Memorandum by the Consumers' Association
(CA) (DWB 29)
Consumers' Association (CA) welcomes the opportunity
to offer its comments on the draft Water Bill to the Committee.
When the clauses relating to water were removed from the Utilities
Bill, CA hoped that the Government would offer a draft Bill that
took a rounded view of the priorities for the regulation of this
vital industry. This is essential, given that a high quality water
services industry is vital to public health, consumer rights and
the protection of environment for present and future generations.
The draft Water Bill represents some significant
steps forward and acts on many of the recommendations that the
CA made in its 2000 report Water CompetitionPipe Dreams?
CA welcomes the creation of an Independent Consumer
Council for Water. An Advisory Panel should assist the Director
General to respond to the different interests involved in the
water industry. The increase in transparency across the regulated
industry is welcome. Another welcome development is the proposal
to extend the powers of the Drinking Water Inspectorate so that
any body that puts water into pipe network is potentially liable
However, despite the many positive elements,
CA believes that the Bill as it stands, is an inadequate response
to the dynamics that are active in the industry and will determine
the future character of water and sewerage services.
The draft Bill is almost silent on the further
development of competition in the water industry. There is little
in the Bill to suggest that industry restructuring requires a
new approach by the regulatory environment. Finally for an industry
that is overseen by a number of regulatory authorities the prospect
of joined-up regulation does not seem to be advanced by the provisions
in the Bill as currently drafted.
CA is delighted that the Select Committee is
considering the Bill at the earliest opportunity. However, we
are also concerned that the Committee will need to look far beyond
the clauses presented in the draft Bill if it is to consider whether
this is a coherent and appropriate way forward for the regulation
of the water industry.
In each of the other utilities that have been
liberalised there has been sector specific legislation. As one
water company noted in a survey conducted for the CA policy report:
"There is an urgent need to establish a
clear, coherent and consistent legal and regulatory framework.
The proposed water bill represents a real opportunity to create
such a framework".
CA believes that the further development of
competition is a seismic change for the water industry. While
we do not expect the Government to specify the precise nature
of competition, it is vital that government can demonstrate the
costs and benefits to consumers of increased competition. It is
also important that the Water Bill is seen as an opportunity to
put in place certain fundamental safeguards to ensure that water
competition works in the interests of all consumers.
CA endorses the arguments of Michael Rowse,
Chief Drinking Water Inspector, who observes: "It is unhelpful
to pretend that water is not different from gas and electricity.
It is very different. We should begin by recognising that safe
drinking water is probably the single most important factor in
safeguarding public health . . .. Any proposal (for competition)
must first guarantee that drinking water quality can be managed
safely. Consumers will not welcome reduced water bills if they
come at the cost of their health".
The current draft Bill shows no significant
change in respect of competition than the Clauses presented in
the Utilities Bill, despite the Governments wide ranging consultation
on water competition having closed in July 2000.
CA believes competition can deliver benefits
where it is appropriately applied and properly regulated. But
we are concerned by the requirement to promote competition prior
to a proper analysis of whether its benefits outweigh the costs.
As our paper Water CompetitionPipe Dreams? Argues,
the benefits of common carriage in particular have often been
overstated. Cherry picking could mean less privileged groups,
such as low-income households in rural areas, lose out. Such an
impact is unconscionable where it could affect appropriate water
usage to guarantee public health. Special safeguards to protect
low-income consumers, especially those in rural areas need to
be placed in the Bill. Access to affordable, high quality water
for all must be assured.
1. The Consumer Objective (Clause 27 2b)
CA is concerned that the duty on the Director
General to further the "consumer objective" is compromised
by the description of that objective. The objective is "to
protect the interests of consumers in relation to water and sewerage
services, wherever appropriate by promoting effective competition
between persons engaged in, or in commercial activities connected
with, the provision of such services."
The change in the duty of the Director General
from facilitating to promoting competition would be significant
at any time. However, to make such a change in that duty before
a statutory framework for introducing competition has been laid
down, or before government is clear in its own mind that the benefits
of competition will significantly exceed the costs, is to take
a risk with the future of the water industry.
CA believes that further competition in the
water industry should be conditional on an independent inquiry
into the costs and benefits of the proposed forms of competition.
If that inquiry demonstrates that competition would be in the
consumer interest then certain safeguards will still be needed
in a Water Bill to ensure that particular groups of consumers
are not adversely affected.
2. Social Issues
The Bill provides for occasional social and
environmental guidance to be issued from government (clause 28).
This is a welcome proposal and should give stakeholders the opportunity
to contribute to the discussion of social issues in a structured
way with the outcomes from those discussions made transparent
and laid before Parliament.
However, CA believes that the prospect of competition
means that statutory safeguards must be in place in legislation.
Research for the report Pipe Dreams highlighted
that water companies are very conscious of the differential costs
of supply to urban and city areas, with rural consumers often
being far more expensive to supply. As one company pointed out,
the realities of competition at its simplest is that " rural
companies will pay more and city dwellers less".
