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Competition in the Water Industry

 

DEFRA and Welsh Assembly Government – July 2002

Consultation Document on Extending Opportunities for Compettition in the Water Industry in England and Wales - This link will take you to the DEFRA website.

RESPONSE BY THE DRINKING WATER INSPECTORATE

The Drinking Water Inspectorate (DWI) welcomes the opportunity to comment formally on the above consultation document.

The provision of sufficient supplies of safe, wholesome drinking water of acceptable taste, odour and appearance is essential in protecting public health. DWI notes and endorses the inclusion of protecting public health in the Government’s objectives in introducing its proposals for competition in water supplies. This response to the consultation document concentrates on those proposals and questions that relate to drinking water quality and public health.

The Government’s proposals include two main forms of competition:

There are some variants of the latter involving common carriage that are also mentioned in the consultation document.

Competition by a retail licensee will not have any impact on drinking water quality or public health. DWI therefore has no specific comments on this form of competition. Competition by a common carriage licensee has the potential to affect drinking water quality and increase the risks to public health. DWI’s role in competition by common carriage, as the drinking water quality regulator and guardian of drinking water quality, will be to ensure that adequate safeguards are in place to maintain drinking water quality and protect public health. DWI’s comments on the consultation document are firmly based on that role.

Chapter 2

DWI endorses the Government’s objectives, particularly those relating to protecting public health and improving drinking water quality. It also welcomes the recognition, in paragraph 10, of the importance that water supplies must be acceptable to consumers in terms of taste, odour and appearance.

In respect of paragraph 19, DWI is aware of only one inset appointment for water supplies that involves a new entrant. All other appointments to date involve existing water undertakers operating in another water undertaker’s areas.

In respect of paragraph 22, DWI welcomes the cautious approach to the introduction of competition. It is essential that the proposed safeguards for protecting drinking water quality and public health are assessed fully to ensure that they are both adequate and work properly, before expansion of competition is considered (see response to Question 1).

Chapter 3

DWI fully supports the intention to keep existing statutory water undertakers as vertically integrated companies with duties to carry out abstraction, treatment, distribution and sale of water. It is particularly important that water undertakers retain full control of the operation of the distribution networks when a common carriage licensee is introducing treated water into water undertakers’ networks.

DWI fully supports the proposed requirement in paragraph 41, that an applicant for common carriage will need to demonstrate technical expertise in operating and monitoring a treatment works. The final sentence of paragraph 41 could be misinterpreted, as it implies that licensees will be subject to the same level of regulation in respect of specific activities only. However it becomes clearer later in the document that all regulatory requirements relating to the operation of treatment works and the quality of water leaving treatment works will apply to a licensee’s treatment works in the same way that they apply to a water undertaker’s treatment work.

In respect of paragraph 59, DWI’s audit and inspection of licensees will be in relation to checking that they meet the regulatory requirements that apply to their treatment works.

DWI considers that the transitional arrangements referred to in paragraph 68 need further clarification in terms of responsibilities and liabilities. Until the required legislative changes are made, the incumbent undertaker, or the inset appointee as the case maybe, would remain responsible for all regulatory requirements and associated liabilities in respect of drinking water quality.

Chapter 4

As mentioned earlier, DWI supports a cautious approach to the introduction of competition. DWI considers such an approach essential in order to minimise the risks to water quality.

Question 1: Respondent’s views are invited on:(a) What are the important factors to consider in setting eligibility thresholds?(b) What are the benefits/risks associated with the proposed threshold or other thresholds?(c) Do respondents believe that the threshold should be set at 50 Ml or another level. If at another level, on what basis and how many customers do you believe this would make eligible?

DWI considers that the potential for water quality problems could increase if the threshold is lowered significantly or too rapidly. The need to balance supply and demand with more players in the field could result in an increased risk in flow reversals and associated discolouration. This in turn could result in the supply of water unfit for human consumption. It is therefore sensible to gain experience with common carriage before allowing increased numbers of new inputs to the distribution network.

Question 5: The Government welcomes views on the aggregation of premises. If aggregation were considered desirable, what would be the likely costs, who should bear these and what would be the economic benefits both to individual customers and customers as a whole?

