Information Letter

DWI Information Letter 11/2008

20 October 2008

To:   Board Level and Day to Day Contacts in Water Service Companies and Water Companies in England and Wales

Dear Sir/Madam

The 2009 Periodic Review of Prices – Further Guidance on Drinking Water Quality Requirements

Purpose

The purpose of this Information Letter is to provide water companies and other stakeholders with guidance on the 2009 Periodic Review of Prices (PR09) for those matters relating to drinking water quality. This further guidance supplements the information contained within DWI IL 2/2008 “The 2009 Periodic Review of Prices – Guidance on Drinking Water Quality Requirements”. It takes account of the feedback from water companies and other stakeholders on the preliminary submissions for the drinking water quality programme for PR09; the Inspectorate’s assessment of, and response to, the submissions; and the content of companies’ Draft Business Plans. This letter confirms the information for final drinking water quality submissions by water companies that require the support of the Drinking Water Inspectorate for inclusion in Final Business Plans for PR09, including the timetable and process that the Inspectorate will adopt.

Background

For PR09, water companies are expected to address all statutory drinking water quality requirements as set out in Defra’s Statement of Obligations¹ . This Statement of Obligations describes the statutory obligations that apply to water companies who are wholly or mainly in England over the price review period 2010-2015 on the water environment, including drinking water and water supply. These expectations have been endorsed by Welsh Assembly Government for those water companies who are wholly or mainly in Wales. The 1998 EU Drinking Water Directive (98/83/EC) is the primary European legislation that sets standards for drinking water quality. The Directive was implemented by the Water Supply (Water Quality) Regulations 2000 (in England) and 2001 (in Wales). These Regulations, referred to in this letter as the Principal Regulations, contain all the standards of the Directive together with national standards for aesthetic, chemical and microbiological parameters. All of the standards in the Principal Regulations came into force on 25 December 2003, including an interim standard for lead of 25µg/l. The final standard for lead of 10µg/l comes into force on 25 December 2013.

The Principal Regulations have been subject to a number of amendments. The latest amendments, the Water Supply (Water Quality) Regulations 2000 (2001 in Wales) (Amendment) Regulations 2007 came into force on 22 December 2007. These Regulations are referred to in this letter as the Amendment Regulations 2007. The key purposes of the Amendment Regulations 2007 are set out below:

• The repeal of the Surface Water Abstraction Directive (SWAD) on 22 December 2007 and the need for a continuation of an effective level of health protection for consumers of public water supplies;
• The introduction of a risk assessment approach to management of drinking water supplies;
• A contribution to the Water Framework Directive (WFD) objectives in terms of the raw water monitoring at abstraction points by water companies, which is essential to underpin the risk based approach to drinking water quality management.

Guidance on the implementation of the Water Supply (Water Quality) Regulations 2000 (2001 in Wales) (Amendment) Regulations 2007 was published on 6 October 2008 (3rd Edition²). Water companies should be mindful of this guidance in the preparation of final drinking water quality submissions for inclusion in the PR09 drinking water quality programme.

Feedback from preliminary drinking water quality submissions for PR09

The Inspectorate received 266 preliminary submissions for inclusion in the drinking water quality programme. Provisional support was provided for 112 schemes proposals, support was declined for 105 scheme proposals, and a decision is pending, awaiting provision of further information or on hold, for 33 proposals. The Inspectorate has commended for support 16 schemes for catchment or land management. Further information on these schemes is provided below.

Where the Inspectorate has indicated provisional support, the preliminary assessment letters (PALs) issued by the Inspectorate set out caveats where there were gaps in the information provided, which will need to be addressed in the final submissions. For most of the supported proposals, the caveats related to insufficient information on the detail of the preferred solution, in particular, breakdown of steps to be taken, cost effectiveness and cost benefit of the solution, timescale for delivery and how benefit of the scheme will be demonstrated. For some proposals, there was insufficient information on alternative solutions considered and reasons why the preferred solution had been put forward.

