Memorandum by WaterVoice
1. WaterVoice is the "consumer watchdog"
for the 10 water and sewerage companies and 14 water only companies
in England and Wales. WaterVoice comprises the nine Ofwat Customer
Service Committees in England and the Ofwat Customer Service Committee
for Wales set up under the Water Act 1989 (and superseded by the
Water Industry Act 1991) following the privatisation of the water
industry in 1989. The name WaterVoice was introduced in April
2002 with the support of Ministers and the Director General of
Ofwat to achieve a higher public profile among water consumers,
the media and other interested bodies and clearer separation from
2. The 10 WaterVoice committees have statutory
duties to represent the interests of customers of the water company
or companies allocated to them and to investigate complaints from
customers about their water company. The 10 committee Chairmen
form the WaterVoice Council. The Council and its sub-groups deal
with issues at national and European level.
3. The Director General of Ofwat has statutory
responsibility for appointing the Chairmen and, on the recommendation
of each Chairman, members of the 10 WaterVoice committees. He
also appoints the staff who work for WaterVoice. WaterVoice is
funded by the Director General who is responsible as Accounting
Officer for WaterVoice's expenditure. Despite these close connections
the Director General respects the right of WaterVoice to speak
independently of Ofwat in representing the interests of customers.
4. In preparing our evidence to the inquiry
we have shared it with Ofwat, and vice-versa, to minimise duplication.
Our evidence does not attempt to address all of the questions
set out by the Committee in its invitation to make written submissions.
Instead our evidence focuses primarily on the relationship between
Ofwat and WaterVoice and the accountability of Ofwat to WaterVoice
and to water customers more generally.
5. The statutory duties and powers of the
Director General of Water Services, his purpose, achievements
and rights of appeal against his decisions are set out in Ofwat's
written evidence to the Committee. We are in general agreement
with Ofwat's evidence about these issues but we have some additional
points to make from our standpoint as the body representing customers'
6. The current Director General, Philip
Fletcher, who took up post in August 2000 in succession to the
first postholder Sir Ian Byatt, was appointed by the Secretary
of State for Environment, Transport and the Regions (as was then)
and the National Assembly for Wales. The appointment is primarily
a matter for Government. However, we record as a matter of fact
that there is no statutory requirement for consultation with the
official water customers' representative body in appointing the
Director General. We also record that we were not consulted informally
about the job and person specifications for the post nor were
we involved in any other way by Government before the appointment
of the new Director General was announced.
7. The Government intends to include provisions
in the Water Bill to replace the post of Director General by a
Water Services Regulation Authority (WSRA). We welcome these plans
which are preferable to the Government's original proposals which
were to retain the post of Director General but supported by a
new Advisory Panel. We were concerned that this Panel could have
resulted in confusion and overlap on consumer issues with the
role of the new Consumer Council for Water (CCW) (see paragraphs
23-26). In the meantime the current Director General has created
a non-statutory Regulatory Board to which he has appointed four
Non-Executive Advisory Directors. There was informal consultation
between the Director General and the WaterVoice Council Chairman
in the making of these appointments.
8. The Water Bill provides for the Chairman
and members of the WSRA to be appointed by the Secretary of State
and the National Assembly for Wales. There is no statutory requirement
for consultation with the CCW. However, we believe there is a
strong case for informal consultation with and involvement of
the CCW by Government in the recruitment process.
9. The ways in which the Director General
of Water Services is accountable to Parliament, to Government,
to the water companies that he regulates, to customers, their
representative bodies and other bodies are set out in Ofwat's
written evidence. We are in general agreement with Ofwat's evidence
about these issues but we have some additional points to make
from our standpoint as the body representing customers' interests.
10. With the support of the current Director
General the separate roles of and the working relationship between
Ofwat and WaterVoice were set out for the first time in a Memorandum
of Understanding (MoU) signed in January 2002 between Ofwat and
WaterVoice. The MoU built on the good practice that had developed
since Ofwat was formed in 1989 between economic regulation and
customer protection on the one hand and customer representation
on the other. The MoU formalised the arrangement whereby WaterVoice
speaks independently of Ofwat.
