Memorandum by the National Consumer Council
The National Consumer Council welcomes the draft
Water Bill and particularly endorses the elevation of the duty
to protect the interests of consumers to a primary duty of the
We are also supportive of the independent Consumer
Council for Water that has been proposed. We think this will help
to put consumers at the heart of the regulatory process for water
and help to redress the imbalance between shareholders and consumers.
We believe a special remit to represent domestic consumers and
disadvantage consumers would make it more effective, and in keeping
with the trends in other sectors. We recommend that the Consumer
Council for Water's remit should be to focus on representing domestic
consumers, and in particular, disadvantaged consumers.
We are disappointed that the draft Bill does
not go far enough with the establishment of a regulatory board
for the water services. We recommend that Government takes the
further steps necessary to create a regulatory board for water
regulation so that the powers and duties are not placed on a single
We had considerable concerns about the Government's
proposals to extend competition in water published last year.
Given that the Government is continuing to look at different options,
we believe it is premature to change the regulator's duties towards
competition. Therefore we recommend that the legislation maintains
the regulator's current duties towards competition.
We are concerned about the trends in restructuring
in the water industry and recommend that Government carries out
a broader and forward looking examination of the costs and benefits
to domestic consumers of the various ways in which the industry
might restructure itself, and the implications for regulation,
over the next few years. We also recommend that the Government
consults on any additional provisions they intend to put forward
before the Bill is introduced in Parliament.
We are particularly pleased that the Government
has decided to consult fully on this important legislation and
continues to give consumer representatives the opportunity to
contribute to the policymaking process.
We note that this draft Water Bill contains
many of the provisions that were taken out of the Utilities Bill
in March 2000. Whilst disappointed with the delay in providing
necessary improvements to the regulatory framework, including
an effective independent advocate body for consumers, we see the
draft Water Bill as an important addition to the consumer policy
framework for the water and sewerage industry.
The consumer interest in water
The consumer interest in water services is well
established. As we stated in 1997 in Regulating the Public Utilities:
Response to the DTI Review of Utility Regulation:
"the consumer interest in water, gas and
electricity is straightforward and universalthese are basic
services and the following are essential:
Access to supply at affordable
A reliable and safe supply;
Adequate and reliable service
Fair treatment for individual
consumers and groups of consumers;
Transparent and effective regulation;
Choice, where practical;
Clear, accessible consumer information;
on regulation and the companies' activities;
Effective representation of domestic
Access to fair, efficient redress
and compensation procedures".
On balance, we believe these standards of service
have been and continue to be delivered for the majority of consumers
most of the time. However, we continue to be of the view that
the cost of water to consumers is too high and we are particularly
concerned about the impact on disadvantaged consumers (National
Consumer Council, Future Water Charges: Response to Ofwat Consultation:
Future Water and Sewerage Charges 2000-05, November 1999).
We welcome the emphasis on support for disadvantaged
consumers through the proposals to issue statutory guidance for
the regulator to take account of the Government's social and environmental
objectives, and the regulator's remit to take account of the interests
of those who are disabled or chronically sick, of pensionable
age, on low income, or living in rural areas.
It is in consumers' interest that the regulatory
process in water, as in other sectors, should be open and transparent.
The regulator takes important decisions about regulated companies
who are providing an essential service: water. Consumers and the
Consumer Council need to see the weight given to various factors
in the decision-making process and be confident about those decisions.
We support the Government's proposal to provide
information to customers who receive water through intermediaries,
such as landlords and mobile park owners. It will help them to
discover whether they have been overcharged. Under the proposals,
they will be able to find out what the site owners and landlords
have paid for the water which they have resold to them. They will
also be entitled to interest payments if they are found to be
overcharged. The information obtained through Ofwat will also
be able to be used as evidence use in court (paragraph 76-81).
We support these proposals not only because they are consistent
with similar provisions for energy consumers, but also because
these groups of consumers are among the most disadvantaged.
The National Consumer Council also welcomes
the increased attention being paid by Government to the environmental
aspect of water services. Our view is that consumers have a direct
and long-term interest in the protection of the water environment
and are supportive of efforts to do so. Nevertheless, we will
confine our response to this consultation on issues involving
the regulatory arrangements.
