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Water Industry Bill


 

These notes refer to the Water Industry Bill as brought from the House of Commons on 11th February 1999 [HL Bill 19]

Water Industry Bill


EXPLANATORY NOTES

INTRODUCTION

1.     These explanatory notes relate to the Water Industry Bill as brought from the House of Commons on 11 February 1999. They have been prepared by the Department of the Environment, Transport and the Regions and the Scottish Office in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.

2.     The Notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.

SUMMARY

3.     For England and Wales, the Bill provides new entitlements for water consumers, particularly household customers. It prohibits the disconnection of the water supply to homes for reasons of non-payment. It gives many water consumers new rights to choose the basis on which they are charged for water and sewerage services. It allows for rateable value to continue to be used as a basis of unmeasured charging after 31 March 2000. It also allows for the Secretary of State to make regulations concerning particular charges to be applied to particular groups.

4.     For Scotland, the Bill gives effect to the recommendations of the review of the water industry in Scotland carried out last year. It amends the Local Government etc. (Scotland) Act 1994, dissolving the Scottish Water and Sewerage Customers Council and establishing the Water Industry Commissioner for Scotland to promote the interests of customers of the water and sewerage authorities. The Commissioner will assume most of the existing duties of the Council and will have new advisory functions in relation to the fixing of water and sewerage charges. The provisions also establish Water Industry Consultative Committees for each of the water and sewerage authorities. The Consultative Committees will advise the Commissioner on the promotion of the interests of customers of the authority in question.

BACKGROUND

English and Welsh Provisions

5.     The provisions in Part I of this Bill are based on a Government consultation document, 'Water Charging in England and Wales: A New Approach', published in April 1998. A response by the Government to the consultation exercise, 'Water Charging in England and Wales: Government Decisions following Consultation', was published on 18 November 1998.

Water Charging in England and Wales

6.     At present, there are two principal ways in which water consumers are charged by water companies. Most are charged on the basis of an unmeasured charge, which is usually based on the rateable value of the property. Others are charged by reference to volume, as measured by a water meter. Different water companies have different policies relating to water metering (e.g. whether they offer meter installation free of charge). The charges made by a water company for water and sewerage are set out in the company's charging scheme, and most domestic customers are charged on this basis. Some people are charged on the basis of an agreement with the water company.

Disconnection

7.     At present, if consumers do not pay their water and sewerage bills, water companies have power to disconnect the supply. Water companies have also argued that they are not prohibited from restricting the amount of water available for a consumer's use if they have not paid their bill. The Bill will remove the power to disconnect water supply for non-payment, or to limit the supply with the intention of enforcing payment, from a list of different premises. These premises are private dwelling houses, caravans, houseboats, houses in multiple occupation and sheltered accommodation (where these are someone's main home) and children's homes, residential care homes, prisons and detention centres, schools, premises used for children's daycare, institutions of further and higher education, hospitals, nursing homes, GPs' and dentists' surgeries (including surgeries set up as primary care pilot schemes) and premises occupied by the emergency services.

Basis of water charging - unmeasured charges

8.     For properties built before 1990, where consumers pay on an unmeasured basis for water and sewerage services, their charges are usually calculated by reference to the rateable value of the property. Under section 145 of the Water Industry Act 1991, companies may not continue to base charges for water and sewerage services on rateable value after 31 March 2000.

Charging by reference to volume

9.     The main alternative basis of charging for domestic customers for water and sewerage services is by reference to the volume of water used, as measured by a water meter. Water companies are currently able, at their discretion, to require customers to move to a charge based on the volume of water supplied. Customers do not have a statutory right either to move to a measured charge or to remain on an unmeasured charge. Where water meters are fitted at the company's request, they must be installed free of charge. Where a company agrees to install a meter at a customer's request, there is no obligation for that to be done free of charge. Some water companies currently offer customers the option of a free meter. Other companies do not.

10.      A relatively small but growing number of households in England and Wales (at present an average of 14% across the country) pay on the basis of a measured charge, some through choice, some where a water company has required it (for example, where a household uses a garden sprinkler) or because the household has moved into a house with a meter. Since no property built since 1990 will have a rateable value, most new houses have meters. Some people's water bills will be lower if they pay on a measured basis, but some people will have higher bills than if they were paying on an unmeasured basis. Concern has been expressed that this could bring hardship to those with high water use who cannot reduce their demand, or who can do so only at the expense of health or hygiene. Two examples of these groups, mentioned in the Government's consultation document on water charging, are those with medical conditions requiring higher than usual water use and large families on low incomes.

Rights for tenants to choose the basis of water charging

11.     In general, tenants have the same rights as any other consumers to choose the basis on which they are charged for water and sewerage services. However, some tenants at present need their landlords' consent for the alteration or improvement of their properties either under the statutory provisions of the Housing Acts 1980 and 1985 or under their agreements with their landlords.

