What we have called for, and we are not saying it is a definitive world, is for industry-wide debate that would be led by the DETR and we think that could take place through a forum. Now, we have had examples of ad hoc summits that this government called on water and on leakage. We think that those two ad hoc summits might be the precursors for a continuing forum that would exist to debate those issues openly, consult all the stakeholders involved—which would typically include not just consumer representatives but also environmental pressure groups and also other users of water in this country—and through that forum, through that open process, those views from the stakeholders could be made clear and debated in the open, with the eventual outcome being accepted trade-offs between the various objectives of environmental, economic and social sustainability.

  144. What seems to strike me is that what sits behind your suggestions here is an intention to curtail the independence of the regulators?
  (Ms Taylor) I do not think that is what we are saying. What we are saying is that the responsibilities of the regulators should be absolutely clear but that the process, the bringing together, the understandable conflicts there are between the regulators—and they are perfectly understandable—and the responsibility for those should be DETR's, and that that process should be open and transparent so that all the stakeholders involved can see how that is happening. What we want to get away from is a periodic review being a five-year battleground, where you ask, "Is environment going to win this time?"; "Will customers"—so-called—"win the next?"; "How will industry get on battling away with the regulators?". That is not desirable. What we need is long-term planning for the future of the water industry involving all the stakeholders in saying what those long-term goals should be; then we see more of the periodic review as being a five-year review of how we are getting towards those long-term goals. With more openness we believe that will be far better but what we are not saying is that we want to curtail the responsibilities of the regulators because, as far as we are concerned, strong and respected regulators are very important—not just to us but to everybody and to all of our stakeholders.

  145. Which of those qualities did Ian Byatt not meet?
  (Ms Taylor) I think one of the qualities perhaps was a willingness to sit down and to discuss long-term but merely to keep those views and opinions perhaps to himself far too much. Certainly we have seen a change already as regards Ofwat with Philip Fletcher and also as regards the Environment Agency with a new chief executive and a new chairman. We are already beginning to see a change and that is why we feel that this draft Bill is such an opportunity to take matters forward based on, if you like, a great deal of goodwill to try and get it out. People are less and less saying, "This is my area, I am protecting this, I am not willing to discuss it".

  Chairman: You are saying it is a great opportunity but you are not giving us very much clarity as to how you want the legislation changed to make that happen.

Mr Blunt

  146. Does the Bill as it is currently drafted give you the clarity you want?
  (Ms Golay) No.
  (Ms Taylor) No.
  (Ms Golay) It does not and, in effect, it contains a proposal to which we objected because we think it makes the matter less clear even than now, which is a proposal to give Ofwat or the Director General guidance to which he would have regard concerning a number of new social and environmental objectives, and we understand that is the way the Bill would be giving the Director General not just an economic set of duties but a sustainable objective, and we think this is not the way to improve clarity. We believe it would be better if we had some clear objectives set in statute, as they are now or are proposed to be altered, for each of the regulators and that the Bill should also propose that there is a mechanism whereby, when those objectives conflict, the resolution is led by DETR through an open debate. That provision we think should be added to the Bill. In passing, one of the issues with the periodic review just completed was that there was no mechanism, either statutory or informal, whereby the various industry regulators could meet and discuss the resolution of the problems and the conflicting objectives they had. It had been tried in the past under the aegis of the DETR but it did not function in practice on this occasion, so the institutions that would have supported a resolution of the conflicts involved in the regulation and in the periodic review when it is finished were not put in place, and we are suggesting they should be.

  147. Do you have specific suggestions in terms of amendments that should be made to the Bill to put this right?
  (Ms Golay) If you would like specific clauses written down we could submit them to you.

  Chairman: That would be very helpful.

Mr Blunt

  148. Finally, touching on the Water Advisory Panel, what do you think its role should be and should environmental representatives be included on the panel?
  (Ms Taylor) We rather like the idea of the Water Advisory Panel. We would like to see it publish its advice to the Regulator and there is nothing about that in the Bill, so we would like to see that. As regards what it should be responsible for, again we are interested in the clarity as regards the individual regulators and the responsibilities that they should have so we would see the Water Advisory Panel having that same kind of clarity.