Another common caveat included in the PALs was the requirement to provide evidence that a risk assessment of the supply system had been carried out. The Inspectorate expects this caveat to have been addressed through the requirement of regulation 27 of the Amendment Regulations 2007 to carry out a risk assessment of every water treatment works and its connected supply system by 1 October 2008, and to submit as soon as possible thereafter a report of the assessment to the Inspectorate.

Review of water companies’ Draft Business Plans

The Inspectorate’s review of the DBPs submitted to Ofwat by 11 August 2008 has not identified many significant issues in respect of the PALs. Schemes that received support from the Inspectorate at the preliminary submission stage have generally been included in companies’ Draft Business Plans. Most schemes where a decision is pending on receipt of further information have also been included and generally with an appropriate reference to ongoing discussions between the company and the Inspectorate. A few companies included schemes that were submitted to the Inspectorate but not supported at preliminary stage indicating that the schemes would be resubmitted with additional supplementary information. Only one company included all schemes submitted at preliminary stage regardless of the decision by the Inspectorate whether or not to support the schemes and did not make any reference to ongoing discussions. The Inspectorate will be contacting companies individually where there are specific queries arising on the drinking water quality programme identified in their Draft Business Plans.

The Inspectorate notes that all companies appear to have taken a risk based approach to the identification of investment requirements to maintain or improve drinking water quality. It also notes that the Draft Business Plans appear to be generally consistent with companies’ Strategic Direction Statements provided to OFWAT in December 2007.

The Inspectorate also notes that many companies are proposing significant increases in maintenance expenditure; however, much of this appears to be due to increased costs for Security and Emergency Measures Direction (SEMD) requirements, acceleration of meter installation, cost of energy and other operational costs, water resource planning and improved flood resilience. The Inspectorate is concerned that the provision made for specific capital and operational expenditure for routine water supply system asset maintenance is difficult to establish in many Draft Business Plans. The Inspectorate will seek confirmation from companies and other stakeholders that the provision proposed is sufficient for a sustainable long-term risk-based approach to water supply management.

Companies appear to have generally had due regard to priorities for consumers arising from the consumer research they and the PR09 National Consumer Research Steering Group have carried out.

Final drinking water quality programme for PR09 – Principles

Risk Assessments and reporting requirements

In IL 2/2008, the Inspectorate stated that water companies, when considering drinking water quality proposals for PR09, will need to address the requirements set out in the Amendment Regulations 2007 for a risk assessment to be carried out for every water treatment works and its connected supply system i.e. from source to tap, by 1 October 2008 to establish whether there is a risk of supplying water that could constitute a potential danger to human health. In summary, the outcome of the risk assessments should provide the supporting information for any drinking water quality scheme proposals that water companies submit at PR09.

IL 2/2008 recognised that the date for completion of the risk assessments and provision of risk assessment reports (1 October 2008) came after the date for publication of Draft Business Plans. Therefore, the Inspectorate expected companies to prioritise the risk assessments to provide preliminary scheme proposals based on a risk based approach.

For Final Business Plans, and following receipt of companies’ risk assessment reports, it is likely that some additional schemes will be submitted to the Inspectorate for support that were not identified at preliminary submission stage for Draft Business Plans . It is also possible that the schemes supported at the preliminary stage may need to be reviewed in light of the information received through the regulation 28 risk assessment reporting process.

Specific drinking water quality drivers

Regulation 26/Turbidity

Regulation 26 of the Amendment Regulations sets out the preliminary treatment that companies must have in place to prepare water for disinfection. This includes the requirement that the preliminary treatment must secure that turbidity of the water is below 1NTU before entering the final disinfection stages of treatment. The 3rd edition (October 2008) of the Guidance on the interpretation of the Amendment Regulations specifies that as a minimum, companies should have turbidity monitors installed at a point before water enters any inactivation process.

