Select Committee on Environment, Transport and Regional Affairs Memoranda


Memorandum by OFWAT National Customer Council[10] (DWB 05)

1.  SUMMARY OF KEY POINTS

General

  Proposals are incomplete and publication of consultation paper and draft Water Bill appears to be premature in view of extent of work still in progress.

  Water provisions in Utilities Bill have been re-introduced substantially unchanged and take no account of comments made previously.

Abstraction and Impounding

  Reform of the abstraction licensing system, where the public water supply is affected, could have significant implications for water bills.

Consumer Council for Water

  Powers to obtain information are seriously weakened by:

    —  Giving the Secretary of State power to make Regulations prescribing information to which the Council is not entitled.

    —  Lack of powers to enforce a request if a water company or the Director refuses to provide information.

  Powers to publish information are subject to restrictions which seriously interfere with the Council's ability to perform its functions.

  Provisions relating to publication of forward plans and annual reports are over prescriptive and unnecessary.

  Duty to investigate consumer complaints is not supported by any powers to require a company to act to resolve complaints found to be justified.

  No duty or powers to carry out assessments (or "audits") of the companies' handling of complaints, debt management and other aspects of service.

  Ability of Councils to carry out its functions is prejudiced by proposed level of resources.

Director General of Water Services

  Unclear why an individual regulator is to be retained and not replaced by an Authority as for gas and electricity.

  Role of new Water Advisory Panel to support the regulator conflicts and overlaps with that of the Consumer Council.

  Director will be required to give reasons for key decisions but not to consult the Consumer Council nor to take account of its comments in reaching those decisions.

Competition

  Disappointment that the Government is not yet ready to announce its conclusions to the consultation in April 2000 on options for extending competition in the water industry.

Competition Commission: recovery of inquiry costs

  Costs of water companies' appeals against price limits should not be recovered from customers, irrespective of the outcome.


2.  INTRODUCTION

  2.1  The 10 regional OFWAT Customer Service Committees (CSCs) have statutory duties to represent the interests of customers of the water and sewerage companies in England and Wales. The non-statutory OFWAT National Customer Council (ONCC) comprises the 10 CSC Chairmen. This response has been co-ordinated and is made by ONCC on behalf of the 10 CSCs.

  2.2  The Government's consultation paper brings together a range of measures intended to benefit water consumers in respect of the price and quality of water and sewerage services, to improve the management of water resources and to protect the water environment. We welcome in particular the reintroduction of the provisions on new regulatory arrangements for water which were removed from the Utilities Bill in March 2000. But we are disappointed that these provisions have been reintroduced substantially unchanged except for amendments made to the equivalent energy provisions in the Utilities Bill during its passage through Parliament.

  2.3  In the 10 months between removal of these provisions from the Utilities Bill and publication of the consultation paper on the Water Bill there has been time for Government to take account of representations made by ONCC (and other bodies) prior to and in response to the Utilities Bill, and to get the provisions right. We are pleased to note that the Government is committed to considering proposals that a different line should be taken in the provisions for the water sector than set out in the Utilities Act for electricity and gas. However the Government's consultation concerns not just a different industry but proposals for a new Bill. The provisions in the Water Bill must first and foremost be right for the water industry and for its customers. We do not subscribe to the view that, unless exceptions can be justified, there should be consistency with the Utilities Act.

  2.4  We are also disappointed by what is missing from the consultation paper. There are not only omissions from the draft Water Bill but also a substantial amount of work in progress, not least on competition. Publication of the consultation paper and draft Bill appears to have been premature. Without seeing the complete package of proposals it is impossible to judge and comment on the interaction between proposals for example an abstraction and competition.

  2.5  This response broadly follows the order of the proposals as they appear in the consultation paper. Where our response does not deal with a specific provision or a group of provisions this is because either we have no comment, or the matter is one that does not concern us directly in representing water customers' interests.

3.  DRAFT WATER BILL: ABSTRACTION AND IMPOUNDING

  3.1  We believe that reform of the abstraction licensing system is long overdue. It is vital that the environment continues to be properly protected by the control of abstraction through the licensing system. Fundamental changes to the system could free up access to raw water and encourage competition whilst still protecting the environment. Simplifying the procedures for abstraction licence applications and modifications as well as the transfer of licences and succession arrangements should allow new entrants easier access to water. These measures would serve as a first step towards trading in abstraction licences. Without access to water potential new entrants will not be able to compete for business with long and well established monopoly water companies.

