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Written Statement - The Water Bill

Alun Davies AM, Minister for Natural Resources and Food

The Water Bill was introduced in the House of Commons on 27 June 2013. The Bill was originally published in draft in July 2012 for pre-legislative scrutiny.

This written statement is laid under Standing Order 30 – Notification in relation to UK Parliament Bills. It relates to provisions included in the bill at introduction which modify Welsh Ministers’ functions, but which do not fall for consideration under Standing Order 29, and are therefore not included in the Legislative Consent Motion relating to the Water Bill laid on 18 September.  

The UK Government has stated that its policy objectives are to reform the water industry to make it more innovative and responsive to customers and to increase its resilience to natural hazards such as droughts or floods. The Bill will also include measures to deal with the availability and affordability of flood insurance, following a public consultation on the proposed approach.

For ease of reference, the provisions which modify the functions of Welsh Ministers are described in the order in which they are introduced in the Bill. There are 6 Parts to the Bill and 10 Schedules. Part 1 is further sub-divided into 4 Chapters.

PART 1 – WATER INDUSTRY

CHAPTER 1 – Water Supply Licences and Sewerage Licences 
The following provisions modify the functions of the Welsh Ministers

Clause 1 –. This clause replaces the existing section 17A of the Water Industry Act 1991 (WIA) with a new provision on the issue of water supply licences. New section 17A allows Ofwat to issue water supply licences which give the holder certain rights with respect to the water supply system and provision of water supply services to eligible premises in undertakers’ areas in England and Wales. “Eligible premises” means premises that may be supplied under a retail or restricted retail authorisation.

Subsections (2) to (4) extend the concept of different authorisations for carrying out different activities under the water supply licence. The existing retail and supplementary authorisation are retained for licensees using the supply system of an undertaker wholly or mainly in Wales under the names “a restricted retail authorisation” and “a supplementary authorisation” respectively.

This clause also introduces a new section 17AA in the WIA which outlines the persons that Ofwat must consult before issuing licences with certain authorisations. This includes an obligation to consult the Welsh Ministers on the appointment of licensees using the supply system of undertakers wholly or mainly in Wales.

Clause 5 – This clause would apply the new water supply and sewerage licensing arrangements to the areas of undertakers wholly or mainly in Wales as they apply to undertaker areas wholly or mainly in England. The Welsh Ministers have the power to bring Schedule 5 into force by means of an order subject to the affirmative procedure. Schedule 5 contains powers of direction and consultation for the Welsh Ministers in relation to applying the new licensing regime fully to those undertakers whose areas are wholly or mainly in Wales.

CHAPTER 2 – Water and Sewerage Undertakers 
The following provisions modify the functions of the Welsh Ministers.

Clause 9 – New section 110D outlines the procedures that Ofwat must follow when producing a code, including a requirement to consult. (Ofwat will have a power to produce or revise a code relating to main connection agreements which is intended to increase transparency and streamline operations.)  Ofwat must specify the consultation period in which consultees may comment. Within 28 days from the end of that consultation period the Secretary of State or the Welsh Ministers may direct Ofwat not to issue the code or to amend it as per a direction where a code relates to bulk supplies between undertakers within their respective jurisdictions. The Secretary of State and Welsh Ministers may issue a joint direction if the code relates to main connections between undertakers wholly or mainly in England and undertakers wholly or mainly in Wales. The relevant minister may only use this power of direction once and only in relation to the first edition of the code.

New section 110H outlines the procedure Ofwat must follow before issuing rules on charging for services connected to a mains connection, including a requirement to consult. In preparing the draft rules Ofwat must have regard to any charging guidance published by the Secretary of State or the Welsh Ministers. Ofwat must specify the consultation period in which consultees may comment. Within 28 days from the end of that consultation period the Secretary of State or the Welsh Ministers may direct Ofwat not to issue the rules or to amend them as per a direction where the rules relate to main connections between undertakers within their respective jurisdictions. The Secretary of State and Welsh Ministers may issue a joint direction if the rules relate to main connections between undertakers wholly or mainly in England and undertakers wholly or mainly in Wales.