CA believes that it is prudent for companies
to have an explicit licence condition that prevents them from
geographically de-averaging their tariffs beyond their existing
water company boundaries and for this requirement to appear in
Although the issue of geographic de-averaging
is likely to be the most significant area of debate in water,
the redistribution of costs between metered and unmetered consumers
will also be important. The fact that the companies were effectively
given the go ahead to expand their water metering programmes by
the Water Industry Act 1999 means that this is already happening.
In the energy sector competition has led to
a debate about the cost of supplying households on different methods
of payments. Lucrative customers paying by direct debit have been
cherry-picked and have seen their bills drop significantly whereas
those paying via prepayment meters have not experienced anywhere
like the same level of reductions (and the cuts they have had
mainly due to regulatory intervention).
CA believes that the current vulnerable consumer
protection regulations are likely to come under more pressure
if competition spreads and more people are moved onto meters.
Whether they can be built on in a more competitive environment
to provide adequate protection for vulnerable consumers who are
seeing their cross subsidies removed on a number of fronts (eg
also because they are more expensive to serve because they are
late bill payers) is open to debate.
3. Consumer Council (Clauses 23, 24, 31 to
CA warmly welcomes the proposal to establish
a Water Consumer Council. It is an important element of the Bill
and will ensure that the consumer voice is loud and clear and
in what may become a far more complicated industry for the consumer
in future years.
However, there are a number of issues that could
inhibit the effective operation of the council. In particular
there are a number of restrictions on the ability of the Council
to disclose information that it believes is in the consumer interest.
Clause 31 says that "Information . . .
may be disclosed if: it is not information the disclosure of which
would or might, in the opinion of the Council, seriously or prejudicially
affect the interests of an individual or body."
CA believes that serious or prejudicial impact
is too severe a bar on the Council's ability to disclose information.
It is paradoxical that a consumer advocate should be so inhibited
from exposing poor standards of performance or actions of companies
that, if widely known among consumers, might affect the company's
standing or brand image. It must be a precondition of consumer
advocacy that it should have an effect!
A less restrictive test should be laid down.
CA recommends that the Consumer Council has a general duty to
publish what it regards to be in the consumer interest and the
restriction on disclosure drawn from the impact on individuals
or bodies should be changed from "prejudicially affect"
to "substantially prejudice".
In the event of a dispute between the Consumer
Council opinion and that of the Director General on the ability
of the Council to disclose, the Council should have the power
to appeal to the Information Commissioner or similar appropriate
person or body.
Such changes would ensure that the Council is
circumspect in the information it discloses. However, it would
also ensure that the Council is not so self-censorious as to prevent
it from carrying out its fundamental responsibility.
Clause 31 also raises another inhibition from
disclosure. "The Council shall not . . . disclose any information
which it considers relates to any matter which is, or is likely
to be, the subject of criminal proceedings."
Given that many breaches of standards by water
companies are liable to criminal prosecution, it is unclear to
what extent this will inhibit the council from investigating and
disclosing information relating to standards of performance. CA
would like this clause to be clarified by government through the
identification of those areas in which government believes that
the Council should refrain from disclosure.
Clearly the Council should be subject to normal
legal requirements. This clause appears to stretch the bar on
disclosure too widely and government should clarify its objective
in including the clause in the draft Bill.
4. Joined Up Regulation
The recent history of the water industry is
an object lesson in river regulation. This must be addressed at
a fundamental level if the conflicts that arose during the last
price determination review are to be avoided. Unfortunately the
Water Bill does not propose significant new mechanisms to establish
joined up regulation.
The onset of more competition and the potential
impact on water qualitytaste and appearance issues if not
health issueswill require closer working between the relevant
regulatory authorities. Government must bring forward proposals
to ensure that this happens in a manner that is effective, transparent
and predictable. Lines of responsibility and accountability need
to be far more clearly defined and formalised.
In addition a review is needed to establish
whether the resources of the three water regulators need to be
increased to enable them to properly manage the introduction of
the competition in the sector. This may also be necessary if they
are going to be able to monitor the companies in the competitive
environment. The review should examine whether resources for such
monitoring will need to continue beyond the short term.
5. Demand Management
CA welcomes new powers for the Environment Agency
to require abstractors to enter into enforceable water resource
management schemes. But, as the House of Commons Environmental
Audit Committee noted in its Seventh Report, water companies do
not have significant real incentives to promote water efficiency.
One result is higher bills than necessary for customers, now and
in future. Consumers' Association supports calls to place a duty
on the Regulator to require demand management by the water companies.
Resource efficiency should be made at least as important as financial
efficiency. OFWAT should add investment in demand management measures
to the elements permissible in the K factor.
25 Consumers' Association, June 2000. Back
Public Health Must Not Be Compromised Urges Drinking Chief Water
Inspector, DETR Press Release, 7 December 2000. Back