Draft Water Bill

Written evidence submitted by Consumer Council for Water

1. Introduction

1.1 The Consumer Council for Water (CCWater) is the independent, non-departmental public body representing the interests of water and sewerage consumers across England and Wales. We have four local committees in England and a committee for Wales.

1.2 We have worked with the water industry and its regulators since 2005 to get the best results for water consumers. In that time we have:

· been central to achieving the customer focused outcome from the 2009 price review, which was over £1bn better for water customers than the 2004 price review when CCWater did not exist;

· convinced water companies to return over £286m to customers through either additional investment or bill reductions;

· dealt with over 101,000 complaints;

· helped customers get over £14.7m in compensation from water companies; and

· cost 21p for each water bill payer in 2012-13.

1.3 We welcome the opportunity to submit evidence to the Environment, Food and Rural Affairs (EFRA) Committee inquiry to conduct pre-legislative scrutiny of the draft Water Bill.

1.4 Our evidence is provided from the perspective of water consumers, both household and non-household, and is based on our wide ranging consumer research undertaken over the past seven years, as well as our experience in helping customers with their complaints and enquiries.

2. Section One – Overall Response

2.1 Issues in the draft Water Bill that we believe will help deliver improvements for water customers

2.1.1 CCWater broadly welcomes the draft Water Bill as it addresses a number of issues on which CCWater has been working on behalf of water customers, such as:

· Increasing choice for non-household customers by encouraging new water and sewerage service suppliers into the market and extending competition to all non-household customers in England, without the additional cost of legal separation;

· Ensuring the non-household and household customers’ voice is heard. Having CCWater as a consultee on issues such as the development of market codes, the wholesale access pricing regime, and the approval of charges schemes process is a positive step;

· Extending the time period during which Ofwat can levy a financial penalty on water companies, and increasing Ofwat’s information gathering powers; and

· Making the best possible use of water resources by exploring cost-effective bulk supplies and water trading between companies and with new entrants.

2.2 Issues in the draft Water Bill that we believe need exploring further to ensure customers see benefits not detriment from new legislation

2.2.1 These are:

· Making sure the new market mechanisms, systems and frameworks can cope with the level of activity that further market reform could generate, and that the set up of the new market is done efficiently to minimise the cost and maximise the benefits to all customers;

· Ensuring CCWater is consulted about appropriate mitigation measures to protect customers when water companies merge;

· Requiring in legislation water companies to consult with CCWater about their charges schemes to ensure proposed changes in tariffs do not result in any detriment to customers.

Responses to the EFRA Committee’s questions

3 Are the powers contained in the draft Bill sufficient to achieve the policy aims set out in the Water White Paper?

3.1 Broadly the draft Water Bill contains the necessary powers to achieve the policy aims set out in the Water White Paper, but there are some exceptions, which we have outlined below:

Affordable water supply

3.2 The EFRA Committee is aware that CCWater believe the Government’s objective for everybody to have access to an affordable water supply may not be fulfilled by customer-funded social tariffs alone. We welcome the UK Government funding of £50m to help address fairness issues for South West Water’s household customers, and also the concept of social tariffs, but believe more direct funding is needed by the UK Government to achieve their overall policy aims for an affordable water supply. We have mentioned previously that estimates of the annual cost to effectively address the affordability problem range from around £160m to £450m. A customer-funded social tariff could only provide around £40m.

Market reform

3.3 We believe the legislation on market reform ought to deliver the overarching aims of the Water White Paper. However, we have several concerns which are set out below.

3.4 With potentially over one million non-household customers being given the opportunity to change supplier, it is important that the new market mechanisms, systems and frameworks are able to cope with the level of activity that the market could generate. This includes ensuring that data accuracy issues are addressed before the market extends. Without it non-household customers who switch could suffer detriment and the market itself become unworkable, causing customers to lose confidence.

3.5 It is therefore important that the water industry works together to produce a switching mechanism, market codes and a pricing regime that:

· encourages new entrants to the market;

· gives non-household customers the confidence to change supplier;

· achieves the smooth transition to a joint retail water and sewerage services market across England and Scotland, without unnecessary duplication in processes and workload; and

· does not result in detriment to household customers.

