INTRODUCTION

  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 Competition—Pipe Dreams?[25]

  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 to prosecution.

  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.

COMPETITION

  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".[26]

  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 Competition—Pipe 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.

CLAUSES OF THE BILL

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 legislation.

  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 35)

  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 quality—taste and appearance issues if not health issues—will 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.

January 2001

26   Public Health Must Not Be Compromised Urges Drinking Chief Water Inspector, DETR Press Release, 7 December 2000. Back