Chapter 3.Regulation of the Water Industry
General duties of the Water Services Regulation Authority
Section 22: Primary duty to secure resilience
134.This section amends section 2 of the WIA which sets out “general duties with respect to the water industry”. These duties apply both to the Secretary of State and the Welsh Ministers and to Ofwat in the exercise of their relevant regulatory responsibilities. This section introduces a new duty, which is to further the resilience objective.
135.Subsection (2DA)(a) explains that the resilience objective is to secure the long-term resilience of water supply and sewerage systems. It refers specifically to environmental pressures, population growth and changes in consumer behaviour`.
136.Subsection (2DA)(b) explains that Ofwat will need to ensure that undertakers take action to make water and sewerage services to consumers resilient for the long term.
137.The section states that the action taken to secure resilience can include promoting long-term planning and appropriate investment, increasing efficiency in the use of water, and the use of a full range of appropriate measures to manage water resources. Appropriate measures would include action to reduce consumer demand and to ensure the effective management of water resources within the water environment.
138.Subsection (2DB)(a) defines supply systems by reference to the new section 17B while subsection (2DB)(b) defines sewerage systems.
Section 23: General duty as regards undue preference in the provision of services
139.This section inserts new subsection (ba) to section 2(3) of the WIA which imposes a general duty on the Secretary of State, the Welsh Ministers and Ofwat to carry out their functions with a view to securing that undertakers do not show any undue preference or undue discrimination in favour of (in particular) their own retail businesses, associated licensees or other undertakers in the provision of services for licensees, inset appointees or other undertakers.
140.Undue preference might be demonstrated by an undertaker, for example, where it prioritises enquiries from its own end-user customers or from its subsidiary licensee over those from another licensee or undertaker. Undue discrimination might involve an undertaker placing different information requirements on unassociated licensees or other undertakers that it would not normally require from its own retail business or subsidiary licensee. This would in effect give the undertaker’s own business interests a competitive advantage over others that are operating in the same market.
Section 24: Strategic priorities and objectives
141.This section replaces the current section 2A of the WIA with a new power enabling the Secretary of State to publish a statement setting out strategic priorities and objectives for Ofwat in relation to appointment areas wholly or mainly in England. Currently, section 2A provides the power under which the Social and Environmental Guidance (SEG) to Ofwat is issued; Ofwat must have regard to this guidance. The new section 2A establishes that Ofwat must carry out its relevant functions in accordance with the statement published by the Secretary of State.
142.The section creates a new power allowing for the production of a single consolidated statement of the Government’s priorities for Ofwat. This will allow for future iterations of the current Strategic Policy Statement incorporating the SEG to be produced under a single power.
143.Subsection (3) requires the Secretary of State when producing the statement to have regard to Ofwat’s duties under section 2 of the WIA. These include, for example, duties to:
protect consumers;
have regard to the interests of vulnerable groups;
ensure that the functions of water and sewerage companies are performed properly and that the companies are able to finance those functions;
further the resilience objective;
contribute to the achievement of sustainable development.
144.The section also specifies that the Secretary of State must have regard to social and environmental matters. This duty will require the Secretary of State and the Welsh Ministers to set out strategic priorities and objectives for Ofwat on the matters previously covered by the Social and Environmental Guidance.
145.Subsections (4) to (8) set out requirements for consultation and parliamentary scrutiny of the statement.
146.The new section 2B sets out similar powers for the Welsh Ministers to publish a statement setting out strategic priorities and objectives for Ofwat in relation to appointment areas wholly or mainly in Wales.
147.The section provides for an amendment to section 192A of the WIA such that Ofwat will need to include in its forward work programme an explanation of how projects included in it reflect priorities and objectives published under section 2A or 2B.
Regulation of relevant undertakers, water supply licensees and sewerage licensees
Section 25: Procedure for granting water supply and sewerage licences
148.This section amends section 17F of the WIA by making new provision about the procedure for Ofwat to grant water supply and sewerage licences. Currently the procedure for the issue of water supply licences is set out in regulations by the Secretary of State. Under the new provisions Ofwat will determine the procedure, including any fees payable, and publish it in a notice.
149.This section also revokes a requirement on applicants that wish to apply for a licence to publish a notice of their application.
