Infrastructure and Capital Investment Committee

Meeting date: Wednesday, September 26, 2012

Official Report 440KB pdf

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Water Resources (Scotland) Bill: Stage 1

The next item is further evidence on the Water Resources (Scotland) Bill at stage 1. We are taking evidence from Consumer Focus Scotland. I welcome Trisha McAuley, deputy senior director, and Ryan McRobert, policy advocate, from Consumer Focus Scotland.

What is your view of the adequacy of the consultation that took place prior to the introduction of the bill? Are you satisfied with the Scottish Government’s response to the concerns that you raised?

The only issue that we had with the prior consultation was the formal public consultation that took place earlier this year, which was the second of the two hydro nation consultations and lasted for six weeks. We submitted a response to that consultation, but we made it clear in our response that we felt that the consultation period was inadequate. We understood the reasons for the timing—it had to fit into the parliamentary timetable before the summer recess—but we made it clear that we felt that it was insufficient.

We are happy that the Scottish Government has largely considered our concerns. Some of them are clear in the policy memorandum, but I do not think that some of them have been followed through in the wording of the bill. Generally, however, we are happy with the consultation process except for the six-week period in February.

We will come on to the specifics during this session. Will the bill and the wider hydro nation agenda have a positive impact on water consumers in Scotland?

A lot of what is in the bill is positive for the better management of our water resource, but the bill and the hydro nation agenda do not make it clear what the benefits to consumers will be. For example, there is very little emphasis on how the economic gains that are outlined in the hydro nation agenda will be passed on to consumers in the form of lower bills, and social justice through the possibility of helping people who cannot afford to pay their bills. That is not clear to us.

We think that the bill focuses too much on the economic gains at the expense of environmental and social impacts. For example, the generation of renewable energy could bring significant benefits to our rural and remote communities, but there could be significant detriment if those developments are undertaken without proper engagement with the local communities. From that point of view, we can see risks to consumers as well as benefits.

We welcome the international response in terms of helping international development, but we are not clear that there is enough focus on getting things right at home. There has been no real look at the affordability of water bills for some time. We think that now is the time to have another look at the charging system, and we have submitted a detailed response to the recently closed consultation “Investing in and Paying for Your Water Services from 2015”. We are not clear about the extent to which people in Scotland are having real difficulty.

I know that it sounds rather strange, but there are still issues about people in Scotland not having access to a clean and affordable water supply. Some of you may be aware of the recent situation in Bridge of Orchy. By some quirk of administration, the water supply was not transferred from the ownership of Argyll and Bute Council at the time of the establishment of Scottish Water, so the local council has been responsible for that private water supply, as is the case for all private water supplies. Recently, however, the local council determined that it did not own any property in Bridge of Orchy and that therefore it would not support the water supply any more. The drinking water quality regulator for Scotland has been in contact with the council and Scottish Water, so that situation may now be resolved. However, it is a serious situation. We would expect the hydro nation agenda to ensure that problems at home were fixed as well as or before looking further abroad.

Those are just some of our concerns about the bill. It is a well-intentioned bill, but from a consumer perspective there is a bit of an imbalance between some of the social and environmental parts of the agenda and the economic part, which is fine in itself.

Clearly, you have an opportunity through the legislative process to inform and influence the development of the bill through its different stages. You provided in your detailed written submission a number of recommendations as to how the bill might be strengthened. Can you highlight for the committee which of those recommendations you think should be given active consideration?

Yes. I have already alluded to the first one, which is about the definition of the value of water, which section 1(3) of the bill states

“includes the economic and other benefit”.

We made it clear to the Scottish Government in the consultation that we felt that the definition must be expanded to include reference to environmental and social benefit. The Government’s response was that that was in the policy memorandum. Indeed it is, and we welcome that, but we do not think that the bill’s wording is adequate. We would like to see specific recognition in the bill that economic gains should be placed alongside environmental and social gains.

What benefits would that bring for consumers?