New regulatory arrangements
We endorse the Government's objective in the
draft legislation of achieving a fairer balance between the interests
of consumers and shareholders by putting the consumer at the heart
of the regulatory process and making regulation more open and
more accountable (paragraph 23). Our research has consistently
shown that consumers have borne too heavy a financial burden in
terms of high water prices. In addition, consumers have borne,
and continue to do so, a disproportionate share of the cost of
financing new investment since privatisation of the water and
sewerage industry. Our view is that the shareholders have profited
excessively at the expense of consumers and that a better balance
between the interests of the consumers and shareholders is long
Social and Environmental Guidance
We particularly welcome the provision to allow
the Government to issue statutory guidance to Ofwat on social
and environmental objectives and how they might be achieved. Since
privatisation we have noted that, responsibilities for the utility
services' social aims and objectives have fallen between three
stools: the companies, regulators and Government. We argued that
this situation was detrimental to consumers' interests as there
was no forum for decision-making on these issues and the regulators
cannot be expected to formulate and implement social policy. These
are important provisions to help to ensure that the interests
of disadvantaged consumers are high on the regulatory agenda.
They are also consistent with those of the Utilities Act 2000,
and they create a consistent framework for supporting vulnerable
groups and protecting their access to essential services.
Primary duty to consumers
We welcome the elevation of the consumer protection
duty of the regulator into a primary one (Clause 27). We have
noted in particular that the draft Bill creates a new "consumer
objective" for water, which requires the Director to protect
consumers' interests. We also welcome the fact that the existing
general duties of Ofwat and the Secretary of State will be amended
to provide the new objective to protect the interest of consumers
particularly those who are disabled or chronically sick, of pensionable
age, with low incomes, or live in rural areas.
The Director General and the Water Advisory Panel
We are disappointed that the draft Bill does
not contain a provision to establish a regulatory authority, but
maintains the position of Director General. In the past we have
been critical of single person regulators because there is a danger
that regulatory decisions could focus on the personal agenda of
one individual. We would prefer to involve others more directly
in the process so they too could take responsibility for the resulting
The establishment of regulatory boards has been
occurring in other sectors: gas, energy (Utilities Act 2000),
and in postal services (Postal Services Act 2000). The Government
is considering establishing a regulatory board for the Office
of Fair Trading and has proposed the setting up of a board for
the new communications regulator in its recent White Paper A
New Future for Communications (2000). Involving others in
the decision making about water regulation would be particularly
appropriate given its complexity, involving environmental as well
as economic matters.
The establishment of the Water Advisory Panel
(Clause 22) is not a substitute for this given that it is an advisory
body and not accountable for the regulator's ultimate decisions.
While we welcome it as a step away from the past practice of vesting
considerable powers in the hands of one individual, we do not
believe it goes far enough. We acknowledge that there has been
some progress in making the Panel independent of the Director,
its members being appointed by the Secretary of State, who also
defines their terms of reference. In addition, the matters that
must be referred to the Panel and the circumstances under which
they are determined are all set by the Secretary of State. Nevertheless,
we note in particular that the Director is under no obligation
to follow the advice of the Panel, only to consider it (Clause
22). We also recommend that the Water Advisory Panel is under
an explicit duty to publish all the advice it gives to the regulator,
so contributing to the openness of decision-making.
We recommend that Government takes the further
steps necessary to create a regulatory board for water regulation
so the powers and duties are not placed in a single individual.
The Panel should be required to publish the advice it gives to
Consumer Council for Water
We also welcome the establishment of the Consumer
Council (Clause 23) to act as a strong advocate body for consumers
of water. Councilswhatever sector they may be inshould
be independent, operate openly and transparently, speak authoritatively
about both consumers' experiences and the activities of the regulated
companies. The provisions in the draft Bill will go a long way
to achieving this.
We believe that the focus of the Council should
be on domestic consumers, and small businesses, but with particular
regard to disadvantaged consumers.