11. Under the existing constitutional arrangements
there is a good and close relationship between Ofwat and WaterVoice
at working and senior levels. Under the current relationship Ofwat
provides us with advice, information and briefing, seeks our views
informally and consults us formally when matters are put out to
public consultation on a range of regulatory issues including
the setting of new price limits for each water company.
12. The Director General has a working relationship
with WaterVoice at both national and regional level. Of particular
note are that:
(i) the Director General attends an
annual meeting with each of the 10 WaterVoice committees to discuss
Ofwat and WaterVoice business and current developments;
(ii) the Director General holds an annual
two way performance review meeting with each committee Chairman:
performance against the Chairman's personal objectives agreed
at the start of the year is discussed and new objectives for the
year ahead agreed; as part of this process Chairmen have an opportunity
to comment on the performance of Ofwat Heads of Division and vice
(iii) the Director General normally attends
part of every WaterVoice Council meeting to report on and answer
questions about his work; and
(iv) the Director General and the WaterVoice
Council Chairman meet regularly on a monthly basis to discuss
policy issues and management business.
13. Ofwat in regulating the water industry
has to balance the interests of customers and other stakeholders.
In general we are satisfied with the way in which the Director
General consults on regulatory issues and explains the reasons
for his decisions. However as knowledge of and interest in regulation
grows so, rightly, do customers' expectationsand our expectationsof
what regulation should deliver and how it should operate. Against
this background we believe that there is scope for improvement
which would increase the extent to which Ofwat is and is seen
to be accountable. We offer examples below.
14. The technical content, complexity and
length of Ofwat consultation documents are not conducive to effect
public consultation and participation in the debate, thereby limiting
input to those with special knowledge.
15. The Ofwat consultation paper "Setting
price limits for 2005-10: Framework and approach" published
in October 2002 provides a recent example. This runs to 132 pages,
uses industry and regulatory terminology but does not include
a glossary of terms for non-specialist and less well informed
readers. An executive summary was included in the consultation
paper and was published separately but this was written in similar
language. We would like Ofwat to do more to improve the accessibility
of consultation documents, for example by producing more explanatory
material aimed at the general public (such as the Ofwat leaflets
on annual water bill increases). We were pleased to note that
the final "Setting price limits for 2005-10" document
published, following consultation, on 27 March 2003 used less
jargon in the executive summary and included a glossary of terms.
16. Ofwat normally publishes adequate information
in support of the proposals or options on which it is consulting
and allows a reasonable length of time for consultation, often
a period of 12 weeks as recommended in the Government's Code of
Practice on consultations. Where the consultation period is shorter,
this may be unavoidable because for example it involves a water
company merger proposal where the timetable is set by the Office
of Fair Trading or matters where the timetable is prescribed in
the water company's licence. Ideally the consultation period set
by Ofwat should take into account the timetable of WaterVoice
committee meetings, so that discussion by the full committee and
adequate local consideration can take place.
17. In this context we had reservations
about Ofwat's handling of a consultation last year on an important
proposal to extend the minimum period of notice to terminate a
water company's licence from 10 to 25 years. Initially the consultation,
limited to an eight week period, took the form of a statutory
public notice with little supporting information. Fuller information
was provided when we asked for it. Before public consultation
Ofwat had consulted and obtained the agreement of Ministers to
the proposal and Ministers' agreement was made public at the start
of the consultation. We believe that this gave the impression
that the outcome of the consultation was a foregone conclusion.
Ofwat has said that circumstances of this particular consultation
were exceptional and are unlikely to be repeated. We hope very
much that this will prove to be the case, and that this consultation
will serve as a reminder of how regulatory accountability can
sometimes fall short of customers' expectations.
18. Ofwat does publish its conclusions following
public consultation but we believe that as a matter of good practice
Ofwat should always include sufficient analysis and explanation
of decisions so that respondents can see to what extent their
individual views have been influential. Ofwat has responded to
our comments on this aspect of communications in the case of its
"Setting price limits for 2005-10" consultation (referred
to at paragraph 15) by publishing on 27 March 2003 a full summary
of responses and conclusions.
