Select Committee on Environmental Audit Written Evidence


APPENDIX 9

Memorandum from Mr Sean Creighton

THE THREAT OF WATER PRICE RISES FROM APRIL 2005

INTRODUCTION

  1.  I am submitting this memorandum as an individual, drawing on my experience with water and environmental issues derived from my work as an administrative, development, project and research worker for a range of voluntary organisations over the years, including Secretary of Public Utilities Access Forum (1991-2000), individual member of the Forum since 2000, and organiser of the Towards a Water Saving Trust Conference in 1997.

  2.  I welcome the inquiry because it provides an opportunity for a considered view about what "sustainability" means in the context of water customers paying for environmental improvements through their charges, rather than those improvements being paid for out of taxation or investment borrowing.

  3.  In this submission I raise issues about affordability, the sewerage system, water conservation and water resources strategies. On the issue of affordability and sewerage system costs my written evidence to the House of Commons Committee on Environmental, Food and Rural Affairs inquiry into Water Pricing is relevant (published in its report).

SUSTAINABLE DEVELOPMENT

  4.  "Sustainable development" is supposed to be about meeting three objectives at the same time:

    —  social progress which recognises the needs of everyone;

    —  effective protection of the environment, and;

    —  prudent use of natural resources.

  5.  Its guiding principles and approaches are:

    —  Putting people at the centre.

    —  Taking a long term perspective.

    —  Taking account of costs and benefits.

    —  Creating an open and supportive economic system.

    —  Combating poverty and social exclusion.

    —  Respecting environmental limits.

    —  The precautionary principle.

    —  Using scientific knowledge.

    —  Transparency, information participation and access to justice.

    —  Making the polluter pay.

  6.  In its November 2000 report "Water Prices and the Environment" the Committee considered that the 1999 Periodic Review provided "a satisfactory outcome for the environment but there is no room for complacency as we face new, future quality obligations and uncertain water resource constraints." (Paragraph 142) However, at the same time it recommended that "the Director General of Ofwat should be directly accountable for ensuring that Ofwat makes a positive contribution to the Government's sustainability agenda." (Para 220). Ofwat's reluctance to robustly address the "affordability" of water charges issue suggests its failure to understand what "sustainability is about".

AFFORDABILITY

  7.  From April 2005 it is anticipated that water charges will increase substantially as a result of the current Periodic Review of Water Charging by the regulator Ofwat. The House of Commons Environment, Food and Rural Affairs Committee report on Water Pricing (December 2003) has already expressed concern about "affordability". The Public Utilities Access Forum is addressing aspects of this issue in its submission to the Environmental Audit Committee. In terms of the principles and approaches to "sustainable development" price increases that increase the cost of water, water poverty, and increase the stress in the financial management of people's lives, cannot be consistent with the "putting people at the centre" and "combating poverty and social exclusion" aspects of sustainable development.

  8.  The issue of "affordability" is therefore central to the issue of finding a "sustainable development" solution to how to fund environmental improvements.

SEWERAGE SYSTEM

  9.  In its 2000 report the Environmental Audit Committee said that it was not satisfied "that Ofwat's "no deterioration" approach to the maintenance and renewal of underground assets (sewers and water mains) is a logical or acceptable means of assessing the amount of investment which water companies need to meet these requirements. The Committee believes that this approach has amounted to intellectual neglect of this important problem." (Paragraph 208) The public concern expressed a few months ago about the state of the sewerage system suggests that there has been no substantial improvement.

  10.  In my evidence to the House of Commons Environment, Food and Rural Affairs Committee I expressed concern that the failure to adequately maintain the sewerage system could aggravate environmental pollution. I suggested that there does not appear to be adequate information in the public arena about the age, maintenance state of the system, and the projected cost of modernising it, and the resultant effect on price rises and affordability. The Committee did not address the issue.

WATER CONSERVATION

  11.  In its 2000 report the Environmental Audit Committee expressed the view that "companies do not have sufficient incentives to promote water efficiency and that there would be merit in investigating the feasibility of setting company-specific targets for domestic water use, once a robust methodology for efficiency measurement has been agreed." (Paragraph 225)

  12.  Metering is seen by Ofwat, the Environment Agency and the Government as a major instrument to encourage people to reduce water consumption. The Public Utilities Access Forum challenged this approach in its evidence to the House of Commons Environment Committee Water Conservation & Supply Inquiry in 1996 (Minutes of Evidence and Appendices p 80-95). It argued that it was not cost-effective, was unlikely to achieve major reductions in water usage without risk to public health, and that an alternative approach should be a comprehensive programme to detect and repair leaks, and measures to encourage the fitting of more water efficient equipment.