I can give you some examples. Obviously, there are three interlinked strains of sustainable development. If we look at renewable energy generation, for instance, for any development on Scottish Water’s land, by itself or other developers, we would be concerned if there were a focus on economic drivers at the expense of the impact on the surrounding environment. We would also be concerned about the social impact if Scottish Water or other developers failed to consult or engage with communities appropriately or, indeed, if communities did not have a voice in what happened. We have been working hard with Scottish Water, which has been improving its community engagement processes. It freely admits that it still has some way to go in that regard, but it is working with us to improve that.

We have all seen the amount of publicity that is given to environmental debates and the profile that they have—for example, the polarised debates about wind farm developments. That could obviously happen in the future with developments on Scottish Water’s land.

We would be concerned if the economic gains agenda bypassed the potential for local renewable energy developments to be used in innovative ways to help our rural and remote communities that are off the gas grid and whose fuel poverty is hard to tackle. We have been doing some work with the energy department in the Scottish Government on community benefit funds and we would like to ensure that Scottish Water’s agenda was joined up so that communities could benefit.

There is also the issue of affordability for current and future consumers. This is the dawn of a new era in water resource management. Scottish Water is working on 25-year projections, while the English and Welsh water agenda, as well as the global water agenda, is concerned about water scarcity. That is obviously not an issue in Scotland at the moment, but our agenda is being set in that context, so we want to ensure that people in Scotland can afford their water bills.

There is not a lot in the bill about conserving or re-using our water, or about managing demand as well as supply. Clearly, there are opportunities for consumers to contribute to the debate. The fact that we spend 30 per cent of our energy bills on heating water means that clear savings are possible for consumers.

There is a host of issues that could be encompassed in the discussion. They will not all be addressed in legislation, but we feel that the hydro nation agenda needs to widen out a bit. I do not know whether you want to talk about governance, but we see the governance aspect as offering one way in which to address that.

Your submission says:

“The European Commission is currently considering its response to the public consultation on its range of proposals to improve water management in Europe and to safeguard water resources for all users. It would not make sense for either the Water Resources (Scotland) Bill or the wider Hydro Nation agenda to proceed without taking due account of this emerging and important policy context.”

Can you expand on that and explain what implications the consultation could have for Scotland’s water resources and the proposals that are outlined in the bill?

The European Commission issued a consultation in March, which closed in June. It is now considering the response to that, which previous experience suggests could take some time.

Our understanding is that it is not going to overhaul the whole policy framework for water because a revision of the water framework directive is due in 2019. However, it wants to put in place a blueprint that it can send to member states with the expectation that they will put it into practice.

I am unclear how that would work in the context of the fact that Scotland is not an independent member state—I deliberately did not comment on that—but I fully expect that the Scottish Government would have to comply with the blueprint. Basically, it is about the better management of water resources; water policy and land use in planning and agriculture; water efficiency and how that can work in relation to building standards; and leakage. It is also about economic instruments that can incentivise the better use of our water, such as charging; metering; and—I have underlined this in my notes—pricing schemes that incentivise water efficiency.

I am unclear about what will come out of the consultation, but we think that it is an issue that should be watched. It does not make sense for us not to take account of the wider policy context of water resources generally.

We will go through the bill’s parts in order, and I will start by asking about part 1.

You have already answered the question about social and environmental factors. Obviously, various organisations that we questioned last week made a similar demand, so there is a bit of a head of steam behind that issue.

The issue in your submission that is distinctively yours is the call for the bill to impose on ministers a duty to protect the interests of consumers. It is obvious why you think that that is desirable and necessary. It is not up to you to find any problems with that approach, obviously, but I wonder whether you have had any response from the Government on that point. Do you know of any other legislation that contains such a duty? I am trying to think what the objections to it will be.

We have not had any response from the Scottish Government on that point. We have shared our evidence with it and had discussions on the issue with officials, who were quite positive about what we were saying. We hope that the Government will do something.

I am not aware of any other legislation that sets out that duty for ministers. We were being consistent with the fact that the bill quotes environmental legislation. In line with our approach to the wider aspects of the issue, we felt that if some aspects of previous legislation were noted in relation to the environment, there was no reason why the bill should not include a general duty to protect customers.

I am sorry, are you saying that that is in the previous water legislation?