  3.2  We welcome the Government's statement that its reforms should have the minimum impact on water bills while offering greater protection to the water environment. We support many of the provisions set out in the draft Water Bill to reform the abstraction licensing system but we are concerned that customers may be faced with higher bills as a result of the reforms. This could happen if the Environment Agency were to exercise its new powers without fully exploring all options for resolving any water resource management problems believed to be causing environmental damage, especially where water companies operate in environmentally sensitive areas.

Civil remedies for loss or damage due to water abstraction (Clause 14)

  3.3  The proposals to allow a new civil right of action in respect of loss or damage as a result of a licensed abstraction may have significant implications for water bills due to the costs of:

    (i)  meeting any claim for damages awarded by the Court. We believe that in reaching any decision on damages the Court should be required to consider, in cases where the abstraction in question involves a public water supply, whether the practicalities, costs and benefits of all options for securing alternative resources have been fully explored;

    (ii)  precautionary water resource management measures. The water companies may incorporate proposals for additional or alternative resources in their drought plans possibly resulting in higher water bills than would be necessary if the threat of civil action were not there.

  3.4  We ask the Government to consider whether any such costs, either damages or precautionary investment should be ring fenced from the companies' normal operating costs and be borne by shareholders.

Compensation for modification of licence on direction of Secretary of State (Clause 15)

  3.5  The proposal would enable the Environment Agency to revoke an abstraction licence without compensation if it has not been used for four years rather than several years as now. We believe that this could prove damaging to an industrial customer who may have closed a site down for commercial reasons but after five years could justify re-opening it. In reaching any decision to revoke a licence we think that the Environment Agency should be subject to a statutory requirement to have regard to the economic impact its decisions may have on the abstractor.

Recovery of compensation from new licence holder (Clause 16)

  3.6  We recognise the need to ensure good water resource management and understand that in some cases this may be best achieved by revoking one water company's licence in favour of another water company. The provisions would allow the Environment Agency to recover from the new licence holder the costs of paying compensation to the previous holder. We would expect such arrangements to take place only after full consideration of the practicalities, costs and benefits of all the options for securing alternative resources to resolve any water resource management difficulties. The implications for water bills must be taken into account in the decision making process.

Withdrawal of compensation for certain revocations and variations (Clause 17)

  3.7  We are concerned at the potential impact on water bills of the proposal that from 15 July 2012 the right to compensation will be removed if the Secretary of State or the Assembly directs a licence without time limit to be curtailed on the grounds that the abstraction is causing significant environmental damage.

  3.8  Provision of an alternative resource for the public water supply may cost more than the resource for which the licence is curtailed. If customers are expected to bear those costs they need to be certain that the abstraction for public water supply is clearly the sole cause of the significant environmental damage. The practicality and comparative costs of securing alternative resources must also be fully explored and considered.

  3.9  Water companies must be given adequate notice of the Environment Agency's proposals to revoke a licence so that they have every opportunity to locate alternative resources and fully consider the relative merits of each alternative resource identified. We recommend that the Water Resources Act 1991 is amended to require the Environment Agency to notify the Consumer Council for Water of the issue of a notice on a water company. The Council through its regional structure would then have the opportunity to make representations on behalf of customers if it felt that all options had not been explored.

4.  DRAFT WATER BILL: NEW REGULATORY ARRANGEMENTS: CONSUMER COUNCIL FOR WATER

  4.1  The existing system of consumer representation in the water industry has worked well. It is capable of further improvement and the new Director has encouraged the development of stronger and more independent consumer representation within the existing statutory framework. We welcome this but a move to full independence from OFWAT, as proposed by Government requires legislation.

  4.2  The proposals for a new independent Consumer Council for Water will in particular result in the creation for the first time of a statutory body to represent water consumers at national level (instead of a number of statutory bodies at regional level as now). This is a change we welcome as we believe it has the potential to create not only a more powerful voice for consumers but also a body that will take a more proactive role in influencing water industry and OFWAT policies.

  4.3  The Consumer Council must however have equal and not inferior status to OFWAT. It must have the right statutory functions including strong powers, an appropriate regional structure and adequate resources if it is to be and be seen as a credible and effective body. While we welcome many of the provisions set out in the draft Water Bill there are some we have concerns about. There are also some significant omissions.