New section 110I enables the Secretary of State and Welsh Ministers to produce and revise charging guidance to Ofwat relevant to main connections between undertakers within their respective jurisdictions or jointly in relation to main connections between sewerage undertakers wholly and mainly in England and wholly or mainly in Wales. The Secretary of State and Welsh Ministers are required to consult each other and other appropriate persons on their draft guidance before it’s published.

Clause 11 –. New section 105ZD outlines the procedures that Ofwat must follow when producing a code relating to a section 104 agreement, including a requirement to consult. (A section 104 agreement regulates arrangements between a sewerage undertaker and any person seeking to provide sewers, drains or sewerage disposal works for eventual adoption by the sewerage undertaker.) Ofwat must specify the consultation period in which consultees may comment. Within 28 days from the end of that consultation period the Secretary of State or the Welsh Ministers may direct Ofwat not to issue the code or amend it as per a direction. The Welsh Ministers’ powers in this regard only relate to a code, or to so much of a code, that relates to arrangements with sewerage undertakers wholly or mainly in Wales. The relevant minister may only use this power of direction once and only in relation to the first edition of the code.

New section 105ZG required Ofwat to consult relevant persons about the draft rules. In preparing the draft rules Ofwat must have regard to any charging guidance published by the Secretary of State or Welsh Ministers.

New section 105ZH enables the Secretary of State and Welsh Ministers to produce and revise charging guidance to Ofwat relevant to bulk supplies within their respective jurisdictions. The Secretary of State and Welsh Ministers are required to consult each other and relevant persons on their draft guidance before it is published.

Clause 14 – The Competition and Markets Authority (CMA) must ask Ofwat for, and Ofwat must give, an opinion on the impact of a merger on Ofwat’s ability to regulate and how that weighs up against potential customer benefits. (The merger referred to here is under the special merger in section 32 to 35 of the WIA.)  In making this assessment, Ofwat must apply the methods set out in the statement of methods required under new section 33C. The UK Government’s intention is that the statement should give acquiring undertakers and the CMA some certainty about whether a proposed merger (taking into account any undertakings proposed under new section 33D) would prejudice Ofwat’s ability to regulate and the likely impact of prejudice. The CMA must consider Ofwat’s opinion before coming to a decision.

Ofwat must consult the Welsh Ministers before preparing or altering the statement of methods.

CHAPTER 3 – Regulation of the water industry
The following provisions modify the functions of the Welsh Ministers.

Clause 27 – This clause adds a new section 37A(A) to the WIA which provides that the Secretary of State may give directions to water undertakers about the basis on which a water resources management plan is to be prepared. The direction can only be given with a view to securing the ability of the water undertaker to meet the need for the supply of water to consumers. The direction can require that a plan be prepared on the basis of certain assumptions around resilience and security of supplies in drought and may be related to the risk of certain weather events arising, the frequency of customer restrictions or other bases for describing resilience, such as water security margins. The provision applies to the Secretary of State in respect of water undertakers whose areas are wholly or mainly in England.

The Secretary of State must consult the Welsh Ministers before giving a direction under this clause.

RATIONALE FOR INCLUSION OF THESE PROVISIONS WITHIN THE WATER BILL

The Welsh Government considers that it is appropriate for these provisions to apply in relation to Wales because the water and sewerage industry is regulated on a wholly or mainly basis. This generally means that the Welsh Ministers have responsibility for water and sewerage undertakers operating wholly or mainly in Wales (e.g. Dee Valley and Dwr Cymru Welsh Water) and the Secretary of State has responsibility for water and sewerage undertakers operating wholly or mainly in England (e.g. Severn Trent).

Dee Valley Water, Dwr Cymru Welsh Water and Severn Trent all operate across the geographical border of England and Wales, therefore it is more practical to legislate on policy relating to water industry managements and regulation in a UK Government Bill which covers England and Wales. These companies deliver plans and programmes to ensure the smooth running of their organisations on a holistic basis rather than by the geographical boundary line.

It is considered appropriate for these provisions to be included in the Water Bill because the provisions could not be made by Assembly Act.