Draft Water Bill
Written evidence submitted by Wessex Water
Q1. Are the powers contained in the draft Bill sufficient to achieve the policy aims set out in the Water White Paper?
1. The effectiveness of the draft Bill in achieving more efficient use of water is severely limited by the absence of measures to accelerate household metering. Metering makes a very significant contribution to reduced water use.
2. We have recently completed the largest study of household metering since the early 1990s with 6,000 properties included. The study shows that fitting a meter when someone moves house reduces average consumption by 15% and peak consumption by 25%. Analysis of consumption patterns shows that much of this saving is achieved simply through better care being taken of water use, such as fixing dripping taps and overflowing toilet cisterns, as well as through reduced external use.
3. Households have been shown to be willing to accept metering at the point of moving into a property. Households tend to incorporate their new water charges as one part of much wider changes to their budget. And as most water use behaviour is driven by habit the new house gives them a good opportunity to change those habits and become more water efficient. This is a key reason why the water efficiency savings found in this study are higher than those seen under compulsory metering programmes to date.
4. The Bill should therefore take steps to change the default position for metering to one that assumes that meters will be installed free-of-charge when the occupier changes. Water companies would still be able to adopt different approaches to metering by exception where they are able to show that this new default approach would not be in the public interest in their own area of supply. This policy change would quickly reduce total household water demand but would also retain flexibility to deal with different localised circumstances.
5. The effectiveness of the draft Bill in keeping bills affordable and protecting vulnerable customers is very limited. It is clear that social policy is a matter for Government and it is Government who has to choose whether it wants the costs to be met by other, paying, customers, or by taxpayers. We agree with the White Paper that water companies should have the primary responsibility for dealing with the practicalities of implementing water affordability issues, but they need to be given the tools by Government to achieve this. To ensure charges are affordable for all, water companies must be able to ensure that those who can pay, do pay, and to direct additional support to those who most need it.
6. Government should allow companies access to benefits data to allow assistance to be targeted efficiently and effectively and give landlords financial incentives to provide details of their tenants. Existing regulatory restrictions on water companies, such as the duty to supply and the ban on disconnection, make the recovery of debt more difficult than in other sectors. In this context new regulations on landlords are neither unduly burdensome nor intrusive, and would be valuable to help achieve the Government’s objectives for affordable charges.
Q2. Are the draft Bill’s proposals necessary, workable, efficient and clear?
Incentives for cross-border supplies
7. Measures to promote bulk supply trades by introducing a market code, charging rules and a model contract to govern these bulk supply arrangements are of limited value and unnecessary.
8. Instead Ofwat could do much more to promote more cross-border supplies without the need for legislation. It could de-regulate bulk supplies; it could increase the return to incentivise both the importer and exporter; and it could remove operational expenditure from comparative performance calculations.
9. In addition, where it is clear that an interconnection between two neighbouring companies would be economic or deliver an improved environmental outcome, then this infrastructure could be included in companies’ plans and be funded at a price review. The issue of cross-border supplies may become more sensitive if there are big infrastructure proposals associated with them. Requiring a company to justify such interconnections in their business plan would ensure alternatives have been investigated and would also allow proper scrutiny by regulators.
10. We agree with proposals to remove Ofwat’s duty to approve company charges. This is a positive step that will increase company accountability for their charges.
11. However, replacing this with a requirement for companies to comply with a set of published Ofwat charging principles – within which inevitable trade-offs and balances must be struck – will open companies up to challenge through the courts where individuals or groups of customers consider that the company has struck an inappropriate balance. The resulting rebalancing of charges will be a zero-sum game, with the groups with the deepest pockets most likely to win and others most likely to lose. We do not think this is appropriate.
12. We would instead recommend a return to the position prior to the 1999 Water Act, where there was no duty on Ofwat to approve charges, but with the addition of powers for the Secretary of State to give direct guidance (after due consultation) to water companies on charges. This would increase company accountability for charges while also allowing Government to give specific direction on policy issues, for instance to facilitate future proposals concerning social policy such as WaterSure.
Q3. Are there any omissions from the draft Bill, for example in relation to managing the financial risk and impact of flooding?
13. The recent drought has brought back into sharp relief the inappropriateness of hosepipe bans. Restrictions only reduce demand by a small amount and are accompanied by a significant loss of customer goodwill and industry legitimacy. Instead the same effect could be achieved through other measures, such as extensive cross-sector advertising to reduce demand. In our region a hosepipe ban would save 9ML/day but working with customers would save more than that.