It is expected that companies will already have in place turbidity monitors to meet this requirements as a matter of good treatment practice. Thus, the Inspectorate will consider proposals for installation of turbidity monitors as part of a drinking water quality improvement proposal only if a company can demonstrate that there has been a change of circumstances, such as a deterioration in raw water quality, or there is a potential danger to human health. The Inspectorate suggests company proposals for upgrading treatment control arrangements to mitigate risk should be included in provision for maintenance.

Catchment Management

As mentioned above, the Inspectorate received preliminary scheme proposals from a number of water companies for catchment or land management schemes to commence in AMP 5. The Inspectorate considered that the proposals fell into two broad groupings and therefore assessed them accordingly.

1. Short/Mid term catchment investigations and/or intervention work, which is a part of a proposed drinking water quality improvement scheme where there is a demonstrable change in circumstances due, for example, to raw water deterioration and/or a significant risk of failure of a drinking water quality requirement within the next AMP period 2010 - 2015.
2. Mid/Long term catchment management investigation and intervention work where a significant risk to drinking water quality has been identified beyond 2015, and where it is beneficial to commence mitigation measures to reduce the risk of failure, and/or to reduce the cost of future solutions.

The Inspectorate has supported the schemes that fall into the first group for inclusion in the drinking water quality improvement programme for PR09. Such schemes are subject to the normal criteria used by the Inspectorate to justify need for support and demonstrate benefit on completion.

The Inspectorate has taken a different approach for the schemes in the second group as it considers that these catchment management proposals do not sit comfortably within the criteria usually required for schemes included as part of the drinking water quality programme, and which will be delivered using appropriate legal instruments. Nevertheless, a prudent company will have a need for some such schemes as part of a risk-based approach to sustainable management of water supplies. The Inspectorate responded at the preliminary stage by providing letters of commendation for support for funding where it was satisfied that the need for these schemes was justified for drinking water quality purposes, and where they were an appropriate option to mitigate the stated risk. It was also noted that most such schemes provided multiple benefits for drivers other than drinking water quality.

Since submission of Draft Business Plans, further discussions have taken place with the Environment Agency (EA), Natural England (NE) and OFWAT regarding the most appropriate funding mechanism for the second group of catchment/land management schemes. It is currently proposed that these schemes may best be categorised as investigative or pilot trials, which most accurately reflects their status.

Consequently, where there are benefits in terms of meeting Article 7 of the Water Framework Directive, in particular, to reverse declining raw water quality, investigations will be considered by the EA for inclusion within the National Environmental Programme. Alternatively, where there are direct benefits for drinking water quality from a catchment or land management proposal i.e. improvements to raw water quality that will negate the need for expensive treatment options or reduce operational expenditure in terms of current treatment processes, the proposals will be included in the drinking water quality improvement programme.

The criteria to be met for consideration of the group 2 schemes, as set out in Ofwat’s methodology paper include:

• identification of the source of pollution,
• action already initiated to remove the source of the pollution,
• established a detailed plan for addressing the decline in raw water quality, and
• justification of the proposal with cost benefit analysis.

Additionally, for a scheme to be included in the drinking water quality improvement programme, the Inspectorate needs to be able to put the agreed scheme into a legal instrument. To enable this, the Company will need to provide a clear aim and objective for the proposal; details of what is proposed; specify how progress will be reported by identifying milestone steps and key delivery dates; and specify how it will demonstrate that the outputs have been delivered satisfactorily.

Consumer acceptability

As set out in IL 2/2008, water companies were invited to submit proposals for inclusion in the PR09 drinking water quality programme to address failure or likelihood of failure to meet standards relating to consumer acceptability (i.e. for iron, manganese, colour, turbidity, and taste and odour issues) that is not due to the domestic distribution system within buildings. The Inspectorate indicated preliminary support for those proposals that were justified in relation to non-compliance with regulatory requirements i.e. compliance sample failures or likelihood of failure based on operational or investigational sampling, level of consumer complaints, occurrence of events and incidents or where a significant risk has been identified arising from the risk assessment methodology that identifies the need for work to be undertaken. For the Inspectorate to be able to transpose these schemes into formal programmes of work within legal instruments, many companies need to provide further information on the measurable outputs to demonstrate improvements. Whilst the measurable outputs should focus primarily on numbers of consumer complaints and compliance with water quality standards, it may be necessary to establish additional secondary measures for delivery purposes, e.g. absolute values of, and variability in, residual chlorine concentrations for taste and odour.

