Memorandum by OFWAT National Customer
1. SUMMARY OF
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
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
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
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.
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
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
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
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
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
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
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
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)
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.
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
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
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
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
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
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
31new 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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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.
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
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
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.
10 On behalf of the 10 regional Customer Service Committees. Back