Establishment of Consumer Council for Water (Clause 23 and Part II of Schedule I)

Regional Committees

  4.4  We are pleased to see that although the Consumer Council will replace the existing CSCs, the Secretary of State and the National Assembly will be given powers to direct the Council to establish committees and to direct the number of committees and the allocation of water and sewerage undertakers to the committees. It is essential for the Council to be underpinned by a regional structure of committees because of the strong regional characteristics in the provision of water and sewerage services. We note that after the first six months the Council may make changes to the regional structure. But we are not persuaded that the approval of the Secretary of State or the National Assembly as appropriate is either necessary or compatible with the Council's independence and consider that this requirement should be dropped.

  4.5  While the proposals provide for each water and sewerage undertaker to be allocated to a committee (reflecting the existing statutory provisions) no specific provision is made for an undertaker to be allocated by the Council to more than one committee. As competition develops and water companies provide services to customers beyond their traditional areas, undertakers will need to be allocated to more than one committee so that customers' interests can be represented locally by the committee for their region (and not by a geographically distant committee). We wish to see Clause 23 reworded to allow more flexibility in the allocation of undertakers to committees where this secures the most effective representation of customers' interests.

  4.6  We question why provision is included in the draft Bill for the Consumer Council to take account of guidance issued by the Secretary of State or Assembly on the appointment of members of regional Committees. It is clearly appropriate that such appointments should be made by the Council in accordance with best practice as set out in the Commissioner for Public Appointments' Code of Practice and Guidance (based on Nolan principles). It is also important in our view that each regional committee has, as the CSCs have now, a mix of people from different backgrounds who bring a variety of experience and skills. There should also be no change to the convention that all members should be appointed in a personal capacity and not as representatives of particular interest groups. These are all matters which we think should be left to the good sense and judgement of the independent Consumer Council and do not call for guidance from the Secretary of State and the Assembly.

Memorandum of Understanding

  4.7  We support the requirement for the Council and the Director to reach agreement in the form of a Memorandum of Understanding on arrangements for co-operation on the exchange of information between them and the consistent treatment of matters which affect both parties. We question however the requirement for the Council to reach a similar agreement with the Secretary of State and the Assembly. It is stated that this reflects the need for co-operation between them on water quality issues and the handling of water quality complaints. The CSCs and the Drinking Water Inspectorate currently co-operate on such matters and we believe therefore that such an agreement would more appropriately be reached between the Consumer Council and the Chief Inspector of Drinking Water.

Membership of Council and regional committees

  4.8  We support the thrust of these provisions which give effect to the Government's intention to establish and maintain a new Consumer Council which is independent of the Director (replacing the current arrangements under which the Director appoints CSC Chairmen and members and provides their staff and other resources). The proposals on appointments strike a sensible balance between the responsibilities of the Secretary of State and the Assembly (for appointments to the Consumer Council and Chairmen of the regional committees) and the Consumer Council (for appointment of members of the regional committees). However it is unclear whether the Government intends that members of the Council should normally also be appointed as Chairmen of the regional committees. We think it is highly desirable to create a link of this kind between national and regional level. We wish to see specific legislative provision made for such a link between appointments.

  4.9  We are pleased to see that provision is to be made for the Consumer Council to pay remuneration to the members of the regional committees in addition to travelling and other allowances, as the Secretary of State or Assembly determines. We believe that the ability to remunerate part time members of regional committees will send a powerful signal that this is an important professional activity to which the Government attaches importance. It will also help the Consumer Council to recruit and retain on the committees people with a good mix of experience and skills drawn from across the community.

Financial provisions

  4.10  We note that the Secretary of State and the Assembly will be required to pay to the Consumer Council such sums as they think fit to enable it to meet its expenses. While such provisions are consistent with the establishment of an independent Consumer Council (which does not rely on OFWAT for funding) it must be appropriately and adequately resourced if it is to perform effectively the role envisaged by Government. However in the Government's draft regulatory impact assessment (to which we will be responding separately) it is stated that the running costs of the Consumer Council are expected to represent no more than "a modest increase" on the estimated £3 million annual running costs of the current system of consumer representation.

  4.11  Allowing for the economies of scale in policy and support services that would be lost in separating consumer representation from the rest of OFWAT this would mean in our judgement that the Consumer Council would overall be no better, and possibly less well, resourced than the current system. In consequence the Council would we believe find that its budget was insufficient to fund adequate research into customers' views, to commission consultants to undertake studies, to remunerate members of the regional committees and to employ the specialist policy, legal and technical staff necessary to carry out its functions effectively.