If Companies are unable to provide the necessary information as set out above to satisfy the Inspectorate that the schemes should be included in the drinking water quality improvement programme, they may prefer to include the schemes within their maintenance programme.

Lead

DWI IL 2/2008 restated the Inspectorate’s view that strategic lead communication pipe replacement by water companies does not achieve the desired health benefits unless the consumer replaces the lead pipes within their ownership at the same time. Pilot trials funded at previous periodic reviews also indicated that strategic lead communication pipe replacement alone would not be the most cost-effective solution. Therefore, the Inspectorate expects water companies to develop more comprehensive strategies to ensure that the future lead standard is met.

For the purpose of securing funding through the PR09 process for proposals to address the risk of lead compliance issues, companies are requested to identify in their risk assessments of water supply systems where there is an unacceptable risk associated with the lead parameter and to identify an appropriate integrated package of measures to mitigate this risk. This package should include the following:

• Identification of high, medium and low risk supply zones in terms of consumer exposure to lead in water supplies
• Continuation of, and further enhancement to, plumbosolvency control measures, if necessary.
• Replacement of lead communications pipe and customer service pipes on exceedances of the 10µg lead concentration.
• Opportunistic lead communications and service pipe replacement from planned work on the distribution system (e.g. when preparing pipe-work for the installation of meters)
• Work with local authorities to identify vulnerable consumers, and to identify appropriate solutions, including the replacement of lead pipes in public buildings (e.g. when refurbishment is carried out in local authority housing).
• Work with health protection teams and PCTs to identify vulnerable consumers and appropriate solutions.
• A Communications and education strategy to make consumers, and other stakeholders, aware of the risk of lead in water supplies, what can be done to mitigate risk, and who has responsibility for lead pipes.

The Inspectorate recognises that there may be some elements of such an integrated package that do not comfortably sit within the drinking water quality improvement programme, and that it may be more appropriate for funding to be allocated under maintenance. However, given the human health and compliance significance of the lead issue, the Inspectorate considers that a clear and transparent integrated package that covers the measures as set out above should be included in its entirety as a Quality item.

Nitrates schemes

Preliminary submissions to address nitrate have been supported by the Inspectorate where the evidence is sufficiently robust to justify the need for a programme of work. A significant number of the supported schemes are for treatment including blending, ion exchange and reverse osmosis. For each of these proposals, the Inspectorate expects companies to be able to demonstrate (through written confirmation as part of the final submission) that they have confirmed with EA and NE that the preferred proposal is the most effective and sustainable option.

Provision for Asset Maintenance

The Inspectorate expects water companies to consolidate the improvements made to drinking water quality in recent years by effective and efficient maintenance of their assets. It has worked closely with other stakeholders in the industry to develop the Capital Maintenance Planning Common Framework (CMPCF) methodology for estimating maintenance requirements. This methodology is now an integral part of water companies’ approach to identification of the need for a sustainable level of maintenance going forward.

The Inspectorate would also draw companies’ attention to a recent UKWIR project on the integration of Distribution Operation and Maintenance Strategies (DOMS) and Drinking Water Safety Plans (DWSP).

The project identified the benefits of integrating the approaches as:

• improved efficiency in delivery of the three processes
• greater consistency in the approach to risk assessment within water companies and
• improved communication between different functions within businesses

The Inspectorate looks to each company to apply these processes to establish the sustainable level of maintenance activity it needs to maintain water supply requirements and service.