Mr Olner

  149. You mentioned stakeholders earlier, and it is a term you have used throughout the answers you have been giving to my colleague. How would you rank those stakeholders?
  (Ms Taylor) I do not think we would dare rank them—

  150. So it is not shareholder first, business customer second, domestic third?
  (Ms Taylor) No because, as regards Water UK we represent the public authorities in Scotland and Northern Ireland as well so, in terms of shareholders, if you look at our business plan—and this may be a failing on our part—the word "shareholders" does not appear. As far as we are concerned, the kind of stakeholders that we have in mind would be environmental, consumer and so on. Those are the kind of people we work with and, indeed, when we were planning our submission to you, we called a meeting of all our stakeholders and talked through with them the kinds of ideas that we were intending to put forward.

  151. So your shareholders are quite happy to take a long-term view on the industry? They are not looking for a quick return?
  (Ms Taylor) That is absolutely essential because the water industry has to be a long-term industry.

  152. And you are convinced that you can attract money from the city to pursue that?
  (Ms Taylor) I am not in the business of attracting money from the city. Some of my members are—not all.

  153. Most of the major players are?
  (Ms Taylor) What anybody wants, however, is to have that kind of clarity as regards long-term and the way forward and traditionally, the water industry has, in fact, attracted investors who are interested in long-term investment. It has not traditionally wanted to be in the volatile end of the investment market, if you like. We have seen that recently at the moment and that has been detrimental to the companies, as far as they are concerned. So yes, we are looking for long-term and clarity.

  154. Why are you opposed to the Director General of Ofwat having a duty regarding sustainable development?
  (Ms Taylor) What we want to see is each of the regulators having their individual responsibilities so there is absolute clarity where they are coming from. What we want to avoid is a sort of environmental Ofwat which would then go into a corner on its own and come out with a decision at the end of it and say, "Well, we have weighed up the balance and looked at customer demands and environmental demands, and here is the answer". We do not think that is right. We think that would cut across the responsibilities of the Environment Agency. We believe Ofwat should have its responsibilities; the Environment Agency should have its responsibilities—

  155. They have already got them?
  (Ms Taylor) Yes—and what we then want is for DETR to grasp its responsibilities more enthusiastically than, maybe, it has in the past and to bring them together, and, where there is conflict, to resolve that in an open and transparent way, so that all our stakeholders can understand.

  156. You mentioned demand. Do you think and do you agree with the Wildlife Trust that the Bill is missing the opportunity to promote demand management?
  (Mr Pocock) I think you need to bear in mind that demand management has two tracks agreed by both industry and government. On the one hand it is about resource development coupled with demand management in terms of the leakage and water efficiency measures. The industry has made significant gains and improvements in leakage to the point at which we are achieving largely economic leakage levels.

  157. But you only addressed the question of leakage when this Committee issued a scathing report on leakage, and we had the summit that you referred to on leakage. You were dragged kicking and screaming to address the issue of leakage?
  (Ms Taylor) I would say that is, sort of, fair comment. That was before Water UK was set up and as far as we are concerned we are here, as I said, to work constructively and openly with you and our other stakeholders and I think the view you put forward is a perfectly acceptable view—it may not be everybody's—and I certainly would not want to argue with you about that. As far as demand management is concerned, however, the industry has a responsibility under the 1995 Environment Act to pursue demand management. That is statutory for it to do, so we think that further legislation is not needed. That happens to be our view and that is why we have not been pressing for further legislation in this draft Bill.

  158. Would you welcome company's specific targets for domestic water use?
  (Mr Pocock) This is a very difficult area. In particular, when we still have a long way to go in understanding the full robustness of demand management in water efficiency measures in terms of sustainability. The industry has made great strides forward and is working together with people like the Environment Agency to understand that long-term benefit, and until we can be sure that water efficiency and demand management measures can be as equitable as water resource measures, I think it is premature to be moving towards targets. I think we still have some work to do and we are very keen to do that and work with others to achieve that and put it into a very robust setting.

  159. But how will your stakeholders then be able to have proper comparisons as to whether you are delivering what you intend to? If you have not got a target, it is meaningless.
  (Mr Pocock) It would be helpful if we looked forward to the point at which we can understand those targets in a robust manner. At the moment those targets may not be founded on a reliable basis. We need to understand that reliability and, therefore, I think at this stage it might be too early. At the same time, once we have achieved that, then that can be reconsidered but it is important that we do not lose sight of the importance of developing resources as well.

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