Section 26: Extension of time limit for imposing financial penalties
150.This section amends section 22C of the WIA by increasing the limitation from twelve months to five years for the Secretary of State, the Welsh Ministers or Ofwat to impose a civil financial penalty on an undertaker or licensee for an historic breach of an appointment or licence condition or a relevant statutory obligation. It remains the case that the time limit for imposing a penalty does not apply if a formal notice has been served on the person on whom the penalty is to be imposed, before the end of the limitation period. The provision ensures that the extended time limit does not apply to a contravention occurring prior to the section coming into force.
Section 27: Water resources management plans for England: resilience
151.This section adds a new section 37AA 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.
Section 28: Frequency of water resources management and drought plans
152.This section amends sections 39B of the WIA to change the frequency of drought plans to a maximum five yearly cycle in keeping with water resources management plans. Where there is a duty to prepare a revised plan within the five year time limit, this means the revised plan must be prepared and published within the five years (in accordance with the procedure in section 37B of the WIA).
153.The section inserts new subsections (4) to (9) in section 37D to empower the Secretary of State in respect of undertakers wholly or mainly in England, or the Welsh Ministers in respect of undertakers wholly or mainly in Wales, to amend the planning timeframes for water resources management plans. This can only be done by order using the negative resolution procedure. The Secretary of State’s and the Welsh Ministers’ powers here can be exercised in the same statutory instrument. New section 39D makes the same arrangements for drought plans.
Section 29: Standards of performance: water supply
154.This section inserts new sections 38ZA and 39ZA into the WIA giving the Secretary of State or the Welsh Ministers powers to set standards of performance relating to water supply services provided by water supply licensees wholly or mainly in England or Wales respectively. Currently the powers in section 38 of the WIA only apply to services provided by water undertakers. The Welsh Ministers may make provisions relating to licensees operating in the undertakers’ areas wholly or mainly in Wales under a restricted retail authorisation. Standards of performance, which are prescribed in secondary legislation, are the minimum levels of service, for example in terms of quality and timeliness, that water suppliers must provide to their customers in the normal course of business or when things go wrong. The secondary legislation may also include provision as to the level of payment that customers must receive if the prescribed standards of performance are not met. The section also amends section 38A of the WIA (information as to levels of performance which must be supplied to Ofwat) to extend that section to water supply licensees.
Section 30: Standards of performance: sewerage
155.This section makes the same provision in relation to sewerage services provided by sewerage licensees as is made by section 29 in relation to water supply services provided by water supply licensees by inserting new sections 95ZA and 96ZA and amending section 95A. Schedule 5 extends the provision to the Welsh Ministers when sewerage licensing is commenced for Welsh undertaker areas.
Section 31: Interim duty: water supply
156.This section replaces section 63AC with new sections 63AC to 63AF to introduce a new power for Ofwat to direct one or more water supply licensees to take on some or all of the customers of a licensee that exits the market. If Ofwat does not exercise this power, the customers would revert back to the local water undertaker.
157.Where a customer reverts back to an undertaker, the undertaker cannot terminate the supply for a period of three months or until the customer makes a more permanent arrangement with that undertaker, another undertaker or with a different licensee. An undertaker may refuse to make an interim supply should making that supply put at risk its ability to meet existing and future water supply obligations. The undertaker’s decision may be referred to Ofwat for a determination if the customer disagrees with that decision.
158.Where Ofwat orders a licensee to take on the supply, the supply is to be treated as having been supplied by the licensee since the other licensee exited the retail market so that there is minimum disruption to the customer and the undertaker must recoup its supply costs from the appointed licensee. There is an “opt out” for the licensee from a proposed direction in section 63AC(5)(b) which it may use if, for example, it does not have the capacity. All licensees that elect to participate in the interim water supply regime must make a scheme for determining the default terms and conditions that will apply to the interim supply. Ofwat may issue a direction about the default terms and conditions that must be included in the licensees’ schemes. These directions are enforceable under section 18 of the WIA. Licensees and customers may agree their own particular terms and conditions. The licensee can, through a code produced by Ofwat, be required to tell the customer about the default terms and conditions before the licensee and customer make an agreement.
