Water Bill

Baroness Parminter Excerpts

Tuesday 4th February 2014 Lords Chamber

[The Earl of Selborne (Con)]

My Lords, I declare my interests, as I did at Second Reading, that, like the Minister, I am a farmer with an abstraction licence, although I have not been flooded—so to that extent, I do not claim the same interests.

The amendment would require Ministers to issue rules for the,

“designation of … procedures, responsibilities, status and governance”,

of a market operator. I cannot believe that such ministerial control would assist in the implementation of a successful market. In regulated utility industries, whether energy, communications or water and sewerage, the management and control of market operations is initially the responsibility of the regulator, working alongside the industry. Once the market is up and running, it becomes the responsibility of the industry, supported of course by the oversight of the regulator, which provides the framework. This approach helps to ensure that the regulator and the industry work together; the industry will need to adapt to innovation and new circumstances. We recognise that in this Bill we are promoting innovation and we have to ensure that the regulation adapts accordingly. The industry will need to adapt to innovation and these new circumstances, and it is for the regulator and industry to ensure that working practices are aligned in the regulatory framework that we are establishing in the Bill. I simply do not believe that it would be helpful to have a politician—the Minister of the day, of any party—fulfilling the role of controlling the market operator in this far-reaching way.

[Baroness Parminter (LD)]

My Amendment 95 is grouped with the amendment moved by the noble Viscount, Lord Hanworth. I wish to probe the issue to get a bit more information from the Minister on the shadowy role of the market operator. Before I do that, however, I take the opportunity on this first day in Committee to say that the truncated nature of the parliamentary process, with less than two weeks between Second Reading and going into Committee, has presented certain challenges to those of us who are trying to do our duty and give proper scrutiny to this complex Bill, as my noble friend Lord Crickhowell said. Like others, I thank my noble friend the Minister and the Bill team for the briefings and the clarity of the briefing papers, but that still leaves certain gaps in our knowledge. Noble Lords will be aware that the comments of the Delegated Powers and Regulatory Reform Committee on the Bill were published only on Friday, and we still await the Government’s response. Clearly, we have had to table our amendments before the Government have provided us with the response to important points that the Delegated Powers and Regulatory Reform Committee has made, and that is not particularly satisfactory or helpful.

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Moved by

[Baroness Parminter]

74: Clause 8, page 10, line 32, at end insert—
“( ) In relation to any agreement for the supply of water in bulk between a water undertaker and a qualifying person—
(a) the Authority and any party to an agreement shall at any time if so requested provide such information as the Environment Agency or NRBW may require in relation to the volume and source of any water to be abstracted or supplied and the timing of such abstraction or supply under the agreement; (b) the Environment Agency or NRBW may at any time certify to the Authority that it is necessary or expedient for the purpose of—to vary or terminate an agreement, the Authority must seek a variation or termination of that agreement;(i) conserving, redistributing or otherwise augmenting water resources in England and Wales;(ii) securing the proper use of water resources in England and Wales; and(iii) securing the conservation of flora and fauna which are dependent on an aquatic environment;to vary or terminate an agreement, the Authority must seek a variation or termination of that agreement;(c) if the Authority is satisfied that the variation or termination cannot be achieved by agreement between the parties within a reasonable time it must by order vary or terminate that agreement accordingly.”

[Baroness Parminter]

My Lords, I shall speak also to Amendment 76. The amendments seek to give the strongest safeguards to the bulk transfer of water in advance of—and, indeed, in the absence of—reform proposals for the water abstraction regime, which we will discuss in subsequent amendments.

The Bill incentivises existing licence holders to sell their water to water companies even when the catchment is over-abstracted. It is welcome that the Commons amended the Bill to require applicants for new water supply licences to consult with the Environment Agency as well as with Ofwat. It is on the existing licences being traded as a result of the reforms making it easier for bulk transfers that I wish to focus with these amendments.

Clearly water companies have responsibilities about deterioration outlined in the water framework directive but, as the head of water resources at the Environment Agency said in evidence to the House of Commons, Clause 12 could even force bulk transfers of water between existing participants that could affect the use of abstraction licences.