Scottish Provisions

12.     Part II of the Local Government etc. (Scotland) Act 1994 established three water and sewerage authorities for Scotland and the Scottish Water and Sewerage Customers Council.

13.     The Customers Council is responsible for representing the interests of the water industry customers in Scotland, approving the water and sewerage authorities' customer codes of practice, and investigating any customer complaints not resolved between the complainant and the relevant water and sewerage authority. It also has primary responsibility for approving charges schemes proposed by the water and sewerage authorities. Responsibility for economic and efficiency regulation of the water and sewerage authorities rests at present with the Secretary of State.

14.     In June 1997, the Secretary of State for Scotland announced a review of the Scottish water industry, including consideration of the role and functions of the Customers Council in relation to the regulation of the industry. The review identified a consensus that the current division between price regulation by the Customers Council and efficiency regulation by the Secretary of State had proved untenable. It recommended creating a new statutory, professional regulator responsible for economic regulation in all its aspects, and for promoting the customer interest. The Secretary of State endorsed the recommendation in the statement about the review that he made to the House of Commons on 16 December 1997.

15. The Scottish provisions in the Bill give effect to this recommendation. They dissolve the Customers Council and establish the Water Industry Commissioner for Scotland. The Commissioner will assume most of the existing duties of the Council and will have new advisory functions in relation to the fixing of water and sewerage charges. The provisions also establish Water Industry Consultative Committees for each of the water and sewerage authorities. The Consultative Committees will advise the Commissioner on the promotion of the interests of customers of the authority in question.

OVERVIEW OF THE BILL

16.     The Bill is in three parts. Part I relates to water charging in England and Wales. Part II relates to the water industry in Scotland. Part III contains supplemental provisions.

COMMENTARY ON CLAUSES

17.     Part I of the Bill replaces and amends certain sections of the Water Industry Act 1991 (the 1991 Act). Relevant extracts from the 1991 Act are given towards the end of this note, in Annex A. Part II of the Bill replaces and amends certain sections of the Local Government etc. (Scotland) Act 1994. Relevant extracts from this Act are given at the end of these notes, in Annex B.

Clauses 1 & 2 and Schedule 1: Disconnection and restriction of supply

18.     Clause 1 of the Bill amends section 61 of the 1991 Act. It removes water companies' powers to disconnect for non-payment of bills the supply of water to those premises set out in a new Schedule to the Water Industry Act 1991. (Schedule 1 to this Bill inserts a new Schedule 4A into the 1991 Act.) These are premises are private dwelling houses, caravans, houseboats, houses in multiple occupation and sheltered accommodation (where these are someone's main home) and children's homes, residential care homes, prisons and detention centres, schools, premises used for children's daycare, institutions of further and higher education, hospitals, nursing homes, GPs' and dentists' surgeries (including surgeries set up as primary care pilot schemes) and premises occupied by the emergency services (that is, police, fire and ambulance).

19.     Clause 2 adds a new section to the 1991 Act (section 63A). It prohibits water companies from using devices designed to reduce the amount of water available for use (for instance, by using trickle valves) to enforce bill payment for those premises referred to in Schedule 4A.

Clauses 3 & 4: Charges schemes and agreements

20.     Clause 3 amends section 142 of the 1991 Act, so that charges for water and sewerage services, for dwellings, which has the meaning as in clauses 1 and 2, must be fixed on the basis set out in water companies' charges schemes rather than by agreement. An exception is made to allow agreements to remain in force which have been entered into before this provision is commenced. Clause 4 amends section 143 of the 1991 Act, so that charges schemes must be approved by the Director General of Water Services (the Director) each year. The Director's power to approve charges schemes under clause 4, and the Secretary of State's power to make regulations under clause 5, cannot be used to limit the total revenues available to water and sewerage undertakers from their charges schemes. Clause 4 also provides for the Secretary of State to give the Director guidance to take into account when approving schemes, and for the guidance to be published.

Clause 5: Regulations concerning charges schemes

21.     Clause 5 adds a new section to the 1991 Act (section 143A) which requires that charges schemes for domestic customers must comply with any regulations made by the Secretary of State. Regulations could be used, for instance, to specify that particular tariffs or charging options be made available to consumers.

22.     For those requiring special provision, the Secretary of State's regulations are intended to set out which groups of people are to be given special protection, and how eligibility for this protection should be demonstrated. These groups may include those who need special protection because of their age, health or financial circumstances, or due to disability. As well as prescribing those who should receive special treatment, the regulations will outline the nature of the assistance to be offered.