14. Furthermore, the savings from a hosepipe ban are distributed across our region, while the environmental impacts are localised to particular rivers. During times of drought we are able to pump 90ML/day of water into such rivers to support flows. This is ten times the amount that would be saved with a hosepipe ban. And the pumping can be targeted at the rivers most affected by any drought.
15. The Water Bill should enable licensing to become more flexible at times of drought without the need for water use restrictions to be imposed. More flexible licensing should apply in areas where river flows are healthy if companies are able to demonstrate that they are taking action to support river flows in more environmentally sensitive areas.
16. The Water Bill is an ideal opportunity for the Government to reform drainage responsibilities in the UK. We are disappointed that the draft is quiet on this subject and does nothing to change the current disaggregated approach to the nation’s drainage infrastructure.
17. Although the Flood &Water Management Act identified responsibilities that were previously unclear, it has not addressed the fundamental problems resulting from disjointed ownership, numerous funding mechanisms and multiple views of flood risk. The current arrangements continue to be a major hindrance in achieving sustainable drainage.
18. To overcome these problems, we advocate a catchment-based model for integrating ownership and responsibility for drainage assets. This would address the increasing inter-dependence between privatised sewerage companies, local authorities, internal drainage boards, riparian owners, land managers and the Environment Agency. Countries that are more progressive in this area restrict drainage responsibility to fewer parties.
19. Government should also promote greater upstream approaches to flood management, such as sustainable land management and permeable paving, and set clear policy on responsibilities for maintaining Sustainable Urban Drainage Systems.
20. Water companies should become statutory participants in the planning process. This would enable them to challenge proposals to build houses in flood prone areas and improve the viability and delivery of sustainable infrastructure. Extending and widening the scope of planning consultations can be linked with current proposals for sustainable drainage approvals by including measures for statutory consultation with water companies alongside sustainable drainage approvals. This will cover the most significant development proposals and improve consistency across functional responsibilities for water supply and foul drainage.
21. We support many of the market reform proposals, in particular market opening for retail. This adds legitimacy to the sector in customers’ eyes. The implementation of retail needs to be low risk and proceed on a sensible timetable. We should build on the lessons and systems from Scotland.
22. We believe that to facilitate a well-functioning market, provision should be made for existing companies to exit the contestable retail market. It is inevitable that some companies will choose to exit the market for retail services over the medium-term but under the current proposals a retailer must continue to offer services even if it does not wish to do so. The ability of inefficient providers to exit the market will bring forward the gains achieved through competition.
23. We also highlight the issue of criminal liability for supplying unwholesome water. With the proposed open access to distribution systems it is unclear how a contamination will be treated by the DWI. Currently, water companies are responsible for the quality of the water at their customers’ taps. However, multiple licensed new entrants blur responsibility. Financial costs of failure can be allocated to a negligent party via contracts, but criminal liability cannot. The Water Bill must give clarity in this area.
24. Measures to reform the inset regime should be focused towards preventing the further splintering of the current regional provision of water services to domestic customers into small enclaves. We do not believe that the generality of customers benefits from the growth of micro-regional monopolies serving individual housing estates. To date the inset-regime has functioned largely through exploiting the arbitrage opportunities available through the regionally-averaged pricing structures when serving new housing. Measures in the draft Bill to ensure developers are paid for the network assets provided are helpful in this regard in that they help level the playing field between all players in the market. However, because this will result in a transfer of cost from developers to household sewerage bill payers it will put additional upward pressure on customer bills, which is at odds with the Government’s affordability objectives. The Bill should instead remove the inset regime completely and allow the focus of market activity to be in the contestable retail sector.
25. There are significant benefits from more sustainable, holistic solutions such as integrated catchment management, tackling pollution at source and an approach to water services rather than water supply that would engage people more deeply in the wider story of water and its management. We have significant first-hand experience of this over several years through our catchment management work, which has successfully limited nitrate and pesticide contamination of groundwater and reservoirs at several locations.
26. Pricing regimes need to incentivise these approaches and a supportive regulatory framework will be essential, with acceptance that sustainable solutions do not give the same certainty of outcome as asset-based solutions such as treatment plants. Government should give policy direction to regulators to ensure that these approaches are incentivised in the price setting regime and via greater flexibility in consents. This is essential if more innovative and lower energy treatment methods are to be given a fair opportunity to succeed. At the same time there is a risk that reliance on end of pipe treatment to deal with the next raft of quality standards, in particular for priority substances, will lead to significant increases in energy use and water bills.