To protect the scarce resources, the Environment Agency and NRBW need the strongest role at the beginning of the trading process. At present the Environment Agency can only intervene once damage has occurred. That is too late, and especially so for the controls that we are proposing for a new market. In the Commons, the Government gave statutory consultee roles to both the Environment Agency and NRBW when Ofwat makes an order for bulk supplies. My amendment would give those bodies the right to compel Ofwat to intervene in or terminate a bulk supply agreement which it deems would cause unsustainable abstraction.

The issue is whether the statutory consultee role for the Environment Agency and NRBW when Ofwat makes an order regarding a bulk supply agreement means that Ofwat has to act on what these bodies say, or whether it is just advice or input on whether the supply is necessary or expedient which Ofwat can choose to ignore. Surely we need the Environment Agency and NRBW to be able to require Ofwat to intervene to vary or terminate a bulk supply agreement before unsustainable abstraction takes place. That is what both these amendments seek to achieve. I beg to move.

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[Baroness Northover]

My Lords, I thank my noble friend Lady Parminter for tabling these amendments. Clause 8 plays an important role in achieving a more resilient water industry by encouraging the bulk transfers of water, or bulk supply agreements, between incumbent water companies and between incumbent water companies and inset appointees. We recognise my noble friend’s concern that an increase in bulk supply agreements might lead to unsustainable abstraction, particularly in advance of broader reform of the abstraction regime. We are therefore grateful for the opportunity to explore these issues in further detail today.

We would like to assure the Committee that we are serious about reforming the current abstraction system so that it is fit to face future challenges, and noble Lords are quite right to focus on this point. We are committed to putting in place an effective system that better reflects available water resources and we published our proposals for consultation in December. My noble friend Lord De Mauley will talk about our approach to abstraction reform in more detail shortly, as my noble friend Lady Parminter noted; as my noble friend Lord Crickhowell noted, Clause 12 may also appear to be relevant here.

I shall focus on Clause 8, which introduces new provisions to regulate more effectively bulk water supply agreements by introducing codes and charging rules that will govern these agreements. By enabling incumbent water companies to use water resources more flexibly and efficiently, increased water trading can both build resilience and increase the sustainable use of water resources. It can be particularly useful for water stressed areas and in times of drought. My noble friend Lady Parminter is right that we need to avoid any damage from unsustainable abstraction happening in the first place. Tackling damage after it has occurred can be a slow, difficult and expensive process. We therefore want to ensure that adequate safeguards are in place in introducing this reform to the bulk supply regime. We believe that these safeguards are already in place.

The Environment Agency and Natural Resources Wales are the regulators responsible for protecting and improving the environment and they will continue to control the impacts of abstraction through abstraction licensing. As my noble friend Lady Parminter noted, it has been agreed that Ofwat must consult the appropriate environmental body before ordering, varying or terminating a bulk supply agreement. However, I note her current disquiet at this. My noble friend Lord Crickhowell was more encouraged by the arrangement and is, as he put it, almost entirely satisfied by the correspondence from my noble friend Lord De Mauley, and I trust that my noble friend Lady Parminter has also seen this correspondence. If she has not, we will make sure that she receives it. I note also that the noble Lord, Lord Whitty, is less reassured, and I am sure that this issue will be considered further in the later group, as I have indicated. We all share the concern to ensure that we have a resilient system which does not cause damage.

I remind noble Lords that water companies have statutory environmental duties as well, including a duty under Regulation 17 of the Water Environment (Water Framework Directive) (England and Wales) Regulations 2003 to have regard to river basin management plans when deciding whether to enter into bulk supply arrangements. River basin management plans set out the environmental objectives for the water bodies within a river basin district and how they will be achieved. Each water company also has a duty under Section 37A of the Water Industry Act 1991 to produce a water resource management plan every five years that sets out how it aims to balance demand and supply over the next 25 years.

As I say, my noble friend Lord De Mauley will be addressing abstraction in greater detail in the next group, and in the mean time, I hope that my noble friend will be content to withdraw her amendment.

[Baroness Parminter]

I thank the Minister for her comments and I thank my noble friend Lord Crickhowell and the noble Lord, Lord Whitty, for their contributions in exploring this debate. It has become clear that the focus is not the new licences, which are covered by effective safeguards, but the issue of bulk trading where the licences have already been issued. It is about whether the new safeguards that have been put in, which give statutory consultee status to the environmental bodies, are sufficient. Ofwat has to consult those bodies, but it is not obliged to act in accordance with what they say. In the absence of the aligned timetables for the abstraction reform proposals and the proposals for the upstream composition, I remain concerned that we need the strongest safeguards. If we are not given satisfactory responses to the issue that we will be discussing imminently, I reserve my right to come back to it. On that basis, I beg leave to withdraw the amendment.