  4.12  The position of funding for the Consumer Council for Water contrasts with that for the new Gas and Electricity Consumer Council which we understand has an initial annual running costs budget of £10 million. We are at a loss to understand the basis for such a wide difference in estimated running costs.

Forward work programme and annual reports (Clause 26)

  4.13  ONCC and the CSCs (and the Director) already consult on and publish a forward work programme. ONCC and the CSCs (and the Director) already publish an annual report. We consider that the proposals in Clause 26 are over prescriptive in detailing what a forward work programme should contain and what an annual report should cover. We question the need for legislation on these matters at all.

Functions of the Consumer Council for Water (Clauses 31 to 35)

  4.14  We agree, subject to the comments below, with the provisions setting out the main functions of the Consumer Council.

  4.15  The Council's functions appear as drafted not to be limited, as the functions of each CSC are now, to "customers or potential customers of the companies allocated to the committee" (section 29 of the Water Industry Act 1991 refers). Instead the Council's functions relate to the interests of consumers irrespective of whether or not water and sewerage services are provided by a regulated water company. It is unclear whether and if so why the Government intends to widen the Council's functions in this way.

  4.16  We believe it would be sensible to align the Consumer Council's functions in relation to consumers with those of the Secretary of State and Director as set out in Clause 27(2) (new subsection 2C).

Publication of information and advice (Clause 31—new sections 27D and 27F)

  4.17  The Consumer Council is, rightly, to be given powers to publish information but these are subject to restrictions which could seriously interfere with the Council's ability to perform its functions effectively. These restrictions relate to information "the publication of which would or might in the opinion of the Council seriously and prejudicially affect the interests of an individual body" (which would include water companies). Such restrictions appear without good reason to prohibit disclosure by the Consumer Council of information, for example, of incompetence by a water company. We believe it is very much in the consumer interest that the Council should be able to publish such information doing so.

  4.18  We accept that in publishing information a balance has to be struck between the interests of individuals and bodies, including water companies, to whom the information relates. We consider that the balance has been struck in the wrong place in the Government's proposals. We wish to see instead the Council required to apply the test of whether "disclosure is in the opinion of the Council in the interests of water customers".

Powers to obtain information (Clause 31 new section 27G and Clause 32 new section 27J)

  4.19  The power to obtain information is one of the most important powers of the Consumer Council. We are disappointed therefore that the provisions do not give the Council adequate powers in this area. We are particularly concerned that if the Director refuses the Council's request for information there is nothing the Council can do beyond obtaining reasons for this from him. We are also concerned that if a water company refuses the Council's request for information the Council has no powers to enforce its request.

  4.20  We note that the Council will be able to refer a company's refusal to supply information to the Director who will have to decide whether of not the company should be ordered to supply the information. Unfortunately these provisions, far from creating a powerful independent Consumer Council, place the Council in a position of dependence on the regulator in order to obtain the information it believes is necessary to carry out its functions.

  4.21  If the Government is unwilling to give the Council powers to enforce its requests for information we believe that someone other than the Director should act as arbiter. We note that the Secretary of State may prescribe an alternative arbiter in regulations. We believe that this matter is too important to be left to secondary legislation and that the Bill should include provision for disputes to be determined by a person other than the Director, possibly the new Commissioner established under the Freedom of Information Act 2000.

  4.22  The Council's powers to obtain information are further weakened by provisions which give the Secretary of State the power to make regulations setting out categories of information which the Director or a water company may refuse to provide. We think that these proposals should be withdrawn as they appear to be inconsistent with the intention to create a powerful independent Consumer Council. The Utilities Act 2000 (Supply of Information) Regulations 2000 which set out the range of restrictions on the information to which the new Gas and Electricity Consumer Council may have access reinforce our view that a similar approach in water is unacceptable.

Provision of statistical information to consumers (Clause 33)

  4.23  We welcome these provisions which will give the Consumer Council a specific duty to publish statistics on every statutory undertaker's performance against standards of performance and on the numbers of, and handling of, complaints. These are important and significant tasks which will enhance the Council's credibility and status within the regulatory regime.

  4.24  Levels of service information is currently published by the Director and used by him to inform his overall assessments of company performance. We see no reason why the Director should not rely on information published in future by the Consumer Council and we note that the current requirement on the Director to publish such information will cease to have effect.

  4.25  However the consultation paper specifically draws attention to the fact that the Director would not be prevented from publishing such information under his general publication powers. This would result in duplication of effort and unnecessary use of resources if the Director were to publish information that the Council has a specific duty to publish. We invite the Government to consider the need to deal with this anomaly.