Maybe I am reading the wrong bit. I thought that you were referring to section 1(2), which says that the Scottish ministers are to act consistently with current legislation in relation to the environment.

I am asking about the current legislation, which I do not know chapter and verse on. Are you saying that there is a reference in that legislation to protecting the interests of the consumer?

No, there is not. We are saying that, under the Water Services etc (Scotland) Act 2005, ministers are under that obligation and that, if the new bill requires ministers to comply with the current environmental legislation, it should also require them to comply with the consumer protection legislation that already exists.

11:45

With previous panels on previous days I have dealt with section 2 of the bill on the abstraction of water. I am heartbroken that you have no opinions on it, but I will move on.

That is fine. It is just that other organisations, for example the Scottish Environment Protection Agency, are much more expert on the matter than we are and there are obviously people in the industry who have a clear interest. We are not experts in that area.

That having been said, I will move on to section 3.

The bill distinguishes between Scottish Water’s core and non-core functions, with the aim of protecting customers who receive core water and sewerage services. Can you explain why, in your written evidence, you consider that the distinction between core and non-core functions does not provide sufficient protection of Scottish Water’s customers?

Can you repeat that question?

Your submission suggests that the bill does not provide a distinction between core and non-core functions.

I thought that we had said that we were happy with that provision.

We stated in our evidence on section 24 that we were happy that the proposals in the bill were sufficient to ensure that core functions were protected. I hung that answer on to your question, so please bear with me.

As I said, there must be a clear proviso that core functions are protected. I am looking for our evidence on section 24. I thought that we had said that we were quite happy with its provisions. Are you referring to a different section of the bill?

I am prepared to accept your answer.

That is fine. I am trying to look for what I know I have written somewhere.

We are happy that the proposals in the bill protect the core functions, but since we submitted our evidence we have seen what other people have said and it is obvious that others are not so clear about the issue. We are in the middle of the process, as we are engaged with the Scottish Government and statutory stakeholders in the water industry. As we have been part of the discussions we are probably quite clear that core functions will be protected, but we have noted that other people think that the bill should be clearer. If others think that the bill should be clearer, we would go along with that.

I have a quote before me, but I will accept your answer and we can clarify the issue later if there are any further concerns.

Your submission sets out three specific recommendations for the effective development of renewable energy resources by Scottish Water. You touched on those previously. Should those be set out in the bill or can they be achieved by other means?

We have not thought about that. We felt that if we could get a commitment to ensure that social and environmental benefits were maximised and if such a duty were placed on not only ministers, but Scottish Water’s functions in this part of the bill, that would be a safeguard.

We have not thought about amendments to the bill but, having heard your comments, I am asking myself why we would not ask Scottish Water to ensure that it developed renewable energy resources in ways that reflected the needs of communities. We could easily transpose that into legislation. There could be a duty for Scottish Water to be accountable to communities for what it does or to work with local authorities.

I do not have a specific amendment, but having thought about your proposal that such an amendment could be made, an amendment to the bill to add a responsibility or duty to ensure that communities are involved in the process is one that you could look at. We have submitted our response to the consultation on the community empowerment bill. Such a duty could be part of that process to ensure that it is, for example, wired into community planning. We are not experts on community planning but, as you have raised one way that we might develop a specific amendment, that is another way that it could be done.

Good morning. You state in your evidence that you would like to

“Ensure that the opening of the retail market in England brings benefits rather than risks to Scottish Water and to customers in Scotland.”

Can you outline the potential negatives of the expansion of Business Stream’s activity to the retail market in England, and—to balance that out—tell us whether there are any opportunities in that for the Scottish customer?

There are risks and opportunities. Ryan McRobert is our expert on the business side of things, so perhaps he can answer that question.

I will give it a go.

The main risk could be that, as the non-domestic market in England is not due to be opened up until 2017, licensed suppliers may in the meantime come up from England, gain a foothold in the Scottish market, and effectively decrease Business Stream’s amount of business in the Scottish market.

With regard to the risks of going into England, our only concern would be that, in order to develop and build the English non-domestic water market, Business Stream might increase prices for its Scottish customers. However, there will eventually be a joint market in 2017.

