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


Examination of witnesses (Questions 200-219)

TUESDAY 6 FEBRUARY 2001

MS PAMELA TAYLOR, MS JEANNE GOLAY AND MR MIKE POCOCK

  200. What does that say about the industry?
  (Ms Golay) The industry is a long-term industry which uses assets that can last 100 years.

  201. But you say that you approve of a sustainable water industry, and that is long term. We are planning for the long term in this Bill, and any regulation would all be about that. Why are you so scared?
  (Ms Golay) We are not scared about the long term: we have lived with it, and our ancestors have lived with it.

  202. Can you not get long-term mindedness, if that is the correct expression? Can you not get the putative investors to be mindful of the long term?
  (Ms Taylor) That is what they want.

  203. Yes, but you are saying they would not want to invest because of the perceived regulatory risk?
  (Ms Taylor) It means it is more expensive to get more investment.

Chairman

  204. How much more expensive?
  (Ms Golay) Well, if you compare the rate of return in telecoms to those of the water industry, they are very different. I do not have the exact figures but they are at least double.

  205. But that is to do with the technology rather than the type of regulation. On this particular point, we are told of this increased regulatory risk. All I am asking you is how much and is it merely that somebody makes a lot of money by putting out a document in the city which says there has been an increase in regulatory risk? Is there really that much increase in risk in terms of the return on the capital?
  (Ms Golay) There will be out of the Bill an increase in regulatory risk for at least two reasons, and there might be others. One is the short term impact of the abstraction licensing regime, and the second regulatory risk is that, with the Director General having a greater variety of objectives to pursue—and not just those which are currently in the statute you are proposing to change in that Bill but also having regard to new social and environmental objectives not yet defined—the balance in the way those various objectives are going to come out is a bigger unknown than it would be if we had transparent regulation with specific objectives, so each Regulator's is set out in statute, and the ring is held by DETR. The open debate would be a good pointer to how the balance will be struck and what will be acceptable.

Christine Butler

  206. I think we have noted a nervousness there. On charging for water, would you welcome new provisions in the Bill to redress the regressive nature of continued charging on the basis of old rateable values and metering?
  (Ms Taylor) It is interesting that you raise that in that a number of water companies have looked at other possible charging methods that they think may be suitable as regards local circumstances and their own customers. Some have looked at the possibility of council tax as an unmeasured basis and others have looked at other ways and actually created their own formula for discussion with their customers. This, however, has been staunchly opposed by DETR which we find a shame because certainly we would be happy to look at this.

  207. What are your preferred options?
  (Ms Taylor) Our preferred options are for the companies to do what they think would be right as regards the profile of their customers.

  208. But not for the Regulator to have that kind of decision and decide what he thinks is right to do? It seems you want the cake and to eat it. Could you be specific? Exactly what kind of charging regime would you propose?
  (Ms Taylor) A range.

  209. But could you spell this out? What are the preferred options for the water industry?
  (Ms Golay) There is no single set of preferred options. It is really an issue best left to companies to work out according to their customer base and their circumstances what are the best charging methods in their area.

  210. Do you not have a view on whether to use rateable values or council tax data or metering or anything? Can you not tell us about any mechanism you might propose for charging for water?
  (Ms Taylor) No, because that implies that England and Wales is the same; all areas are the same; deprivation is evenly spread; large families on low incomes are evenly and neatly spread and so on, and they are not. So we would say that what we would like would be the flexibility for companies to devise a range of charging schemes, whatever they would find most appropriate for them and—crucially—for their customers.

Chairman

  211. So if we are going to have competition between water companies for the supplying of water, then it would be perfectly reasonable for somebody just to tender for a price of supplying water to a particular household in different parts of the country?
  (Ms Taylor) If you are touching on competition that is sadly an area where this draft Bill is completely silent, and you will know that we have said that we very much regret that and we would like to see competition in the industry—and we mean real competition.

  212. I understand that but, if it is going to be real competition, how do you do a charging regime?
  (Ms Golay) One of the benefits of competition is that it encourages innovation and existing companies and new entrants to find new ways of keeping their customers happy. I am sure that one of those will be finding a way of charging customers which fits in with the way customers would like to be charged.

Christine Butler

  213. But you have not come up with any single idea about charging. You have not stated any single preference or preferences.
  (Ms Taylor) No, but that is not an advantage necessarily.

  214. Is this a commonly held view throughout the water industry and for every water company?
  (Ms Taylor) What?

  Christine Butler: The ideas that you are putting?

Mrs Dunwoody

  215. Flexibility so companies can do what they like and be non-committal.
  (Ms Taylor) It is not so they can do what they like; it is so they can do what is most appropriate for their customers.

  216. But who determines that? Since there is no competition between the people in the south west and the people in the north west, would that not be determined by the companies, unless they move?
  (Ms Taylor) Yes, but what you cannot do is criticise us when we are asking for competition to be introduced; we are begging for it; and we have a draft Bill that is silent on it which we think is poor, to be polite. So if we are saying that we want to see increased—

Chairman

  217. You say you want competition; what we are saying is charging regimes within that competition framework because you are not going to be able to say that Thames Water is going to be able to put their water down my pipes in Manchester. What you are going to say is there is going to have to be some interchange, so will Thames Water be entitled to offer any charging regime that they think is appropriate to me in Manchester, or are they going to have to have at least a common charging system between them and North West Water so that the customer can judge value for money and somebody can judge the question of who pays for the water to be collected?
  (Ms Golay) It would be nice to have a legislative framework that would—

  218. But you want a legislative framework, so what I am saying is, in that legislative framework, how do we sort out those sort of problems?
  (Ms Golay) I am sure, if Thames came to supply Manchester customers—

Mrs Dunwoody

  219. Manchester would be broke!
  (Ms Golay)—Thames would devise a system that made its offer attractive to the Manchester customers, and it might not be the same charging basis that North West Water uses in Manchester. That is what competition would deliver.


 
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