19. Commercially sensitive and other confidential
information to which Ofwat and WaterVoice have access requires
appropriate care to safeguard it. The Director General is willing
to share such information with WaterVoice on a strict need to
now basis normally, where a specific water company is concerned,
with the relevant WaterVoice committee Chairman but not with the
20. While we welcome the Director General's
approach, this has limitations as WaterVoice moves towards becoming
the Consumer Council for Water. It means that other Council members
with expertise are unable to offer advice or to be consulted.
It also means that where a confidential issue, such as recently
the resolution of Vivendi's proposed acquisition of Southern Water,
has wider implications for the future of mergers between water
companies, the Council cannot discuss or influence the issue before
the Government's and Ofwat's advice has been published. We will
consider this matter further with Ofwat in light of any views
on this sensitive area that may be expressed by the Committee
in the report of its inquiry.
21. The Ofwat Board comprises the Director
General (who chairs it); Ofwat's four Directors and the four Non-Executive
Advisory Directors appointed by the Director General. The Ofwat
Board hold its meetings in private and the agenda and minutes
are not published. We invite the Committee to consider, as Ofwat
exists to regulate in the public interest, the extent to which
information about the nature of the Board's business and the advice
given by the Board to the Director General should be published.
The same issues will arise in respect of meetings of the new Water
Services Regulation Authority to be set up subject to enactment
of the Water bill. Bodies as diverse as the Environment Agency
and NHS Trusts already publish the minutes of Board meetings,
as does the Monetary Policy Committee. The minutes of our Council
and regional committee meetings are also published.
22. Ofwat has a duty as regulator to minimise
the serious problem of sewer flooding. Section 94 of the Water
Industry Act 1991 places a duty on sewerage undertakers to provide,
improve, extend and maintain a system of public sewers so that
its area " ... is and continues to be effectually drained".
Breach of this duty is enforceable by Ofwat; however, enforcement
action has never been taken in response to sewer flooding or for
any other reason. In contrast water and sewerage undertakers have
been prosecuted by the Drinking Water Inspectorate and the Environment
Agency for failures in drinking water quality and in wastewater
treatment and disposal. The Committee, in the course of its inquiry,
may wish to seek Ofwat's views on the use of enforcement action
in relation to section 94.
23. The current system of consumer representation
in the water industry is subject to change under proposals introduced
by Government in the Water Bill published on 20 February 2003.
Subject to enactment of the Bill the Ofwat Customer Service Committees
will be wound up and replaced by a new independent Consumer Council
for Water (CCW) and new regional committees in England and Wales.
The Government has decided that these reforms should not be implemented
before April 2005 to avoid changes to consumer representation
during Ofwat's periodic Review of water companies' price limits
which is due to be completed in November 2004. We welcomed this
24. The proposed CCW should give water customers
a stronger, independent voice for their interests which Ofwat,
as regulator, has to balance with the interests of the water industry
and other stakeholders. However, we have expressed concerns to
Government that it is not sufficient for the CCW to have statutory
independence; it must have strong powers to carry out properly
the role expected of it.
25. In some areas the powers proposed in
the Bill fall short of what experience tells us is required. For
example, the CCW must be able to obtain information from the water
companies. But in the event of a refusal the Water Bill provides
for Ofwat to decide whether the water company should be ordered
to supply the information requested from it by the CCW. Ofwat
will also be able to decline to supply information requested from
it by the CCW. A further example is that Ofwat will not be subject
to a statutory duty to consult and take account of the CCW's comments
in the regulatory decision-making process.
26. The Water Bill contains provision for
a Memorandum of Understanding (MoU) between the CCW and Ofwat
covering amongst other matters, arrangements for co-operation
in the exchange of information. We do not think an MoU is a proper
substitute for strong powers for the CCW on the face of the Bill
if it is to have an effective role to play on behalf of water
customers in holding the regulator to account.
Council Secretary on behalf of WaterVoice
31 March 2003