Section 32: Interim duty: sewerage services
159.This section introduces a new section 110K into the WIA that allows undertakers’ customers to notify them that they no longer want to be provided with sewerage services by the undertaker and instead are to be served by a sewerage licensee. This is the sewerage equivalent of sections 63AA and 63AB. The notice will specify the time at which the transfer will occur and must allow at least 2 working days’ notice (so that in metered premises the undertaker can arrange for the meter to be read). Once the undertaker no longer serves a customer, its duty to provide services is interrupted until the customer applies to be served again by the undertaker or the undertaker is required to serve the customer because of the interim duty in section 110L (see below).
160.This section also inserts new sections 110L to 110O into the WIA which provide for customers to revert back to the local sewerage undertaker when a sewerage licensee exits the market. The undertaker must continue to provide the service until the customer makes a new long-term arrangement with a licensee or another sewerage undertaker (i.e. where the premises are in the appointed area of one undertaker but are connected to the sewerage system of a different undertaker). Ofwat can alternatively direct one or more sewerage licensees to take on some or all of the customers of the exiting licensee.
161.Where Ofwat orders a licensee to take on the supply or where the customer chooses its own licensee, the supply is to be treated as having been supplied by that licensee since the original licensee exited the retail market so that there is minimum disruption to the customer and the undertaker must recoup its supply costs from the new licensee. There is an “opt out” for the licensee from a proposed direction in section 110L(5)(b) which it may use if, for example, it does not have the capacity. All licensees that elect to participate in the interim sewerage service regime must make a scheme for determining the default terms and conditions that will apply to the provision of the interim service. Ofwat may issue a direction about the default terms and conditions that must be included in the licensees’ schemes. These directions are enforceable under section 18 of the WIA. Licensees and customers may agree their own particular terms and conditions. The licensee can, through a code produced by Ofwat, be required to tell the customer about the default terms and conditions before the licensee and customer make an agreement.
Section 33: Notice of agreements within section 142(2)(b)
162.This section adds new subsections (6A) and (6B) to section 142 of the WIA. An undertaker will be required to notify Ofwat when it makes an individual charging agreement with a customer that is not covered by a charges scheme. Such agreements tend to be made between undertakers and large users of water but could be made for any non-household arrangements not covered by undertakers’ charges schemes. This reporting requirement will be enforceable by Ofwat under its section 18 powers. The section also amends section 195 of the WIA to require such notified information to be included on Ofwat’s register for public inspection in relation to agreements made after the coming into force of this section. This is subject to any direction given by the Secretary of State or the Welsh Ministers in relation to, for example, commercially sensitive information.
Section 34: Register relating to undertakers and licensees
163.This section amends section 195 of the WIA to require Ofwat to enter information into its register of regulatory actions. Ofwat is required to publish notices of any agreements to reduce charges payable in relation to bulk supply agreements, main connection agreements and water supply and sewerage licensing agreements.
Section 35: Operation of register
164.This section replaces section 195(4) to (6) of the WIA with new subsections (4) to (4B). The effect is to remove the powers of the Secretary of State and the Welsh Ministers to specify by order the times at which Ofwat’s register of regulatory actions must be made available for inspection and the fees that are payable to Ofwat for inspection and for any copies of the papers contained in the register. Instead, Ofwat is to publish a notice setting out how the register is to be accessed.
Section 36: Obtaining information for enforcement purposes
165.This section amends section 203 of the WIA to extend current powers to demand information. Under the current section 203 the appropriate Minister and Ofwat can demand information from any person about potential contraventions by water and sewerage undertakers of their or others’ appointment and licence conditions or other statutory requirements enforceable under section 18 of WIA.
166.This section extends the subjects on which information can be demanded by Ofwat and the Minister to situations where an undertaker is causing or contributing to a contravention by another undertaker, or where a licensee is causing or contributing to a contravention by another licensee of appointment or licence conditions or other statutory requirements enforceable under section 18 of WIA. Information can also be demanded about both undertakers’ and licensees’ compliance in individual cases with the prescribed standards of performance relating to water supply and sewerage services.
Appeals relating to codes
Section 37: Appeals relating to revisions of codes
167.This section inserts new sections 207A to 207C into the WIA giving the Secretary of State the power to make regulations providing for appeals to the CMA against an Ofwat decision to revise a code under the Act (such as the codes under sections 40B and 110C) or part of a code under the Act that has been designated in the regulations.