3.6 It is also important that the set-up of the reformed market is paced appropriately. We welcome the draft Water Bill paper’s suggestion of April 2017 as a target date, and believe regularly reviewing progress towards this date is essential.

3.7 The different market regimes in England and Wales could cause confusion for non-household customers. This could particularly occur at the border areas. Work by the water companies and CCWater to inform non-household customers around the border about switching opportunities will be required as the market opens up in England.

Metering

3.8 The draft Water Bill supports the Water White Paper’s stance on metering, but we note the EFRA Committee’s position on this in their Water White Paper inquiry report.

3.9 There are some circumstances where compulsory metering can be appropriate, for example in water-stressed areas. But any approach to compulsory metering must take account of local circumstances, and importantly the likelihood that some customers could see significant increases in their water bills. Where there are significant increases mitigation measures would be needed for those who are struggling to pay.

Abstraction regime reform

3.10 We note that the reform of the abstraction regime is due to be considered under future legislation. We think this is the right approach as time is needed to properly evaluate environmental benefits, and to ensure there is no detriment to water consumers.

Retaining CCWater

3.11 We welcome the EFRA Committee’s recognition of the need of water consumers to have a ‘strong voice’ to represent their interests as the water sector is reformed. We also welcome the recognition that non-household customers will continue to need representation after the market is opened up.

3.12 The market changes for non-household customers, as a result of the Water Bill, will present many opportunities for those customers to get a better deal from their water supplier, but they also raise the risk of some customers ending up worse off, and experiencing new problems. CCWater will work with the industry-led High Level Group to ensure the customers’ voice is heard and potential problems anticipated and accounted for.

4 Are the draft Bill’s proposals necessary, workable, efficient and clear?

4.1 Yes, except where we have outlined concerns about potential consumer detriment. Additional comments are below.

Upstream market reform

4.2 To make sure that drinking water quality standards are maintained and supply security is not compromised through upstream market reform, we seek assurance that the regulators will be appropriately resourced to fulfil this vital role.

5 Are there any omissions from the draft Bill, for example in relation to managing the financial risk and impact of flooding?

Mergers

5.1 We support the two-tier approach, and urge Ofwat to be transparent in how it will put a value on the loss of the comparator. We support the proposal for legislative change to allow the Office of Fair Trading (OFT) to keep the threshold for mergers under review, and to amend it through secondary legislation.

5.2 To help mitigate against consumer detriment from water company mergers, CCWater should be consulted if OFT decides that undertakings should be made to compensate for the loss of a comparator. This will ensure all aspects of potential consumer detriment are considered and the most appropriate remedy is delivered.

Charges scheme approval

5.3 To ensure customers are adequately protected the legislation should require water companies to consult with CCWater annually on their charges.

5.4 CCWater currently works with water companies to identify and address existing and proposed charging policies which may be detrimental to customers. This work is underpinned by Ofwat’s current requirement that companies consult CCWater on any changes to their charges.

5.5 Making CCWater a statutory consultee would ensure CCWater is able to continue to influence charging policies on behalf of customers and can alert the regulator to any risks of customer detriment. This would help to avoid any damage to consumer confidence which might otherwise result from problems being identified and not addressed until after implementation.

6 Taking the Bill forward

The draft Water Bill outlines some issues that may be included in the final Bill. CCWater has comments on one issue listed in the draft Water Bill document.

Ofwat’s complaints work

6.1 The draft Water Bill paper suggested the Water Bill might include proposals for Ofwat to have greater discretion about the types of casework it handles. We support the Government considering `the findings of Defra and the Welsh Government’s Review of Ofwat and consumer representation in the water sector ‘the Gray Review’, which suggested that ‘all customer complaints are dealt with by an appropriate body and the route for complaint is clear’.

6.2 If Ofwat is given greater discretion on the types of cases it deals with, CCWater is ready to work with Ofwat to ensure that the route for complaint is clear, and that consumers see benefits, not detriment from any change.

6.3 In working with Ofwat, we would want to ensure:

· an improved service for customers;

· no gaps in consumer representation.

6.4 CCWater will work with Ofwat to ensure all the above issues are considered as the details of any legislative change is worked through.

September 2012

Prepared 21st September 2012