Consumer complaints (Clause 34)

  4.26  We believe that the Government's proposals fall well short of what is required in terms of effective handling of complaints. The Consumer Council will have a duty to investigate consumer complaints and it is expected to seek a resolution of complaints. The Council may make representations to the undertaker but the undertaker is not required to respond or take any action. The Council may also following investigation make a report to the Director, the Secretary of State or the National Assembly. However the Council will have no powers of complaints resolution.

  4.27  If consumers are to have confidence when seeking help from the Consumer Council it must not only be able to investigate the complaint but must also have the powers to secure a fair and reasonable outcome. Such powers are especially important in the water industry where unlike other utilities there is as yet very little competition and consumers cannot as a last resort change to another company if their complaint cannot be resolved and they remain dissatisfied.

  4.28  We invite the Government to consider giving the Consumer Council the power to require, where appropriate, an undertaker to pay compensation of, we propose, up to £5,000 in the case of each complaint found on investigation to be justified. We further propose that the undertaker should have a right of appeal to the Director. This would act as a check that the Council has not placed an unfair burden on the company that impacts on its ability to finance its functions where, for example, the decision in one case sets a precedent for other similar complaints.

  4.29  The provisions in Clause 34 also seem to place unnecessary bureaucratic hurdles in the way of offering consumers a "one-stop-shop" service for handling their complaints. In the interests of dealing with consumer complaints promptly and effectively it is important that cases where the Director has statutory powers to determine disputes are referred promptly to him by the Consumer Council and are not dealt with by the Council. Similarly the Director should refer promptly to the Council all complaints which are within its remit. Unfortunately the provisions create complications in the handling of complaints (which do not exist under the current statutory arrangements) and should be amended accordingly. In particular we consider that there are no circumstances in which the Consumer Council should ever investigate a matter which constitutes a dispute which can be determined by the Director. We also see no reason why the Council should only be able to refer such a matter to the Director if the complainant consents.

  4.30  We also invite Government to consider transferring to the Consumer Council responsibility for certain limited categories of dispute which are currently determined by the Director. We have in mind disputes as to whether a customer is entitled to a payment under the Guaranteed Standards Scheme. Such simple matters affecting individual consumers do not require the attention of the regulator.

Standards of performance in relation to water supply and sewerage services (Clauses 29 and 30)

  4.31  We question the case made for the Secretary of State and the National Assembly, as appropriate, to be given wide-ranging powers to initiate proposals for new or amended standards of performance. This seems likely to have the effect of complicating rather than modernising regulation. Currently the Secretary of State and the Assembly can make regulations only in response to specific proposals from the Director. The draft Bill allows for the new Consumer Council to comment on proposals made by the Director, the Secretary of State or the Assembly but not itself to initiate proposals.

  4.32  We believe it would fit well with the new Consumer Council's functions to be given the same powers as the Director to make proposals to the Secretary of State and the Assembly on standards of performance. Giving the Consumer Council such powers would strengthen consumer protection. It would require Ministers to justify, where appropriate, why they would not accept a proposal from the Consumer Council as the body set up by Government to represent consumers' interests on important matters such as their expectations in terms of service standards. The Director should of course have an opportunity to comment on the Consumer Council's proposals.

Auditing of water companies' procedures

  4.33  We believe that the Consumer Council and its regional committees must have a statutory power to audit in order to ensure that qualitative assessments can continue to complement quantitative information about the performance of the water companies. In the absence of competitive pressures in the water industry it is of vital importance that quality of service and how companies treat their customers should continue to be kept under close and independent scrutiny by the Consumer Council. Currently the CSCs carry out audits of the water companies' complaint handling and other key customer service areas such as debt recovery. The findings of such audits are used by the Director to help him measure the overall quality of performance of the companies.

  4.34  These audits are carried out by the CSCs with the agreement of the companies and with the backing of the Director. There can be no guarantee that existing agreements will be honoured by the water companies when the CSCs are replaced by the Consumer Council. Clause 35 of the draft Bill provides for the Council to investigate, subject to consultation with the Director, Secretary of State and the Assembly, matters (other than complaints) relating to the interests of consumers. However, this provision is in our view not sufficient for the Consumer Council to rely on in carrying out a regular programme of audits in each water company.

