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Statements

Mr David Russell
Office of Water Services
Centre City Tower
7 Hill Street
Birmingham B5 4UA

23 June 2000

Consultation Papers by the Director General of Water Services: (1) New Ownership Structures in the Water Industry (2) The Proposed Restructuring of the Kelda Group

Summary

1. The key DWI points are:

  1. DWI has strong reservations about the drinking water quality implications of the proposals.

  2. Responsibilities for drinking water quality must be clear, unambiguous and make sense to consumers.

  3. Should the Kelda type proposals be incorporated, there is a need for accompanying changes in legislation to allow prosecution in cases of water unfit to be mounted against either the asset owning company, or the asset operating company, or both, depending on whoever was at fault.

  4. Adequate maintenance of assets must be safeguarded.

Consideration

2. The Drinking Water Inspectorate (DWI) has considered carefully the above consultation papers. DWI is only commenting on matters relating to the regulation of drinking water quality.

3. DWI has very strong reservations about the drinking water quality implications of the general proposals and the specific Kelda proposal to separate the asset operating company from the asset owning company, who would also be the licensed water undertaker. It is vitally important that the responsibilities for drinking water quality are clear and unambiguous. But it is also important that consumers regard those responsibilities as sensible and as providing them with safeguards in relation to public health and general drinking water quality.

4. DWI is concerned about the effective carrying out of its two main regulatory functions:

5. Under existing legislation, if there were a separation of the licensed water undertaker from the operating company, DWI would take action against the licensed water undertaker.

Enforcement action

6. DWI’s main task is to check by audit and inspection that the licensed water undertaker is complying with the standards and other regulatory requirements for drinking water quality. DWI requires the licensed water undertaker to provide drinking water compliance data and other information at specified frequencies and times and to make facilities available for inspection when required. Responsibility for providing this would remain with the licensed water undertaker but some of the information would be held by the operating company. The arrangements between the licensed water undertaker and the operating company would have to be such that there was no delay in providing information or difficulty in making facilities available.

7. When there is a non-trivial breach of a standard or other regulatory requirement, DWI takes enforcement action against the licensed water undertaker. The cause of the breach may be a failure by the operating company or be outside its control. Enforcement would involve the licensed water undertaker giving a legally binding undertaking, or being subject to an enforcement order, to take remedial measures within a specified timescale at a treatment works or within the distribution system. It would need close co-operation and arrangements between the licensed water undertaker and the operating company to propose an acceptable undertaking and to deliver the legal obligations in the undertaking or enforcement order by ensuring the remedial work was carried out within the timescale. DWI is concerned that with two organisations involved there are opportunities for confusion and delay which would be to the detriment of consumers.

8. The arrangements between the two organisations could be contractual with a liquidated damages clause should the operating company breach the contract. Alternatively the respective duties of the licensed water undertaker and the operating company could be set out in new legislation with DWI regulating both organisations as appropriate.

Prosecution for supply of water unfit

9. When there is an incident affecting drinking water quality, DWI requires the licensed water undertaker to follow the legal notification and reporting requirements. Some incidents will have been caused by a failure of the operating company to manage and operate the assets properly and others may be outside its control. In all cases, it is essential that the licensed water undertaker obtains full co-operation from the operating company in providing timely and adequate notification and reporting. DWI would require both organisations to co-operate fully with any subsequent DWI investigation, including the taking of witness statements. DWI would wish to conduct interviews under caution with personnel from companies who are responsible under the legislation.

10. If DWI judges that water unfit for human consumption has been supplied, under current legislation a prosecution would be brought against the licensed water undertaker. Although criminal offences cannot be avoided by contracting, the availability of a due diligence defence to the licensed water undertaker might cause it to believe that it could shuffle off its responsibility to the operating company by claiming its contractual arrangements with the operating company required that company to avoid supplying unfit water. The practical impact of the licensed water undertaker being further distant from the direct cause of the incident could dilute its liability and to make it harder to prosecute it, in practice as opposed to theory. Furthermore, a consumer would find the situation very strange when a licensed water undertaker, which would be a little more than a shell organisation, was prosecuted when the operating company was responsible for the failure which caused unfit water to be supplied.

11. DWI therefore considers that any change to current water industry structures must include clear delineation of liability for the supply of unfit water, and changes should be made to legislation to ensure those responsible for failures are held liable.

Maintenance of assets

12. DWI is also concerned that there are adequate arrangements regarding the maintenance of both above ground and below ground assets. A licensed water undertaker should be maintaining its assets in such a way that ensures it meets, and continues to meet, drinking water quality standards. There is a very considerable danger that contractual and funding arrangements to operate assets, particularly short term arrangements, may result in inadequate maintenance of the assets resulting in breaches of drinking water quality standards or in operation of those assets in a way that shortens their life. It is critical that proper maintenance of assets is safeguarded in the proposed restructuring and the proposed operating arrangements.



Michael Rouse

Chief Inspector

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Updated 11 July 2001
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