I will come back to pricing and charging later.

Is it not the case that Scottish Water will be well placed when the markets open up? It is my understanding that Scottish Water’s charging regime is significantly lower than that of many of the water companies in England. Could that give it a competitive advantage in going into England and getting a potential revenue stream, which could enable it to continue to keep charges lower in Scotland?

I am not trying to put words in your mouth; I am simply trying to analyse where we are with the bill. Does it offer the potential for Scottish Water to increase revenue that the company can reinvest in Scotland? Is that one of the potential positives?

At present, Scottish Water is the wholesale supplier to the non-domestic water market in Scotland, and Business Stream is its subsidiary. Business Stream has the largest proportion of the market, and it then feeds into Scottish Water. That will not change: Scottish Water will continue to be the wholesale supplier in Scotland. However, Business Stream might lose some business in the Scottish market in the coming five years until 2017, when a joint market will form with England and parts of Wales.

It was originally planned that the market would open in 2015. There are still risks if it is not done properly, although there are possible opportunities too. We know that the Water Industry Commission for Scotland and the Scottish Government are talking to their counterparts south of the border. The process took some considerable time to get right in Scotland, and it is very important that those lessons have been learned.

Business Stream may well generate additional income—Bob Doris is right that it could be well placed to do so. However, there is a bit of an issue in relation to the funding streams, which goes back to what is in the bill. We are closely engaged, and we are clear that the core funding stream—which is paid for by customer charges and borrowing from ministers—is a discrete funding stream from the money that ministers will inject into the hydro nation. None of the Business Stream money is currently reinvested or goes back into the Scottish Water pot, as the companies have entirely separate accounts. Therefore, customers generally do not see the result of Business Stream’s success.

If there is a really competitive market, and more people come north to have licences in Scotland, there will be more competition and more pressure on Business Stream to reduce prices. At present, however, it is benefiting its customers by giving them a better service rather than a cheaper price. The money does not feed through directly into customers’ bills.

I read the Official Report of the evidence that Bob Irvine gave to the committee two weeks ago, when one of the committee members—perhaps Malcolm Chisholm—asked where the benefit to consumers is. It seems to me that the economic benefit will be quite indirect: it could be about Scottish Water being more efficient or delivering its investment in the future more cheaply. There was nothing about using any funding to tackle some of the affordability issues that have been mentioned.

Does that answer your question?

I think it does. It also takes me outside my knowledge base, so I feel that I am not able to pry any further. I will have to go back and look at the issue in more detail.

You are not prying.

We also wanted to ask about ministers’ ability to allow loans to subsidiaries of Scottish Water and how that may impact on the institution’s overall borrowing. Do you still have concerns about that? On the other hand, are there opportunities for that investment to bring income back?

Actually, we do not have concerns. Our understanding of the bill is that it will allow ministers to lend to Scottish Water’s subsidiaries. We had a conversation with the Scottish Government about the provision, and we learned that there will be a distinct funding stream for Scottish Water’s subsidiaries that is entirely separate from the core funding.

The rationale for that is to ensure that the two funding streams are not confused and that funding for core services is protected. We agree with that separation and we are very clear that there should be no cross-subsidy from the core service funding stream to the non-core funding stream.

Conversely, we would like more exploration of why the non-core funding stream should be protected, what will happen to the money when it is in that pot, and why it should not be clear to consumers in Scotland—who will ultimately pay for it—what benefit they will get from it, other than the indirect benefits that Bob Irvine talked about.

That is interesting. You want the core funding stream to be protected and you are content with the reassurances that you have received on that, but you are saying that you would like more clarity on how Business Stream or other aspects of the business could generate more revenue in the future—the opportunity we talked about. It is not a negative thing; it is just about how the benefits to the consumer can be maximised.

Definitely—and that is not in the bill at the moment.

That is helpful to know.

In your submission, you referred to water efficiency and the possible better integration with other things such as energy efficiency. Scotland has an energy assistance package that gives a great deal of assistance and was fairly ground-breaking when it was first delivered. You said in your evidence that there may be a way of better integrating water efficiency and energy efficiency. Is the bill an opportunity to do that, or was that point just an add-on to your evidence?