5.  DRAFT WATER BILL: NEW REGULATORY ARRANGEMENTS: DIRECTOR GENERAL OF WATER SERVICES

  5.1  The Government legislated in the Utilities Act 2000 to establish a single Gas and Electricity Markets Authority in place of the posts of Director General of Gas Supply and Director General of Electricity Supply. The Government's consultation paper on the Water Bill does not explain the differences between the water sector and the electricity/gas sectors that justify not bringing forward provisions to replacing the Director General of Water Services by an Authority.

  5.2  Our position is that we would have reservations about placing the regulator within an Authority or Board structure. We believe that this could inhibit the speed and flexibility with which an individual regulator can respond to events; it would also not necessarily achieve the intended objective of depersonalising regulation. While we believe that there should continue to be a Director General of Water Services solely responsible and accountable for regulating the water and sewerage companies we see some value in the Director being supported by advisors with clear terms of reference.

  5.3  ONCC already functions as a panel of advisors on customer issues and this is a role which will be taken forward by the new Consumer Council for Water. The Director is also currently advised by a (non-statutory) Regulatory Policy Committee, including a number of senior business people, appointed by him, to advise on regulatory issues.

Water Advisory Panel (Clause 22 and Part I of Schedule I)

  5.4  The provisions for the establishment of a Water Advisory Panel create the potential for duplication, overlap and conflict with the Consumer Council. The Panel's role in offering advice to the Director on the exercise of his functions is in our view drawn far too widely and should be specified more precisely.

  5.5  No information is provided in the consultation paper about the criteria for appointments to the panel by the Secretary of State and the Assembly, including crucially whether the panel should include or exclude people with experience of water consumers' interests. It is also unclear who, if anyone, is to chair the Panel. We also note that although it is intended that Secretary of State should appoint members of the panel after consulting the Director and the Assembly, no consultation is envisaged with the Consumer Council for Water.

  5.6  The Water Advisory Panel appears to represent an uneasy "halfway house" type compromise between retaining an individual regulator and moving to an Authority.

Objectives and duties under the Water Industry Act 1991 (Clause 27)

  5.7  The Director's duty to protect the interest of customers as currently set out in the Water Industry Act 1991 is secondary to his duties in relation to the financing and carrying out of functions by the water companies. There is some logic to this because it would not be in customers' interests if companies could not finance their functions and/or failed to carry them out properly. The Director has always paid very close attention to his duty to protect customers' interests. However we have always believed that the legal framework of duties should be presented more clearly and that customer confidence would be improved if the protection of customers' interests were to be made a primary duty of the regulator.

  5.8  We welcome therefore the provisions to amend the existing general duties of the Director (as well as of the Secretary of State and the Assembly) so that he is given a new consumer objective to protect the interest of customers of regulated water and sewerage services, wherever appropriate through promoting effective competition.

  5.9  The one reservation we have is about the precise wording of these provisions which could be interpreted to mean that there is presumption in favour of the promotion of competition over other means of protecting customers which may be equally or more appropriate to the particular circumstances of the water industry. We wish to see the position clarified by Government and the wording of Clause 27 amended accordingly.

  5.10  We welcome in any event the proposed requirement that the Director should promote effective competition (and not facilitate as now).

Guidance on social and environmental matters (Clause 28)

  5.11  These provisions empowering the Secretary of State to issue statutory guidance to the Director General represent a continuation of the trend, last seen in the charging policy provisions of the Water Industry Act 1999, for the Government to seek via the regulator to use the water industry as a vehicle to deliver its social policy objectives. Our view remains that the Government should rely on other agencies and mechanisms to do this. However, where the Government wishes the water companies to implement particular social policy actions in respect of their customers specific legal provision should be taken instead of the issue of guidance to the regulator.

Financial penalties (Clause 36)

  5.12  We support these provisions which will give the Director, the Secretary of State or the Assembly the power to levy a fine of not more than 10 per cent of an undertaker's annual turnover for specified failures including failure to achieve prescribed standards of performance. This power will act as a powerful incentive on water companies to avoid any infringement.

  5.13  We note however the receipts from financial penalties will be paid into the Consolidated Fund. We think that such receipts should be passed back to consumers in the form of a credit to water bills as compensation for their company's failure.

Links between Directors' pay and standards of performance (Clause 38)

  5.14  Despite a history of customer dissatisfaction with increases in executive remuneration, control and supervision is and should in our view remain a matter for shareholders not the regulator. We are however in favour of measures to achieve transparency between remuneration and the achievement of rigorous quality based customer service standards. We support the provisions set out in Clause 38.

Reasons for decisions (Clause 39)

  5.15  We support as a matter of good practice the requirement that the Director, Secretary of State and Assembly should give reasons for their key decisions.

