UK: Draft Water Bill published

On 10 July 2012, Caroline Spelman, the Secretary of State for Environment, Food and Rural Affairs, published a draft Water Bill for parliamentary scrutiny. The draft Bill takes forward legislative proposals set out in the Water White Paper published in December 2011. The Government aims to introduce the proposed market reforms by 2017.

Key proposals in the draft Water Bill are as follows:

Expansion of the current water supply licensing regime and introduction of sewerage licences

The Water Bill amends the Water Industry Act 1991 to expand the current water supply licensing regime and unbundles the combined water supply licence into several different types that would allow for specific services to be authorised. This is intended to encourage new entrants to apply for particular services e.g. a "wholesale authorisation" would allow a new entrant to input water into an undertaker's water supply system. The new licensing regime would also allow for services to be offered under a national licence rather than on a site by site basis.

Similar types of authorisations have been introduced for sewerage services under a new sewerage licence. The new sewerage licences consist of the following types of authorisation: (a) retail; (b) wholesale; (c) retail infrastructure; (d) wholesale infrastructure; and (e) disposal.

The Welsh Ministers are given separate powers in relation to the areas of water in Wales and for sewerage undertakers wholly or mainly in Wales. For licensees using the supply system of an undertaker wholly or mainly in Wales, the existing retail and supplementary authorisations are retained as: "a restricted retail authorisation" and "a supplementary authorisation" respectively.

Removes threshold for switching water suppliers

The Bill removes the threshold at which businesses and public sector bodies in England can switch suppliers (currently five million litres a year). The Government has said that this is intended to allow all businesses and public sector bodies in England to be able obtain more competitive prices, improve their efficiency and tender for services tailored for their individual needs.

The licensed water supply threshold is to be retained at 50 million litres a year for water companies that operate wholly or mainly in Wales. This may be changed by the Welsh Ministers in due course.

A joint retail market with Scotland

Further to the proposals set out in the Water White Paper, the Bill introduces the ability for English (and in certain cases, Welsh) companies to make applications for retail services to the Water Industry Commission for Scotland. This is intended to allow water supply licensees and sewerage licensees to supply customers in both England and Scotland (and eligible water supply customers in Wales). The Bill also sets out provisions for cooperation between Ofwat and the Water Industry Commission for Scotland in relation to the retail market for water. Further changes to Scots law are needed to implement similar changes in Scotland.

Changes to the special merger regime for the water sector

The Bill reforms the special merger regime to exclude more mergers from automatically being referred to the Competition Commission. It introduces a two-tier referral system allowing some water companies seeking to take over another water company to avoid a referral by making undertakings in lieu  to compensate for the loss of a comparator (e.g. by continuing with separate reporting or divesting parts of the business) .

Currently, a merger proposal has to be referred to the Competition Commission if the turnover of the buying or target company is 10 million pounds a year or more.  Under the changes, the Office of Fair Trading and Ofwat would first consider whether a merger would be likely to prejudice Ofwat's ability to make comparisons between water companies to an extent not outweighed by relevant customer benefits. In the affirmative case, there would be a referral to the Competition Commission.

Code based regulation

The Bill changes the regulations that apply for an entity wishing to access the water and sewerage market. Instead of the current requirement of "negotiated access" where a licensed water supplier enters into agreements with existing undertakers in the areas in which they wish to operate, the Bill proposes the introduction of "market codes" to set out standard terms and conditions. The Government has stated that these market codes would similar in approach to that adopted in the energy sector and in the Scottish water market and would be developed by Ofwat in consultation with current water companies, licensees, other regulators and the Consumer Council for Water.

The Bill also removes the "costs principle" on the basis of which wholesale prices in the water supply licensing regime is currently calculated. Instead, the Government intends to introduce a "flexible wholesale access pricing regime".

Changes to Ofwat

The Bill gives Ofwat greater information gathering powers and allows it to impose financial penalties for certain infringements for up to five years after the infringement occurred. This is an extension to the current position where the penalty must be imposed within one year of the infringement.

The Government has also stated that the approach Ofwat takes to regulating the sector will need to reflect the Government's objectives for increasing competition and reflect the Government's objective of having a "proportionate, risk-based approach to regulation." These changes are to be reflected in the new strategic policy statement to Ofwat which is to be published later this year. This will set out the Government's objectives on "competition, and how these should be balanced against the priorities of maintaining a stable regulatory environment, attractive to investors."

Drought Plans to be produced every 5 years

The Bill amends the requirement to review Drought Plans to a five yearly maximum cycle (instead of current 3 year cycle). This brings it inline with the Water Resources Management Plans.

Proposed extension to the environmental permitting regime

The Bill proposed to extend the scope of the environmental permitting regime for England and Wales to include water abstraction and impounding licences, flood defence consents and fish pass approvals. 

The Bill also repeals an obligation on the Environment Agency to keep separate records of maps showing its resource mains and waterworks.

The Government has published the draft Water Bill for pre-legislative scrutiny lead by House of Commons' Environment, Food and Rural Affairs Select Committee. DEFRA has indicated that while it is not formally consulting on the proposals within the draft Water Bill, comments may be sent to the Bill team at waterwp@defra.gsi.gov.uk

Following the period of pre-legislative scrutiny, the Government intends to introduce the Water Bill as soon as Parliamentary time allows. 

Please click here for the full text of the draft Water Bill

Please click here for a copy of the Water White Paper

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 12/07/2012.

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