WATER INDUSTRY BILL
Memorandum by the Department of the Environment,
Transport and the Regions
This memorandum explains the proposed use of the
delegated powers provisions in the Water Industry Bill.
Outline and scope of the Bill
The Bill provides for a new approach to charging
for water and sewerage services in England and Wales. In particular,
it proposes to prohibit disconnection of water supply to dwellings
and some other premises for the non-payment of water charges,
and the related use of limiting devices to enforce payment. It
removes a statutory bar on charging by reference to rateable value
after 1 April 2000. It requires charges for water and sewerage
in respect of dwellings to be made in accordance with charges
schemes. And it revises the regulation of companies' charges schemes
and makes provision for their customers to be entitled to be charged
in particular ways.
The Bill also provides for the establishment of a
Water Industry Commissioner for Scotland and the establishment
of Water Industry Consultative Committees in Scotland. No regulation
making powers are proposed in relation to the Scottish provisions
in the Bill.
Clauses relevant to delegated powers
Clause 3 amends section
142 of the Water Industry Act 1991 'the 1991 Act' so that charges
for water and sewerage services to 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 for agreements entered into before this provision comes
into force. 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. Clause 4 also allows
for the Secretary of State to give guidance to the Director on
the exercise of the Director's power to approve charges schemes,
and the Director is to have regard to that guidance. All such
guidance is required to be published.
The purpose of Clause 4 is to formalise the existing
informal consultation between water companies and the Director
over the contents of charges schemes, and to ensure that the protections
and benefits for customers which the government wishes to ensure
are capable of being delivered.
The Director's powers to approve charges schemes
under Clause 4 are subject to the important limitation that they
may not be exercised for the purpose of limiting the total revenues
of relevant undertakers from charges fixed by or in accordance
with charges schemes. The price limitation machinery which determines
the allowable return on investment for each water company is set
out in conditions made under Part I of the Water Industry Act
1991. This limitation ensures that the main price limit setting
mechanism will continue to be that provided by Part I of the 1991
It would not be possible or desirable in primary
legislation to prescribe the contents of each charges scheme.
It is necessary to have means to allow for regional variation
and variation between companies, so delegated powers of the kind
described are necessary. As noted, any guidance given by the Secretary
of State is required to be published.
Clause 5 of the Bill contains
a requirement for the provisions of any charges scheme made under
section 143 of the 1991 Act to comply with any requirements prescribed
by the Secretary of State in regulations. The regulations may
prescribe items for which a consumer is or is not to be liable
to pay a charge, make provision for the methods and principles
to be used in calculating and imposing charges, require alternative
bases of charging to be made available to consumers, and to require
special provision to be made for vulnerable groups.
Regulations under Clause 5 could be used, for example
to specify that particular tariffs or charging options should
be made available to consumers. For those requiring special provision,
the regulations are intended to set out which groups of people
are to be given special protection, and how eligibility for this
protection should be established. These groups may include those
who need special protection because of their age, health or financial
circumstances, or due to disability. The Government has announced
that the kind of vulnerable groups to which it envisages extending
protection by means of these regulations will include large families
on low incomes and those with a high water use because of medical
conditions. Regulations would allow, for example, such consumers
to be given the option of an alternative charge, based on the
average measured charge for that water company rather than their
own specific use, thus avoiding hardship from high unavoidable
uses of water which consumers might not otherwise be able to afford.
As well as prescribing those who should receive special treatment,
the regulations will outline the nature of the assistance to be
As with Clause 4, the proposed use of delegated powers
reflects the necessity to deal with a variety of circumstances
and situations in which Ministers would have a legitimate interest
in the distribution of charges between customers.
The Secretary of State's powers under Clause 5 would
be subject to the same important limitation as the powers of the
Director under Clause 4, namely that they would not be exercisable
for the purpose of limiting the total revenues of relevant undertakers
from charges fixed by or in accordance with charges schemes. It
would remain the prime responsibility of the Director to establish
the economic regulation of the water industry, in particular deciding
the price limits to which water companies should be subject.
Regulations made under Clause 5 would be subject
to negative resolution procedure, in line with the general rule
established by section 213 of the 1991 Act (see especially section
213(1)). This level of Parliamentary scrutiny is considered both
appropriate and consistent with other regulation making powers
in the 1991 Act which are also subject to the negative resolution
procedure. These include regulations concerning prescribed standards
of wholesomeness of water (see e.g. sections 69, 74), water companies'
duties as respects constancy and pressure of supply (see e.g.
section 65) and water companies' standards of performance in connection
with the supplies of water (see e.g. section 38(2)).
In the course of the Bill's passage in the House
of Commons, the Government gave undertakings to consult the regulator
(the Director General of Water Services), the industry and other
interested parties on draft regulations under Clause 5.
Clause 6 allows consumers
currently paying their water and sewerage charges on an unmeasured
basis the option of requiring their water company to charge by
reference to volume (i.e. by installing a meter). Consumers are
given the option to revert to an unmeasured charge within 12 months
if they find that a metered supply does not suit their needs.
Section 144A(5)(b) would allow further conditions to be prescribed
which would apply to this right to revert. 'Prescribed' is already
defined in section 219(1) of the 1991 Act as prescribed by regulations
made by the Secretary of State, and as has been noted, the presumption
in section 213(1) of the 1991 Act is that regulations should be
made by negative resolution procedure. The intention of regulations
made under section 144A(5)(b) would be to specify conditions which
would prevent a householder being able to revert to an unmeasured
charge. These might include, for example, filling a swimming pool
or using a garden sprinkler - which involve a high use of water
for non-essential purposes.
Clause 7 gives consumers
certain rights to remain on an unmeasured supply of water. Generally
this applies to existing unmeasured supplies to homes. Section
144B(1)(c) again allows conditions to be prescribed which could
limit the entitlement of such consumers to remain on unmeasured
supplies. It is envisaged that any regulations under section 144B(1)(c)
would address similar circumstances to those made under section
144A(5)(b), that is, such activities as filling swimming pools
or using garden sprinklers might result in a removal of consumers'
entitlement to remain on unmeasured supplies. It is considered
that the use of delegated powers in both these provisions, Clauses
6 and 7, is both necessary and appropriate, and that the negative
resolution procedure provides an appropriate level of Parliamentary
scrutiny to the proposed use of delegated powers.
Clause 14(1) and (2) of
the Bill provide for the transfer of Ministerial functions under
this Bill when enacted to be made by means of an Order in Council
under section 22 of the Government of Wales Act 1998. Any such
Order in Council would be subject to negative resolution procedure
rather than the affirmative resolution procedure provided in section
22(4)(a) of the 1998 Act. As this is a transitional period before
the National Assembly for Wales takes up its responsibilities,
it is considered that the negative resolution procedure will allow
for more convenient arrangements for the transfer of powers and
the making of any necessary Order in Council. It is suggested
that this nevertheless represents an appropriate level of Parliamentary
scrutiny, as Parliament has the opportunity during the passage
of the Bill to consider the merits of transferring functions under
Clause 14(2) of the Bill
would make the Bill when enacted a pre-commencement enactment
within the meaning of the Scotland Act 1998. Ministerial functions
under the Bill would transfer to Scottish Ministers when they
acquire their functions under the Scotland Act 1998.
Department of the Environment, Transport &