  5.16  We wish however to see a new and corresponding requirement that before reaching a decision on a key issue the Director, Secretary of State, Assembly and Environment Agency must consult and take account of the comments of the Consumer Council for Water and its regional committees.

  5.17  Given the new powers the Environment Agency will have in relation to abstraction licensing and the impact these may have on water customers' bills if the public water supply is involved we believe Clause 39 should be extended to the Environment Agency. A requirement on the Agency to publish the reasons for its key decisions would further increase its accountability.

6.  DRAFT WATER BILL: NEW REGULATORY ARRANGEMENTS: OTHER PROVISIONS

Drinking Water Inspectorate (Clause 43)

  6.1  We support the provisions to increase the status of the Drinking Water Inspectorate and to establish clearly its legal separation from Ministers by enabling the Secretary of State to appoint a Chief Inspector of Drinking Water after consultation with the Assembly, and to appoint other Inspectors.

  6.2  We also support the proposals to increase the maximum penalty available in the Magistrates Court for the offence of failing to provide Inspectors with assistance or information from £5,000 to £20,000.

Penalties (Clause 45)

  6.3  We support a similar increase to that in Clause 43 in the maximum penalty for the offence by a water undertaker of supplying water unfit for human consumption. We note that serious cases can still be brought in the Crown Court where fines are unlimited and that Magistrates will continue to be able to refer any case to the Crown Court for sentencing. We believe that these proposals reinforce the message to existing water companies (as well as new entrants to the Industry) about how serious the offence of supplying water unfit for human consumption is viewed.

Drought plans (Clause 46)

  6.4  We note that the proposal will place water companies under an enforceable duty to prepare, maintain and publish drought plans. These are currently produced on a voluntary basis. Since continuity of supply, particularly in drought conditions, is a priority as a service standard for water customers we believe there should be an opportunity for formal customer input to the preparation of the drought plans. The Consumer Council for Water through its regional committee structure would be well placed to represent customers' views on this issue so ensuring that their interests can be balanced against the water resources and environmental protection issues.

  6.5  We believe therefore that the Consumer Council for Water should have the status of a statutory consultee to the preparation and review of drought plans in addition to the Environment Agency, Director General and Secretary of State. This would be consistent with and follow the precedent of Regulation 3 of the Water Industry (Prescribed Conditions) Regulations 1999 which provides that any decision taken by the Secretary of State as to whether an area should be designated as water scarce should be subject to statutory consultation with customer representatives in the area in question.

Water conservation by undertakers (Clause 53)

  6.6  While we respect the need to protect the water environment we have reservations about the potential implications for water bills if the Environment Agency chose to impose unrealistic requirements for furthering water conservation on the water companies. The Director General already has a role in setting leakage targets for water companies and in monitoring how they deliver their duty to promote efficient use of water among customers. The proposal presents a risk of duplication of activities and of conflict developing between the Environment Agency and OFWAT. We believe that there is a need for their respective roles and responsibilities to be clarified in relation to furthering water conservation by undertakers.

Draft Water Bill: Fire Hydrants (Clause 54)

  6.7  From time to time fire authorities have contacted CSCs to complain about being required to meet the cost of replacing fire hydrants in good condition when they are removed by the water companies when renewing or renovating water mains. Northumbria CSC, for example was first involved as long ago as 1993 in supporting local Fire Brigades in negotiations with the water companies on this matter.

  6.8  We support in principle the proposal that water companies should be liable for the cost of replacing fire hydrants in the circumstances described above. We think however that there should be a sliding scale so that water companies do not have to bear the full cost of replacing fire hydrants which have little wear left in them.

Provision of public sewers otherwise than by requisition (Clause 57)

  6.9  We support the proposal to amend the existing legislation and to provide for public sewer connections to replace non-mains drainage for properties that were substantially completed after 20 June 1995.

7.  DRAFT WATER BILL: WORK IN PROGRESS

Competition

  7.1  We are disappointed that the Government is not ready to announce its conclusions to the consultation in April 2000 on options for extending competition in the water industry.

  7.2  In our response to that consultation we stated that customers are increasingly contacting the CSCs to ask about the development of competition in the water industry. Many water customers have experienced the benefits of competition in the electricity, gas and telecoms sectors where they have exercised choice and switched to another supplier offering a more attractive price and service package.

