Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government, further to the remarks by Baroness Hayman of Ullock on 23 July (HL Deb col 364) that nationalisation of water companies “would cost billions of pounds”, whether they plan to provide details of that calculation.
Answered by Baroness Hayman of Ullock - Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs)
The cost of nationalisation was calculated in a report published by the Social Market Foundation titled ‘The cost of nationalising the water industry in England’. The report estimated the costs of nationalising water companies would be £90 billion. This research draws on a range of existing academic studies, as well as publicly available data from Ofwat, the London Stock Exchange and the annual accounts of the water companies. The research can be viewed on the Social Market Foundation’s website www.smf.co.uk.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government whether water companies are required to have full and complete maps of their sewage network infrastructure, and if so how this is enforced.
Answered by Lord Douglas-Miller
Having a full and detailed map of sewerage assets is a vital part of understanding the network and identifying areas for improvements. Water companies are already required to map their assets under Section 199 of the Water Industry Act 1991. The section, and the requirement to map assets, is enforceable under powers laid out in Section 18 of the Act. Sewerage undertakers are not required to keep records of assets that were laid before 1 September 1989, but only if either:
1) the undertaker does not know of, or have reasonable grounds for suspecting, the existence of the drain, sewer or disposal main;
2) it is not reasonably practicable for the undertaker to discover the course of the drain, sewer or disposal main and it has not done so.
As part of the Environment Act 2021, a new duty has been created for sewerage undertakers in England to produce Drainage and Wastewater Management Plans (DWMPs). DWMPs set out how a sewerage undertaker intends to manage and improve their drainage and wastewater systems over the next 25 years. DWMPs will complement existing requirements to map the sewerage network, to facilitate a detailed understanding of the network and help ensure that drainage and wastewater services are better managed and properly supported, as well as delivering greater efficiencies for customers and supporting investment in nature-based solutions.
In addition, the Storm Overflows Discharge Reduction Plan sets out that the Government expects that water companies have maps of their sewer networks, to understand where properties with separate rainwater pipes are connected to their combined sewer network.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government what is their assessment of Ofwat giving water companies a return on capital invested based on an assumed level of equity even if they do not hold that level of assumed equity.
Answered by Lord Douglas-Miller
When providing company determinations, Ofwat set a sector wide allowed return, on the basis of the notional capital structure. The notional capital structure provides clear signals about the allocation of risk. It protects customers from bearing much of the risk of companies' actual financing decisions and provides strong incentives on companies to raise finance efficiently. This approach is consistent with other UK sectors that are subject to regulatory price controls and is recommended by the UK Regulators’ Network.
The actual achieved equity return for any company will depend on the company's unique actual capital structure and company performance. Considerations about the actual capital structure are matters for each company and its investors to manage, consistent with the clear allocation of risk and responsibility for a company's actual financing and capital structure.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government what plans they have made for the nationalisation of water companies.
Answered by Lord Douglas-Miller
Water companies are commercial entities. However, as you would expect, the Government prepares for a range of scenarios across its regulated industries – including water – as any government would.
The Defra Secretary of State and Ofwat (with consent of the Secretary of State) have the power to request the court to place a company in Special Administration Regime so that its business can either be rescued or transferred as a going concern to new owners.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government on how many occasions OFWAT has blocked or reduced dividend payments by water and sewage companies.
Answered by Lord Douglas-Miller
The Government is clear the overall performance of the water sector is unacceptable. That is why we have given Ofwat increased powers under the Environment Act to hold companies to account for poor performance and ensure dividends are linked to delivery for customers and the environment.
Furthermore, under the “Cash Lock-Up" licence condition, companies must not make a dividend payment where it would pose a risk to their financial resilience. We are confident Ofwat will not hesitate to act when a company has failed to meet these requirements.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government, further to the Written Answer by Lord Douglas-Miller on 26 April (HL3909), why the calculation of Regulatory Capital Value is not accompanied by a calculation of regulatory equity.