There is a clear opportunity that goes back to one of our first points: if there is reference to the environmental and social impact in the bill, it will be one way of making sure that the wider context is taken into account.

Anything that could strengthen the governance aspects in the bill would be useful. There will be a hydro nation forum and we spoke to the former Cabinet Secretary for Infrastructure and Capital Investment, Alex Neil, who assured us that consumer interests and demand-side interests together with supply-side interests would be represented. However, it would be very useful to have a strategic plan of governance to look at that wider aspect.

The one thing that we will keep doing is to push outwith the context of the bill. As you rightly said, there are a host of Scottish Government policies in which we think water and energy should be joined up. I have lists of them, including the sustainable housing strategy, the national retrofit programme and microgeneration building standards.

One way to get people to understand the value of water is to mainstream it into everything else that is going on. There is a national retrofit programme and people will be going out to areas across Scotland, under the new fuel poverty programme, to retrofit energy efficiency measures into our houses. Why do we not put water efficiency measures into those houses at the same time? We will push Scottish Government officials to join up that agenda.

That was a point well made.

We discussed wholesale charging and how Scotland fares pretty well for the consumer vis-à-vis other parts of the UK. What are your concerns about charging—of course, that is a loaded expression—and what are the opportunities? Does the bill present us with an opportunity to sustain lower charging compared with other parts of the UK, or can we get it lower still?

12:00

We could well make charging lower still if we addressed the points in the conversation that we had a few minutes ago on being clear where the non-core profit or income that is generated will go and what will happen to it. That is a clear opportunity.

There is not much else that we can do in the bill. We are in a much better position with the charging system than we were 10 years ago and compared with organisations, consumers and the water companies south of the border.

Our take is that it is a good time for a review of charging in the context of the hydro nation agenda and the recession. Our charging system might be fit for purpose but we have found that our colleagues in the water industry environment have a bit of a tick-box mentality. There is a consensus, even a small degree of complacency, that we have tackled affordability—that it is done and off the agenda—but no research has been done into it. We would be surprised if prices did not rise during the next regulatory settlement because they have been frozen for four years. No work has been done on affordability and the trade-offs that are being made.

Outwith the bill, we are just asking for there to be a considered review of the charging system. If it changes nothing then it changes nothing. However, we should look back to the conversation about the EU blueprint. Pressure is going to increase on incentivising water use through metering. We have no position on whether metering is the answer because it brings with it benefits as well as risks that all have to be taken into account.

We should not dismantle the current system without looking at it very seriously and seeing the good that it is doing. However, we are saying that we should not just sit back and do nothing about charging and assume that everything is fine. We have had the system since 1993 and Scottish Water is currently planning for the next 25 years, so we should be thinking about the needs of future consumers.

Thank you.

We move on to non-domestic services.

Part 5 of the bill is intended to clarify the contractual arrangements between licensed providers and their customers. Your written evidence highlights concerns about disputes between non-domestic customers and suppliers over the provision of services in the energy industry. Can you expand on those concerns and outline how such issues could be avoided in the provision of water services?

We run what is called the extra help unit in our office. It is a Great Britain-wide service that provides help to vulnerable consumers and small businesses in the energy market who are being disconnected or are under threat of disconnection. A lack of clarity over what services are provided and whether deemed contracts are actual pieces of paper or things that are arranged during a phone call—or things with no substance to them whatsoever—means that we have found that small businesses, and indeed some large businesses, have been in protracted disputes with energy suppliers. They might maintain that they have had no service because they have not switched on the lights, but the meter and the infrastructure are being supplied to the property. We have found it difficult to get to the bottom of those problems and to achieve resolution. Such problems crop up frequently.

We do not have a lot of experience of the same happening with water suppliers and business because we do not have a mechanism for handling complaints about water. Nothing has come through to us from the ombudsman, but we know that the WIC clearly sees the situation as an issue. It has had feedback from business that it is a problem with the water industry, and we can see how it could happen because of our experience with the energy sector. It is not rocket science to put together clear standard terms and conditions that both parties sign up to, but, in our experience of the energy sector, that has not happened. Of course, the devil will be in the detail.