  7.3  In contrast to other utilities the introduction of competition in the water sector has developed very slowly since privatisation 11 years ago. Giving the Director a new duty to promote competition, while welcome must be accompanied by action by Government, both legislative and political, to drive forward the opening up of the industry to competition.

Information on water company performance

  7.4  The proposals to include provisions to give the Secretary of State (and the Assembly) additional powers to require water companies to provide their customers with reliable, comparative, information about their performance appear to cut across the key role in publishing information that is intended by Government for the new Consumer Council for Water. We also have reservations about the extent to which customers will be interested in receiving such information from their companies. We are concerned too whether the costs that will be imposed on the industry of this measure can be justified.

  7.5  We welcome therefore the Government's intention to work with water companies on a pilot scheme. We believe that comparative data about water bills should be included in the performance information made available to customers so that they may judge the value for money provided by their water company relative to others. However in advance of seeing the results of the pilot we believe the Government's proposals set out in the consultation paper are premature and we cannot support the inclusion of such provisions in the Bill.

Economic instruments

  7.6  We are disappointed that the Government is not yet in a position to publish its decisions on the scope for applying economic instruments to water abstraction. The reforms to the abstraction licensing system proposed in the draft Water Bill could be enhanced by including measures such as trading in abstraction licensing. Such a step would act as a means of encouraging competition in the water industry.

Water Resale

  7.7  In the absence of a Resale Order made by the Director General, some CSCs have received regular contact from park home owners and site owners seeking guidance and clarification on the basis for the calculation of a maximum resale price for water and sewerage services. Knowing how much a site owner, as the reseller, pays to a water company has given reassurance to park home owners that they are paying a fair price for water and sewerage services and are not being overcharged.

  7.8  We therefore support the proposal to give purchases of water services, such as park home owners, a right of access to information about the basis on which their bills are being calculated. We also support the proposal that customers should be entitled to interest, at a rate set by the Director General, when they are found to have been overcharged.

8.  OTHER ISSUES FOR INCLUSION IN WATER BILL

Recovery of surface water drainage and charges

  8.1  We wish to see section 142 of the Water Industry Act 1991 amended so that water and sewerage undertakers may levy charges only for services that are supplied to individual customers. Under current legislation water companies are able to fix and adopt such methods and principles for the calculation and imposition of water and sewerage charges as appear to the company to be relevant. Historically charges for sewerage services have included a charge for surface water (and highway) drainage even though all properties do not have a connection to the public sewer for surface water drainage.

  8.2  Water companies generally assume that properties are connected for surface water drainage and charge for the provision of this service unless informed by the customer that a connection does not exist. It is in our view wrong in principle for customers to be charged in this way for a service they do not receive. In approving companies' charges schemes for 2001-02 the Director General will require all sewerage companies to provide for rebates for non-connection for surface water drainage. But the onus will remain with the customer to claim the rebate. We think the position is unacceptable and that the existing legislation is long overdue for revision to redress the balance in the customer's favour.

Competition Commission: recovery of inquiry costs

  8.3  We wish to see action taken by Government to protect customers in future from having to fund the costs of inquiries by the Competition Commission into appeals by water companies against price limits set by OFWAT. The Competition Commission in its recent reports of inquiries into appeals by Mid Kent Water and Sutton and East Surrey Water decided, having taken legal advice, that the costs of the inquiries incurred by the companies, OFWAT and the Commission itself should be allowed for in setting new price limits. Customers of each company will therefore not only pay higher bills because the appeals were successful but will have to pay the costs of the appeals. This is an iniquitous and wholly unacceptable practice for funding these inquiries.

  8.4  Customers, and the CSCs as their statutory representatives, unlike the companies, have no right of appeal against price limits set by OFWAT and no right to be heard by the Competition Commission. The companies on the other hand, provided they have reasonable grounds for an appeal, can expect all the costs to be awarded against customers whether or not the Commission decides to adjust price limits in a company's favour. We believe it would be fairer that irrespective of the outcome of an inquiry costs should not be recovered from customers.

  8.5  We wish therefore to see provisions introduced in the Water Bill which would have the effect of requiring the Competition Commission in setting new price limits for a company on appeal to disregard the costs incurred by the company, the Commission and OFWAT. The Commission's and OFWAT's costs could still be recovered from the company through the licence fee but would not impact on water bills. But we think there is a case too for considering whether the Commission's own costs in these type of inquiries might not be borne instead by the taxpayer as is the case some for non-regulated industry inquiries.

January 2001


10   On behalf of the 10 regional Customer Service Committees. Back


 
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