It is disappointing that the draft Bill does
not give the Consumer Council for Water a remit to have regard
to particular groups of disadvantaged consumers. Section 17 of
the Utilities Act 2000 gives the Energy Consumer Council a remit
for individuals who are "disabled or chronically sick";
"of pensionable age"; "with low incomes";
and "residing in rural areas". The Water Bill should
have a similar provision.
We recommend that the Consumer Council for Water's
remit should focus on representing domestic consumers, and in
particular disadvantaged consumers, to bring it in line with energy
in the Utilities Act.
Information needs of the Council
We welcome the provision in Clause 32 to require
the regulator and water companies to supply information to the
Consumer Council so it can do its job. The usefulness of this
provision, however, will depend on the description of information
and circumstances when information can be refused by the companies
in the regulations introduced by the Secretary of State (27J (1)),
and also the requirements for having "regard to the desirability
of minimising the costs, or any other detriment, to the person
to whom the direction is given" (27G(3)).
Also, we believe it is inappropriate that any
refusal to supply information by a company to the Consumer Council
should be referred to the regulator, given that part of the Consumer
Council's role is to scrutinise the decisions of the regulator,
there is a potential conflict of interest. In our view, the Information
Commissioner (set up under the Freedom of Information Act 2000)
is the appropriate authority for such a task.
We welcome the duty to publish information in
the consumer interest as set out in Clause 31 (27F). However,
we are concerned about the caveats being placed on the Council
about the publication of information in this Clause. In the same
way that the Utilities Act provides for publication of information
by the Gas and Electricity Consumer Council, the Water Bill requires
one or more of three criteria to be satisfied before it can be
published (27F(3)). This could weigh the decision about publication
in the water companies' favour. There could well be information
that should be disclosed in the consumers' interest, which the
companies may not want disclosed and may refuse to disclose. The
Council should have a duty to balance the consumer interest against
the considerations of confidentiality when deciding whether to
publish information; and the Information Commissioner should have
the duty to arbitrate where a company refuses to supply information
to the Council.
Competition in Water
We note the Government's proposal to amend the
general duties of the Director of Ofwat to protect the interests
of consumers "wherever appropriate through promoting effective
competition" (Clause 27 (2(2B))). This gives the regulator
a more proactive role in promoting competition than the existing
Water Industry Act 1991 which states the regulator has a secondary
duty to "facilitate effective competition" (Section
The National Consumer Council is supportive
of promoting competition as a general rule: it offers choice and
the possibility of lower prices and better services to consumers.
However, we are not as sanguine as the Government about the benefits
to be gained from competition in water services. As we stated
in our response to the consultation on Competition in the Water
Industry in England and Wales (April 2000), we believe that
water is a natural monopoly with fixed infrastructure and with
little scope for common carriage and competition. Potable water
is homogeneous and choice therefore has little meaning for consumers.
The costs of the industry are only slightly affected by the behaviour
of individual consumers. We concluded that the risks far outweighed
the benefits and expressed considerable concern about competition
going further under the proposals set out in Competition in
the Water Industry in England and Wales (2000).
Given, too, that the Government is working further
on its options for extending competition (paragraph 60), we believe
it is premature for the regulator to have a more proactive duty
towards competition. Whilst the energy regulator was given a duty
"to promote competition" in the Utilities Act 2000 (sections
9 and 13), competition has developed considerably further in those
We recommend that the draft Bill does not change
the regulators' duty with regard to competition.
We note that the Government proposes to add
provisions to the Bill, before it is introduced, to respond to
the recent developments in the restructuring of the water industry
with a view to ensuring the continued protection of drinking water
quality (paragraph 3). We welcome the Government's decision as
we share the concerns that water quality is a primary issue that
arises from the restructuring that has occurred. However, we think
that the focus on water quality alone is too narrow given the
wider implications of the restructuring proposals for the economic
concerns of consumers. For instance, the recent cases of proposed
separation of assets and operation in the industry have implications
for consumer service and regulation. We think consumers could
face risks of supply availability and costs in the medium term
that has not been explored. We recommend that Government carries
out a broader and forward looking examination of the costs and
benefits to domestic consumers of the various ways in which the
industry might restructure itself, and the implication for regulation,
over the next few years. We also recommend that Government consult
on any additional provisions it intends to include in the draft
Bill before it is introduced to Parliament.