  13.  In its 2000 report the Environmental Audit Committee accepted that "As metering becomes more widespread, there will be an increasing price incentive to be water-efficient and clear pricing signals will be needed. (Paragraph 128) For many low income households and those requiring high water usage, because they have children or special medical needs, the price signal can be a reduction in water consumption to lower than is needed to maintain personal health, and to enable children's water play. This will be especially true for those renting water inefficient homes and whose income level prevents them buying the most water efficient equipment.

  14.  The House of Commons Environment Committee Water Conservation & Supply Inquiry in 1996 Committee concluded:

    "Whilst a case may exist for metering water on conservation grounds, there are clearly others issues to be considered and it is far from proven that it is either a cost-effective or an equitable way to reduce demand. A combination of other measures, if pursued imaginatively and energetically, will suffice to reduce demand to levels which, with good management and proper regulation, water companies should be able to meet in the foreseeable future." (paragraph 164)

  15.  In June 1997 the Public Utilities Access Forum published a research report by John Thackray, a water industry expert who had been an adviser to the Environment Committee Water Conservation & Supply Inquiry in 1966. The research was funded by Joseph Rowntree Foundation as "Paying for household water services", a summary of which is still on the Foundation website: www.jrf.org.uk.

  16.  Thackray reviewed the problems with the then (and continuing) rateable value based element of water charging, and reviewed potential charging options. He concluded:

    —  "Water-metering is not an economically viable alternative. Only one in 10 homes are fitted with meters and no more than 50% are forecast to be metered by the middle of the next century."

    —  "Existing metered tariffs discriminate against low-income households who need above average amounts of domestic water, including those with young children or older people with incontinence problems or other disabilities requiring intensive water-use."

  17.  The economic and sustainability case for metering is still unproven. The recently published research referred to in the February 2004 issue of the Environment Agency's Demand Management Bulletin in an item headed "Impact of metering explained" suggests that the average effect of metering on consumption is about 9% (variation 2-14% ) depending on the volumetric charge; savings are predicted to be c.2% a month relative to what households used when unmeasured. The study used information through consumption meters from 6,611 households July 1996 to December 2001. It is almost impossible for interested individuals like myself and small organisations to assess the validity of this study given that it costs £200 to purchase. Any evidence submitted to the Committee based on the study will need to be subject to robust analysis so that Committee members may make considered judgements as to whether it provides the basis that justifies the continued emphasis on metering.

  18.  The same issue of Demand Management Bulletin reports a growing lobby for using the powers to compulsorily meter areas because of water scarcity. Folkestone & Dover Water propose to apply for "water scarcity status" by 2009, while the Environment Agency suggests the company should do it earlier. In its "Security of Supply, Leakage and the Efficient Use of Water 2003-2003" Report Ofwat says that "water scarce area status should be given serious consideration".

  19.  Notwithstanding short-term savings from metering, the population in the South East will continue to grow and pricing mechanisms cannot drive down consumption inexorably, particularly since households will buy more water as their incomes rise and they take advantage of efficiency savings. So metering therefore cannot be a substitute for developing more water resources.

  20.  Could it be that Folkestone & Dover has been failing to adequately develop new water resources? Or could it be that the small water only companies are no longer viable to manage their resource needs, and should be absorbed into the neighbouring areas controlled by water and sewerage companies which have the capacity to move water resources around their wider area and spread the costs of developing new water resources across a wider customer base thereby keeping prices down.

WATER RESOURCE STRATEGIES

  21.  Back in December 1996 the House of Commons Environment Committee recommended that:

    "If increasing demands for water are to be managed and the environment and existing users protected, it is essential that a long-term strategy for water resources is in place." (paragraph 319)

  22.  It suggested that such a strategy must address, "both on a national and regional basis for each water company area:

    —  what are the present demands for water

    —  what is the amount of water available to meet these demands

    —  what would be the future demand for water

    —  an identification of all the options available to meet the future demands for water (from demand management to new resource development, with the emphasis on the former)

    —  a strategic environmental assessment to be undertaken of all the options identified above to manage future demands."

  23.  Given the relatively new announcements about house building targets, especially in the South-East, it is doubtful that there are up-to-date strategies. Their creation should be central to the last phase of the Periodic Review process and made available for public debate.

CONCLUSION

  24.  At the heart of the Water Pricing review are the concerns about the provision of water as a basic need, and about what environmental improvements are needed and how they should be paid for. At the moment it seems as if the solutions to these concerns are being driven by virtually unaccountable Regulatory agencies and commercial companies without taking into account serious alternative approaches. The likely outcome on current evidence is that the solutions will not be genuinely sustainable. In a context of rising energy prices, and concerns about the future levels of Council Tax increases, rising water charges that contribute to greater affordability problems, and which do not provide visible basic system improvements and environmental benefits, will fuel public discontent. The Committee's inquiry may be the last opportunity to argue that real "sustainable development" principles should be applied in the final stages of the Periodic Review process.

February 2004





 
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