Clause 6: Rights of consumers to elect for charging by reference to volume

23.     Clause 6 adds a new section (section 144A) to the 1991 Act. It covers homes which currently pay their water and sewerage bills on an unmeasured basis under a charging scheme. It gives these consumers a new right to require their water company to charge them by reference to volume (by sending their water company a 'measured charges notice'). Water companies would not have to install a meter where it would not be practicable or would be unreasonably expensive. Any dispute between the water company and the customer over whether installation of a meter would be impracticable or unreasonably expensive should be submitted to the Director General of Water Services. A company's charges scheme will set out the time within which the company will fit a meter and start charging the consumer by reference to volume. Tenants, other than those in fixed term tenancies of less than six months, will be able to exercise these rights irrespective of any term of their tenancy agreement which restricts or prohibits the exercise of these rights.

24.     The clause enables consumers to revert to paying for their water on an unmeasured basis provided that they have not reverted previously, and that they, or a member of their household, were living in the property when the measured charges notice was issued. The request for reversion must be made within 12 months of the first day on which a measured basis of charging applied. If a consumer requests reversion to an unmeasured basis of charging, water companies must start charging on that basis 12 months after the consumer was first charged on a measured basis, or as soon as possible thereafter. Finally, where a consumer is paying for water on a measured basis, the clause provides that the foul water drainage element of the sewerage services must be charged on the same basis.

Clause 7: Restrictions on water companies' power to charge by reference to volume

25.     Clause 7 adds another new section (section 144B) to the 1991 Act. It will allow consumers to stay on an unmeasured charge unless certain conditions are met. It does this by prohibiting water companies from beginning to charge domestic customers on a measured basis unless:

  • a consumer has requested or agreed to be charged on that basis (either by sending the water company a measured charges notice under section 144A, or agreeing to a suggestion from the company that charges be on a measured basis); or

  • the consumer has recently moved into the premises and has not yet received a water bill based on an unmeasured charge.

But for a consumer to benefit under section 144B, certain conditions must be satisfied. The Secretary of State may set out these conditions in regulations. The regulations might require, for example, that the consumer should not be using a garden sprinkler on the premises, or should not have water fittings which use considerable amounts of water.

Clause 8: Charging by reference to rateable value

26.     Section 145 of the 1991 Act contained a deadline of 31 March 2000 after which rateable value could no longer be used as a basis for water charges. Clause 8 repeals section 145 which means that rateable value will still be one possible method of charging for water.

Clauses 9 & 10: Metering

27.     Clause 9 amends section 148 of the 1991 Act so that consumers in private dwelling houses, who exercise their right to pay on the basis of volume, cannot be required to pay the water companies for installing water meters in their premises. Clause 10 amends section 162 of the 1991 Act. It ensures that water companies have the power to carry out works connected with meter installation (such as the installation of pipes), where they are needed to give effect to the provisions of the Bill including cases where there is no immediate intention of using the meter as a basis of charging.

Clause 11: Rights of tenants in relation to metering

28.     Clause 11 relates to the rights given by clause 6 in relation to metering. This clause helps certain tenants, who might otherwise be prevented from exercising their entitlement to pay by reference to volume by conditions in their tenancy agreements. Clause 11 provides that no terms of any tenancy agreement of the types specified shall be regarded as restricting the tenant's rights (to give a measured charges notice and to consent to charges being fixed on a measured basis), preventing the consequent installation or connection of a meter or requiring consent to be obtained in relation to such installation or connection. The tenancies specified are those which are not fixed term tenancies for a term of less than six months.

Clause 12 and Schedule 2: Water Industry Commissioner For Scotland

29.     Clause 12 amends the Local Government etc. (Scotland) Act 1994 to establish the Commissioner and the three Consultative Committees. It dissolves the Customers Council and provides for the Transfer of Undertakings (Protection of Employment) Regulations 1981 to apply in relation to the staff of the Customers Council who transfer to work for the Commissioner.

30.     Schedule 2 sets out a new Schedule 9A to the 1994 Act. Part I of Schedule 9A provides for the appointment of the Commissioner and his staff and allows normal public sector pension arrangements to be made for them. The office of Commissioner will not have Crown status. Part II of Schedule 9A provides the broad framework within which the Consultative Committees will operate.

Clause 13 and Schedule 3, Part II: Commissioner's advice on charges

31.     Clause 13 amends the 1994 Act to give the Commissioner the function of advising Ministers about water and sewerage charges. He is to offer advice on the fixing of charges over a period of years to be specified in advance by Ministers. In preparing his advice he must take into account information relevant to the performance and service standards which the water and sewerage authorities have to meet in consequence of statutory requirements and government policies, the investment programmes necessary to deliver those standards and the scope for the authorities to secure efficiency savings. Ministers can accept or modify the Commissioner's advice, or substitute their own advice. This process will be transparent to the general public through provision requiring the Commissioner to publish his advice as accepted by ministers and any substituted advice.