We are pleased to have been asked to be a statutory consultee, because we will bring in our teams of people who have dealt with the issue in the energy sector, to see whether we can add value. The issue is simple, but it has caused huge problems in the energy market. We need a piece of paper that provides clarity all round.

We note that you support the proposals on the disposal of oil, fat and grease into the sewer system. You also support the proposals on septic tanks, although you say that Scottish Water should investigate low-cost means of connecting appropriate properties with septic tanks to the sewer network. Will you expand on that?

Yes, but I cannot expand on the point much. In quite a lot of properties in Scotland, the costs of such connections would be prohibitive. The emphasis is on clearing up septic tanks, and we welcome the proposals. We know that Scottish Water is developing its 25-year plan for managing itself into the future. That has a big focus on innovation, so we wanted to put up a little health warning.

A lot is going on and some fantastic things are happening. For example, people do not have to go down drains to unblock them and can use all sorts of fancy fibre-optic stuff to do that. I do not have the scientific answer to the question, but we made the point in our submission because we wanted to add something to the mix as Scottish Water has a clear focus on innovation and we are talking about the best use of our water resources in Scotland. I return to a similar point that I made about Bridge of Orchy: we should not lose sight of the need for people to have access to a clean and affordable supply and a proper network, where that is possible. However, we have no answers on how that might happen.

How do you respond to Highland Council’s suggestion that the bill should go further and support the replacement of poorly performing septic tanks with other private facilities?

We thought long and hard about Highland Council’s submission and we looked at the evidence from others. Such replacement would have an impact on or a cost for consumers. The proposal is to empower the owners of septic tanks to take action collectively and not to have that barred by one person. That proposal would be a good thing.

We understand that an application to register for a licence for a septic tank must meet the basic conditions. The problem is that not everyone is registered, that there is a lot of bad practice and that a lot of people who have septic tanks lack education and awareness.

That is our focus. We do not go as far as Highland Council because our understanding—on which we would be prepared to be challenged—is that SEPA has a backstop ability to use its enforcement powers if discharges from septic tanks go above the level in regulations. That is why we would not go down the route that Highland Council has proposed, but we are prepared to be challenged on that. The first thing to do might be to look at the cost impact on consumers in rural areas.

In your submission, you ask for part 7 to be amended to ensure that water shortage orders apply equally to domestic and non-domestic customers. Will you explain why that is necessary?

I am not sure whether you saw the earlier consultation document, to which we responded. It gave a clear gradation for how water shortage orders would apply. If a water shortage occurred, an order would in the first instance apply to domestic consumers only. If further measures were needed, provisions would apply to commercial consumers. We had a conversation with the Scottish Government about that because, although we understand that there could be an impact on business and that a lot of water use by domestic consumers is for leisure purposes such as hosing the garden and washing the car, we did not think that the case had been made.

We were pleased when the Government said that it had done what we asked for and that the policy memorandum showed that, but the bill is still not clear enough. Schedule 2 talks about water-saving measures, but we would find it helpful if there were a clear statement that the provisions apply to domestic and non-domestic consumers.

Thank you for that helpful explanation.

You ask in your submission for the bill to be amended to ensure that consumers are given “adequate forward notice” of the implementation of a water shortage order. Roughly speaking, what would you consider to be adequate notice?

The word “adequate” was used deliberately, because a water shortage can happen at any time, so specifying a period would not be a good idea. The bill contains nothing about giving notice, although service interruptions occur—and can be planned events, too. We do not want a loophole whereby people are not informed of the day when an order will apply before it happens. It is a belt-and-braces approach.

People might object to the word “adequate”, because there is no way of knowing what it means.

I understand that.

However, your substantive point remains.

The point is more about giving notice than adequacy.

Thank you very much for your helpful evidence.

That ends our business today. Our next meeting will be on 3 October, when we will continue our consideration of the bill and take evidence on housing aspects of the draft budget.

Meeting closed at 12:11.