DWI considers that aggregation of premises to be unworkable and inappropriate in respect of common carriage. Such a system would be highly complex to operate, especially if it involved multiple undertakers and cross boundary supplies.

Chapter 5

Paragraph 96 describes DWI’s role in advising Ofwat on the competency of the licensee to operate and monitor a treatment works. This is an essential part of the licensing activity. As described, Ofwat controls the process, and it is not clear how Ofwat will involve DWI. DWI considers that Ofwat should be required to consult DWI on any licence involving common carriage. A Memorandum of Understanding (MOU) between Ofwat and DWI could effect this. The MOU could also cover other activities where Ofwat should be required to consult DWI over matters relating to, or potentially affecting drinking water quality. In respect of the final sentence of paragraph 96, see the above comments on paragraph 41.

Paragraph 100 raises a variation on common carriage that has not been mentioned before in the document. If a licensee contracts out the treatment of its water source to a contractor, the licensee will be responsible for meeting, or ensuring its contractor meets, the regulatory requirements in respect of treatment works. The variation is when the licensee contracts, or comes to an arrangement with, an existing water undertaker to treat its water source. It is not clear under the proposals who would be responsible for meeting the regulatory requirements in respect of the treatment works – the licensee or the water undertaker. As this arrangement cannot be forced on the water undertaker, DWI suggests that the water undertaker has the responsibility and that the water undertaker would enter into an access agreement with the licensee over access to the water undertaker’s treatment works. This would need to specify the range of raw water quality and range of volume that could be treated.

In respect of paragraphs 103 and 104, DWI suggests that Ofwat should be required to consult DWI on any disputes involving drinking water quality. This could be effected by the MOU mentioned above.

There is no mention of drinking water quality in paragraphs 112 to 114. Such transfers would need to take account of general quality issues, including plumbosolvency control and fluoridation. Also the volume of water transferred would need to be controlled to avoid significant changes in flow and flow reversal. DWI considers that these matters need to be covered in the access agreement between the licensee and the water undertaker.

DWI strongly supports the Government’s commitment, in paragraph 118, that all pipes in the public distribution network should belong to and be operated by water undertakers.

DWI suggests that the last sentence of paragraph 124 should be qualified by reference to the regulatory requirements that apply to treatment works and water leaving treatment works.

DWI also suggests that the first sentence of paragraph 139 should be qualified by reference to the regulatory requirements in respect of treatment works.

In paragraph 140 it would be more accurate to say that water quality matters are enforced by DWI on behalf of the Secretary of State and the Welsh Assembly Government.

Question 8: Do respondents agree that licensees should not be given the same pipelaying powers as undertakers?
Question 9: Do respondents agree that, in response to a request from a licensee, undertakers should be placed under a duty to exercise their pipelaying powers to provide access to their water distribution networks?
Question 10: Do respondents agree that undertakers should adopt pipes laid by licensees to connect to the public distribution network?

DWI considers that licensees should be given pipe laying powers, provided they can demonstrate acceptable competencies in this field or are using competent contractors with suitable supervision. DWI agrees that water undertakers should be under a duty to exercise their pipe laying powers to provide access to their distribution system at the request of a licensee, provided that there is an access agreement between the water undertaker and the licensee. If the licensee owns the land in which the pipe-work needs to be laid, or comes to an agreement with the owner land of the about the laying of the pipe-work, then the licensee should be allowed to lay the pipe-work to connect to the water undertaker’s distribution system and that the water undertaker should adopt that pipe-work, provided that the pipe-work material satisfies the Regulations and the pipe-work is laid and commissioned according to the water undertaker’s standards. DWI considers that the adoption criteria must be clearly defined in the access agreement between the licensee and the undertaker.

Question 11: Respondents are invited to consider these proposed obligations on licensees, and whether they believe any others are necessary.

DWI considers that licensees putting water into public distribution networks must have the same regulatory responsibilities and liabilities in respect of drinking water quality as an undertaker.
In addition to the proposed responsibilities listed in paragraph 125, common carriage licensees should also be required to:

Question 12: Respondents are invited to comment on the proposed licensing process.