168.The regulations must set out the method the CMA will adopt in deciding whether to determine an appeal and the grounds on which an appeal may be made. Further procedural provisions that may be included in the regulations are in section 207C and new Schedule 16 to the WIA (see Schedule 6 below).
Guidance relating to rules about charges
Section 38: Guidance relating to rules about charges
169.This section adds new sections 144ZE and 144ZF to the WIA which are about the Secretary of State and the Welsh Ministers issuing and revising high level guidance in relation to Ofwat’s charging rules made under provisions of the WIA inserted by this Act. In particular, section 144ZE places a requirement on the Secretary of State and the Welsh Ministers to issue and keep under review guidance on the principles to be applied by the Authority in determining the provisions of the rules about charges to undertakers’ customers and between undertakers and licensees in the reformed markets. This guidance will set the framework within which Ofwat must set the charging rules which are binding on undertakers. The guidance must be appropriately consulted on and laid before Parliament or, if appropriate, the National Assembly for Wales. This gives Parliament or the Assembly the ability to scrutinise the relevant government’s approach to charging guidance to Ofwat and to resolve, within a 40 day period, that the guidance should not be issued.
Adjudication functions
Section 39: Exercise of adjudication functions by other persons
170.This section creates a new power for the Secretary of State in relation to Ofwat’s adjudication functions, listed in new section 207D. Currently, the WIA identifies a number of matters upon which Ofwat has a statutory duty to make a formal determination in cases of dispute between customers and the water and sewerage companies. This includes end-user customers, parties seeking connections to a sewer or a water main, parties applying for or seeking to vary a consent to discharge trade effluent and parties with a complaint about the exercise of works powers on private land.
171.This section allows the Secretary of State and the Welsh Ministers to make an order allowing any of the relevant functions to be performed by a specified party other than Ofwat; or by either Ofwat or another party at Ofwat’s discretion. The relevant functions are set out at subsection (4) of new section 207D which clarifies that this power covers specified functions and does not extend to Ofwat’s enforcement powers under section 18 of the WIA.
172.This section will enable the introduction of greater flexibility into the system for dispute resolution in order to enable routine disputes to be resolved in a timely manner and to allow for the development of expertise in relation to specific classes of dispute. Ofwat will be responsible for setting the regulatory framework within which the adjudication functions are performed. Subsection (2) provides that the order can require Ofwat to produce guidance as to how an adjudicator must exercise the relevant function. It also provides that the person exercising the function can be required to take account of any guidance to which Ofwat is itself subject.
Drinking water inspectorate
Section 40: Charging of fees by assessors for the enforcement of water quality
173.Subsection (1) of this section adds a new section 86A of the WIA which allows the Secretary of State to confer power on the Chief Inspector of Drinking Water to charge fees to water companies for the costs of regulatory activities undertaken by the Drinking Water Inspectorate. It replaces a similar power conferred by section 4 of the Public Bodies Act 2011 which was time limited. There are equivalent powers for the Welsh Ministers to make such orders.
174.Subsection (2) of the section repeals the relevant provisions of the Public Bodies Act 2011.
Provision of public sewers: premises in Wales
Section 41: Disputes about the provision of public sewers: premises in Wales
175.This section amends section 101A of the WIA so as to make provision about the determination of disputes about the provision of a public sewer in Wales. Under section 101A, owners or occupiers of properties served by private sewerage treatment systems that are not connected to a public sewer may apply to the sewerage undertaker for the area where the premises is located for connection to a public sewer under the conditions prescribed by section 101A.
176.The undertaker must decide whether it believes it has a duty to provide a public sewer. If the sewerage undertaker and the owner or occupier do not agree about there being a duty or other specified matters, the dispute resolution provisions of section 101A apply.
177.In Wales, the dispute determination role now rests with the Natural Resources Body for Wales. The section gives that role to the Welsh Ministers, or a person they appoint, and requires the Natural Resources Body for Wales to advise the parties and the person determining the dispute, if asked. Because of the Natural Resources Body for Wales’ role, the section provides for persons appointed to determine disputes to be independent of the Natural Resources Body for Wales.