Process and format for final drinking water quality submissions

IL 2/2008, issued in January 2008, set out the timetable for both preliminary and final drinking water quality submissions. A considerable level of interaction between the Inspectorate, water companies and other industry stakeholders has taken place since the issue of that guidance including:

• A workshop in February 2008 to confirm requirements for the preliminary drinking water quality submissions
• Receipt of preliminary submissions by 31 March 2008
• Assessments made by Inspectorate and feedback to the water companies by way of preliminary assessment Letters (PALs)
• Consultation with other stakeholders (OFWAT, Consumer Council for Water, EA, NE, Defra and Reporters) by way of copies of the PALs and through bilateral and quadripartite meetings
• Ongoing meetings with water companies to discuss individual water company proposals.

The Inspectorate wishes to finalise the drinking water quality programme for PR09 by confirming its assessments of the preliminary schemes, reviewing any new schemes that have come out of the risk assessments completed by 1 October 2008 and reviewing any additional information for those scheme proposals as yet undecided. Therefore, information on all final drinking water quality submissions for inclusion in water companies’ final business plans should be provided to the Inspectorate no later than 21 November 2008 to the following email address: dwi.pr09@defra.gsi.gov.uk.

The Inspectorate will assess the final submissions and provide feedback by way of Final Letters of Support by 31 December 2008.

For those preliminary scheme submissions which have received initial support from the Inspectorate, companies are required only to provide information to address any caveats set out in the PALs and associated attachments, (in particular, on cost benefit analysis) and any other additional information that is relevant to the proposal.

For preliminary submissions that have yet to be decided, and any resubmissions of schemes not supported at the preliminary stage of assessment, the Inspectorate expects companies to provide the additional information required or address the reason why the scheme may not have been supported as listed in the attachments to the PALs.

Where a Company has identified a new scheme proposal not previously submitted to the Inspectorate, and as a result of the risk assessments of all water treatment works and connected supply systems, it must provide the minimum information requested in the text of IL 2/2008 and the associated Annex A.

As part of its assessment, the Inspectorate will check that all schemes seeking support have been identified as a control measure to mitigate an unacceptable residual risk in the relevant risk assessment report and that the proposal has been included in an Action Plan.

Once the Final Letters of Support have been issued, the Inspectorate will write to companies regarding the arrangements for the transposition of the final programmes of work into the most appropriate legal instruments.

Enquiries

Copies of this letter are being sent to Pamela Taylor, Chief Executive, Water UK; Richard Wood, Water Supply and Regulation Division, Department for Environment, Food and Rural Affairs; Claire Bennett, Climate Change and Water Division, Welsh Assembly Government, The National Assembly for Wales; Colin McLaren, Drinking Water Quality Regulator for Scotland; Randal Scott, Drinking Water Inspectorate for Northern Ireland; Helen Phillips, Natural England and Tony Warn, Environment Agency, Tony Smith, Consumer Council for Water and Kevin Rideout, Water Services Regulation Authority (OFWAT).

Enquiries about this letter should be addressed to Claire Pollard (020 7270 3395), or claire.pollard@defra.gsi.gov.uk. This letter is being sent electronically to Board Level and Day-to-Day contacts, and to PR09 contacts. Please acknowledge receipt by e-mail to DWI.enquiries@defra.gsi.gov.uk. Hard copies are not being sent. This letter may be freely copied.

Yours sincerely

Claire Pollard
Principal Inspector (Regulations)

¹Statement of Obligations - Information for Water and Sewerage Undertakers and regulators on Statutory Environmental and Drinking Water Provisions Applicable to the Water Sector in England (December 2007). www.defra.gov.uk

²Guidance on the Water Supply (Water Quality) Regulations 2000 (England) incorporating the Water Supply (Water Quality) Regulations 2000 (Amendment) Regulations 2007 and the Water Supply (Water Quality) Regulations 2001 (Wales) incorporating the Water Supply (Water Quality) Regulations 2000 (Amendment) Regulations 2007