DWI considers that Ofwat should be required to consult DWI on any application involving common carriage and this could be effected by the MOU mentioned above. Likewise Ofwat should be required to consult DWI in respect of any licensee that wishes to change from a retail licence to a common carriage licence (paragraph 137).

Chapter 6

DWI strongly supports the retention of water undertakers as vertically integrated companies. DWI strongly believes that Access Codes and Access Agreements will be critical to the overall success of competition by common carriage. An individual Access Agreement is necessary for each access to reflect the circumstances of the source, its treatment and the distribution system.

In respect of paragraph 162, DWI suggests that Ofwat should be required to consult DWI on any dispute about an Access Agreement that relates to water quality and this could be effected by the MOU mentioned above.

DWI supports the retention by water undertakers of the duty to enforce the Water Supply (Water Fittings) Regulations 1999 (paragraph 201). This is particularly important in respect of maintaining the integrity of the distribution network and backflow prevention.

Question 19: Respondents’ views are invited on the suitability of the framework of Ofwat guidance, Access Codes and access agreements in respect of facilitating market entry whilst recognising the particular circumstances of individual public distribution networks.

DWI strongly supports the framework of Access Codes and Agreements.

Question 20: Respondents’ views are invited on the extent to which the proposed measures to maintain the quality of drinking water supplied from licensees’ treatment facilities through undertakers’ pipes are necessary and sufficient to maintain the quality of drinking water supplied through undertakers’ distribution networks.

DWI considers that all the proposed measures are essential to maintain the quality of drinking water from licensees’ treatment works and to maintain the quality of drinking water within the water undertaker’s distribution network. DWI issued an Information Letter (IL 6/2000) in February 2000, giving guidance on the drinking water quality aspects of common carriage. This document is currently being reviewed, pending revision, but the contents remain relevant in terms of meeting both statutory requirements and consumer expectations in respect of drinking water quality.

Chapter 7

Paragraph 207 states that licensees will be responsible for ensuring all their customers’ needs are met including water quality. Licensees will not have final control over the quality of water supplied to their customers because this will rest with the undertaker operating the distribution system. Licensees can only provide information to their customers about water quality via information obtained from the water undertaker; they will not be able to meet customers’ specific quality requirements.

Chapter 8

DWI considers that continuity of supply is very important. Lack of continuity could give rise to significant water quality problems.

DWI supports the proposal in paragraph 268 to give the Secretary of State and the National Assembly for Wales extended powers to issue Directions to licensees. Directions for common carriage licensees will be needed for emergency planning, including drinking water quality incidents.

Question 25: Respondents’ views are requested on the proposals for the co-ordination of licensees and undertakers in drought planning and droughts.

DWI supports the proposals for co-ordination of licensees and water undertakers in drought planning and during droughts.

Chapter 9

Question 27: Respondents’ views are invited on whether competition should be extended to undertakers’ non-potable distribution networks in the same way as for users of public (potable) distribution networks.

DWI considers it essential that non-potable supplies are kept entirely separate from potable supplies. Provided this is the case, then there are no public health issues and DWI agrees that competition should be extended to non-potable supplies. Competition should be much easier to introduce for non-potable supplies than for potable supplies.

Chapter 10

Footnote 21 is incorrect. The Regulations do not set standards for pipe material. The Regulations provide a system for pipe materials to be approved by the Secretary of State and the National Assembly for Wales when it is judged that the material will not affect drinking water quality.

In respect of the last bullet of paragraph 276, Ofwat should be required to consult DWI on any appeal about pipe laying that involves water quality matters and this could be effected by the MOU mentioned above.

Question 28: The Government welcomes views on the extent to which the proposed framework for self-lay and adoption will promote competition in laying mains whilst securing the integrity of the network.

DWI supports the principle of the proposed framework for self-lay and adoption. However adequate safeguards must be incorporated within the framework not only on the suitability of the materials to be used, but also on the type of material required for the ground conditions.

 
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Updated 23 September 2002
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