32.     The published advice will provide the framework within which the Commissioner will agree annual charges schemes with the water and sewerage authorities. In effect, the result of the process will be to establish limits for annual price increases over the period of years in question. Within this longer term framework approved by Ministers, the Commissioner will agree annual charges schemes with the water and sewerage authorities in the same way as the Customers Council does at present under section 76 of the 1994 Act.

33.     These new arrangements will differ from the current system in two respects. First, in preparing his advice the Commissioner will be required to consider charge levels over a number of years instead of one year at a time, as happens with the Customers Council at present. Secondly, the matters to be taken into account by the Commissioner in framing his advice, including matters of efficiency, will be specified (which they are not in respect of the Customers Council at present). The purpose of these changes is to assist the water and sewerage authorities to meet the needs of their customers as efficiently as possible by providing a stable business framework within which to make plans for future delivery of service.

34.     Schedule 3, Part II, amends existing legislation in consequence of the creation of the Commissioner and the dissolution of the Customers Council. It applies mainly to the 1994 Act where the Commissioner will take over the role of the Council in connection with codes of practice, customer complaints and annual charges schemes. It also amends the Water (Fluoridation) Act 1985 to require the Commissioner, rather than the Council, to be consulted about proposals to introduce fluoride into water supplies in Scotland.

Clause 14: Application to Wales and Scotland

35.     Clause 14 provides that if an Order in Council is made under section 22 of the Government of Wales Act 1998 transferring functions of the Secretary of State set out in this Bill to the National Assembly for Wales, the order will be subject to negative, rather than affirmative, resolution procedures. The clause also provides that this Bill will become a 'pre-commencement enactment' for the purposes of the Scotland Act 1998 and so ministerial functions under this Bill will transfer to the Scottish Ministers when they acquire their functions under the Scotland Act 1998.

EFFECTS OF THE BILL ON PUBLIC SECTOR FINANCES

English and Welsh Provisions

36.     The additional function given to the Director General of Water Services (that is, annual approval of undertakers' charges schemes) may result in an increase in his administrative expenses, which are met by the Secretary of State. The estimated additional annual expenditure is around £50,000, though this will depend on exactly how the Director chooses to use his resources in the light of his new function. It is expected in practice that this increase would be met by increasing the sums payable to the Secretary of State by water and sewerage undertakers under their conditions of appointment.

Scottish Provisions

37.     As for the Customers Council under section 71 of the 1994 Act, the Commissioner's costs may be met out of sums voted by Parliament or by means of a levy on the three water and sewerage authorities. In keeping with the practice in respect of the Council, the intention is that the latter course will be adopted. There are, therefore, no new claims on public finances arising from these provisions.

EFFECT OF THE BILL ON PUBLIC SERVICE MANPOWER

English and Welsh Provisions

38.     The requirement for the Director to approve water companies' charges schemes each year may represent a small additional task for the Office of Water Services.

Scottish Provisions

39.     The staff of the Customers Council will have the right to transfer to the Commissioner on the Council's dissolution. The numbers employed by the Commissioner are not expected to be significantly greater than the seventeen employed by the Customers Council at present.

SUMMARY OF THE REGULATORY APPRAISAL

English and Welsh Provisions

40.     The Regulatory Impact Appraisal of these proposals that has been carried out concluded that the total compliance costs associated with these measures will be modest by comparison with the annual turnover of the water industry. The appraisal identified a range of benefits for consumers and the environment, but it was not possible to place an economic value on these. A copy of the full appraisal can be obtained from Jerry Harrison, Water Supply and Regulation Division, Department of the Environment, Transport and the Regions, Zone 3G/19, Ashdown House, 123 Victoria Street, London SW1E 6DE.

Scottish Provisions

41.     No formal appraisal has been undertaken. The Commissioner's new functions in relation to the fixing of water and sewerage charges are advisory in nature. His remit and duties will not create any new burdens on the water and sewerage authorities or on any other interests in the public or private sector.

COMMENCEMENT

English and Welsh Provisions

42.     The clauses relating to disconnection, the use of limiting devices and removal of the restriction on charging with reference to rateable value take effect on Royal Assent. The provisions in the Bill that provide for regulations to be made will also come into force on Royal Assent. The other provisions will come into force on a day or days determined by the Secretary of State.

Scottish Provisions

43.     No date for commencement is included on the face of the Bill. The intention is that the Scottish Ministers should determine a commencement date once the Secretary of State's functions under the Bill have transferred to them under the Scotland Act 1998.

EUROPEAN CONVENTION ON HUMAN RIGHTS

44.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). On 11 February 1999 Lord Whitty, the Parliamentary Under-Secretary of State for the Environment, Transport and the Regions made the following statement before Second Reading of this Bill in the House of Lords:

    In my view the provisions of the Water Industry Bill are compatible with the Convention rights.

 
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