Answered by Lord Douglas-Miller
The value of regulatory equity is publicly accessible for each water company. Regulatory equity on the basis of a company's actual structure is Regulatory Capital Value less net debt.
Notional regulatory equity is published annually for each company by Ofwat. Ofwat also presents company gearing levels against actual structures in its annual monitoring financial resilience report.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government why OFWAT calculate gearing levels of water companies by using a debt-to-assets ratio as opposed to a debt-to-equity ratio.
Answered by Lord Douglas-Miller
It is standard practice for regulated sectors to calculate gearing by reference to Regulator Capital Value (RCV). This is because there exists an RCV which represents costs incurred to date which can be recovered from customers in the future. This approach to calculating Regulatory Gearing is used by Ofgem and the Civil Aviation Authority and is recognised by the Rating Agencies.
As the RCV represents the net stock of investment that has been contributed by debt and investors over time, it grows with net levels of investment. This provides the capacity against which companies may raise debt and equity to finance investment programmes.
There is no equivalent to an RCV for companies operating in a competitive market. Gearing measured by reference to RCV is a more useful metric than standard accounting measure of gearing in a utility sector because future revenue streams are more certain than they would be for companies operating in a competitive market.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government what legislation enables (1) water and environmental regulators, or (2) the Secretary of State, to levy personal fines or bring criminal prosecutions against directors of water companies for authorising dumping of raw sewage into rivers and seas.
Answered by Lord Benyon - Lord Chamberlain (HM Household)
Water and Sewerage Company activities are regulated by the Environment Agency under the Environmental Permitting (England and Wales) Regulations 2016. Pursuant to those Regulations the Agency may bring criminal prosecutions against Water and Sewerage Companies and against Directors or other officers of those companies. The relevant provisions of those regulations can be found here: The Environmental Permitting (England and Wales) Regulations 2016 (legislation.gov.uk). The Environment Agency does not levy personal fines. Fines are set and imposed by the criminal courts after the conviction of an offender as part of the sentencing process.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government which beaches in England were designated as safe for swimming (1) in 2010, and (2) the most recent year for which a list is available.
Answered by Lord Benyon - Lord Chamberlain (HM Household)
The physical safety of swimmers and other water users at coastal or inland waters in England is a matter for the local management of the site. The Bathing Water Regulations 2013 are designed to protect water quality and public health relating to pollution and have no provision for physical safety. In 2010, there were 415 designated bathing waters in England. 2022 is the most recent list for designated bathing waters and can be found on GOV.UK. A copy is attached to this answer. Last year, there were 421 designated bathing waters.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government what plans they have to authorise OFWAT (1) to levy personal fines, and (2) to bring criminal prosecutions, against directors of water companies responsible for discharging raw sewage in rivers and seas above the statutory limits.
Answered by Lord Benyon - Lord Chamberlain (HM Household)
Ofwat’s direct enforcement powers and sanctions are primarily focused on the regulated business. However, Ofwat is incentivising the link between performance and compliance and the role of individual company staff, which can deter poor performance or non-compliance. For example, under the Environment Bill we gave Ofwat increased powers to modify water company licence conditions under the Environment Act. Ofwat are now consulting on using these powers which will enable them to take enforcement action against companies that don’t link dividend payments to their environmental performance, or those failing to be transparent about their dividend pay-outs.
As the environmental regulator, the Environment Agency can and does prosecute company directors and other senior officers where the necessary evidence can be obtained to meet that test. As set out in Reg 41 Environmental Permitting Regulations 2016, the courts already have powers to fine directors and other officers of companies which are convicted of polluting rivers and coastal waters, where it can be proved that the offence has been committed with the consent or connivance of such officer or attributable to their neglect.
Ofwat, as the independent economic regulator, protects the interests of consumers by ensuring water companies properly carry out their statutory functions, including their environmental responsibilities. They will not hesitate to take enforcement action where these duties are breached.
For instance, in 2019, Ofwat imposed a penalty package on Southern Water of £126 million for spills of wastewater into the environment from its sewerage plants and for deliberately misreporting its performance.