Amendment 74 withdrawn.

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Moved by

[Baroness Parminter]

96: Clause 12, page 47, line 40, at end insert—
“( ) Before laying a draft of an instrument in accordance with subsection (1), the Minister must publish and present to Parliament draft legislation for reforming the law in respect of water abstraction.”

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[Baroness Parminter]

My Lords, we now touch on the issue of the absence in the Bill of any abstraction reform proposals. Amendment 96 seeks to address the issue of the non-alignment of the proposals for upstream competition, which are within the Bill, and those for abstraction reform, which are not. Without the proposals for abstraction reform running in parallel with those that create a market for trading water, there is a significant risk to our scarce water resources. I will not repeat what I said at Second Reading, but suffice it to say that the House of Lords EU Sub-Committee on Agriculture, Fisheries, Environment and Energy and the Environment Agency both concur with the Government’s own view that at present,

“significant volumes of water are licensed but unused”.

If this water is used as the result, for example, of increased trading in a reformed system, that could cause environmental deterioration.

The upstream competition briefing paper which the Government have helpfully provided for us states that they are aiming to legislate for abstraction reform early in the next Parliament. My amendment would merely give statutory backing to that commitment by this Government and would tie future Governments to abide by it. Requiring the Minister to draft public legislation to reform water abstraction will give clarity to parliamentarians about the shape of the abstraction reform proposals prior to their scrutiny of the regulations that will govern the new market in upstream competition, which the Government say could come into force by 2019. I hope that the Minister will agree that this amendment is one way—I accept that it is only one way—of reflecting the Government’s stated commitment to delivering reform in a timely and coherent way. That can be secured only by aligning the proposals for upstream reform, which are in the Bill, with those for reform of the abstraction regime, which are not. I beg to move.

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My noble friend also raised an important point about abstraction charges reflecting the value of water. As he suggested, I will write to him explaining the charging system in more detail. However, in brief, the standard charge is the mechanism through which the Environment Agency recovers its costs for managing and regulating water abstractions. The environmental improvement unit charge is used to cover the costs of compensating abstractors where the Environment Agency compulsorily varies or revokes abstraction licences to reduce the risk of environmental damage. The charges differ across regions for a range of historical reasons, including the location of sites in the Environment Agency’s Restoring Sustainable Abstraction programme. The Government seek to send better signals about the value of water through the Bill. Our proposals for abstraction reform develop these signals further and aim to introduce a reformed abstraction system that is more flexible and resilient to future pressures. Our proposals also cover abstraction charges and the future use of the environmental improvement unit charge. I thank noble Lords for their patience. I hope that my noble friend will agree to withdraw her amendment.

[Baroness Parminter]

I thank my noble friend the Minister for his detailed comments and the numerous colleagues around the House who joined in this debate. We face an inadequate abstraction regime that will be reformed at some point in the future and a Bill here and now that will introduce upstream competition proposals that could exacerbate the problems of abstraction. While I thank the Minister for his comments, I do not feel he adequately answered why the Government are not prepared to put wording in the Bill reflecting our concern that there is insufficient clarity at the moment about the timetabling of this issue. My noble friend Lord Crickhowell was kind enough to say he had great sympathy with that point.

I accept that the wording I proposed might not be right. We certainly do not wish to put any barriers on the proposal for reforming the retail market. I am sure everyone in this House agrees that we want to press ahead with that now. However, in the relationship between the abstraction reform proposals and the upstream competition there needs to be clearer timetabling within the Bill. I say to the Minister that we will return to this issue on Report, and in the absence of a sequencing being put in the Bill we will look again at further safeguards that will be required to prevent more deterioration to the environment. Those safeguards will be along the lines mentioned in my previous proposed amendments, which my noble friend Lord Cathcart was kind enough to say that we should look at more seriously, particularly paragraph (c) in Amendment 74. As I said, we will come back to this matter but on that basis I beg leave to withdraw the amendment.

Amendment 96 withdrawn.