COMMITTEE FOR REGIONAL DEVELOPMENT
Committee Office Room 402
Parliament Buildings
Belfast
BT4 3XX
Tel: 02890 521970
Fax: 02890 525927
Email committee.regionaldevelopment@niassembly.gov.uk
Conor Murphy, MP MLA
Minister for Regional Development
Clarence Court
10-18 Adelaide Street
Belfast
BT2 8GB
28 January 2008
The Independent Water Review Panel’s Strand Two Report: Interim
Response from the Committee for Regional Development
Dear Conor,
1. Water reform is arguably one of the most important issues before this Assembly and it will affect every household and business in Northern Ireland.
2. As you are aware, the Committee has taken a particular interest in the issue of water and sewerage services since the restoration of the Assembly in May 2007. Since that time it has engaged with Northern Ireland Water, the Regulator, the Consumer Council and the Review panel, as well as with Scottish and Welsh Water, Water UK and with a wide range of individuals and organisations from the voluntary and community sector.
3. The Committee for Regional Development received the Independent Water Review Panel’s Strand Two Report on Management, Governance and Delivery on Thursday 17 January 2008. Members considered this report at a number of meetings in the week beginning 21 January 2008.
4. As part of the Committee’s consideration of the Strand Two Report, the Committee met with you on 23 January 2008 to discuss the issues raised in the Report. In addition to meeting with you, and as part of its consideration of the Strand Two Report, the Committee also met and had discussions with the Independent Water Review Panel and the Utility Regulator on Monday 21 January and with Northern Ireland Water and the Consumer Council on Tuesday 22 January 2008.
5. The Committee recognises the challenging nature of the time scale for and scale and scope of the terms of reference set for the Panel, and commends their efforts on behalf of the Executive and the people of Northern Ireland. Members also extend their thanks to Northern Ireland Water, the Utility Regulator and the Consumer Council for their willingness to engage with the Committee, and for generously placing their time and expertise at the disposal of the Committee.
6. Following Committee consideration of the questions raised and issues addressed in the Strand Two Report, the Committee decided to submit an initial, interim response to you, and following this the Committee would take the opportunity afforded by the consultation period on the Strand Two Report to develop its thinking on the many and complex issues raised by the panel, and to submit a fuller response as part of the consultation process.
7. The Committee stresses that this is purely an interim and initial response to the issues raised in the Panel’s Strand Two Report and having had more time to consider the complexities and wider implications of the issues raised and recommendations made in the Panel’s report, reserves the right to formulate and submit another, more considered view.
8. This letter, then, sets out the Committee’s interim response and mirrors the structure and headings used in the Strand Two Report. The main section headings are:
a. Towards better governance;
b. Future business models;
c. Towards cheaper finance;
d. Investment planning;
e. Sustainability; and
f. Affordability.
9. Each of the Panel’s recommendations are presented in turn as a quotation, together with the paragraph reference from the Strand Two Report, and followed by the Committee’s response. The text in square brackets provides clarification.
Chapter 2: Towards better governance
“However, if there is any residual ambiguity about the Minister’s powers, we recommend that amending legislation should be introduced to remove it.” (para 2.10)
10. The Committee is of the view that the Minister’s powers should be both clear and strong on this issue, and should he feel this not to be the case would endorse this recommendation.
“We are satisfied that no legislation can be enacted without exposure to the scrutiny and endorsement of the Assembly or its Regional Development Committee.” (para 2.13)
“As regards accountability, we are satisfied that the Assembly and its Committees already have sufficient powers to hold the Department and NIW to account in the public interest on the same basis as any other public sector agency in Northern Ireland.” (para 2.16)
11. On the basis of the current arrangements, the Committee endorses the above two recommendations.
“We recommend that in future public appointments to the boards of and senior positions in NIW and the Utility Regulator the desirable criteria should include demonstrable knowledge, experience and understanding of the political, economic and social context in Northern Ireland.” (para 2.18)
12. The Committee endorses this recommendation on the understanding that such knowledge, experience and understanding be desirable criteria rather than essential criteria in the process of public appointment.
“We recommend that the statutory powers and responsibilities of the Consumer Council should be enhanced to bring them into line with those which apply to the regulation of the electricity and gas industries. This will require legislative amendments to the 2006 Order.” (para 2.21)
“We further recommend that the 2006 Order should be amended to give the Consumer Council equal status with the Utility Regulator as the statutory representative of consumers’ interests. This would include:
- Equal access to commercial and environmental information
- Equal right to participate and be consulted at all stages in the policy
formation process on equal terms with other statutory stakeholders - Primacy in the function of addressing complaints and resolving
disputes between NIW and its customers - Stronger statutory duties on NIAUR and NIW to consult the Council on
issues of concern to service users, including charging policies and schemes - The power to audit NIW’s complaints and customer care procedures”
(para 2.22)
13. The Committee considered the above recommendations at length, and recognises the importance of a strong consumer voice. The Committee supports the recommendations contained in paragraphs 2.21 and 2.22 of the Panel’s Report.
“We recommend that Article 7 of the 2006 Order be amended to the effect that the Department’s guidance be issued directly to NIW rather than to the Utility Regulator.” (para 2.24)
14. The Committee endorses this recommendation on the basis of its consideration to date.
“We recommend that an advisory body, which we have provisionally called the Water Advisory Panel, should be established here along the lines of the Scottish Executive’s Quality and Standards Board.” (para 2.28)
15. The Committee endorses this recommendation.
“We recommend that the 2006 Order should be amended to clarify the Regulator’s powers and responsibilities by bringing them into line with those that apply to electricity and gas.” (para 2.36)
“We recommend that Articles 69 and 152 of the 2006 Order be amended to enable the Utility Regulator and the Consumer Council jointly to make regulations setting Guaranteed Service Standards for water and sewerage, without first applying to the Department.” (para 2.38)
16. The Committee considered the above recommendations, and providing there is no diminution or detriment to the Regulator’s powers in relation to water, would endorse the recommendations at paragraphs 2.36 and 2.38 of the Panel’s Report.
“We recommend that Article 6 of the 2006 Order be amended to remove the Utility Regulator’s obligation to ensure that NIW s able to secure reasonable returns on capital.” (para 2.40)
17. The Committee considered the above recommendation and Members have decided to defer a response and to take additional time to consider the practical implications for the model and the wider system of governance of this recommendation. This issue will be included in a fuller Committee response to the public consultation.
“We accordingly recommend that a small Business Advisory Panel should be set up which would bring an independent financial and commercial perspective to the Shareholder Unit’s oversight and review of NIW’s performance.” (para 2.43)
18. At this time it appears to the Committee that the existing expertise and oversight, in the form of the Regulator, the Consumer Council and the Committee, is sufficient. For this reason, the Committee does not endorse this recommendation.
Chapter 3: Future business models
“We have concluded that the GoCo model potentially offers a greater degree of commercial freedom and operational independence – and hence efficiency – than the Statutory Corporation.” (para 3.30)
“We have concluded that the GoCo is the best and most appropriate model to deliver quality services efficiently for the people of Northern Ireland for at least the next five years.” (para 3.32)
19. The Committee endorses the above two recommendations.
“We recommend that the Minister should keep this possibility [beyond 2013 moving to a Customers’ Company or State CLG model under the right conditions] continuously under review in consultation with key stakeholders.” (para 3.33)
“We recommend that if it is decided to move to the Customers’ Company model, the Department’s equity should be bought by rather than given to the Customers’ Company. In setting the price for the transfer however, the Department should bear in mind the importance of retaining public confidence.” (para 3.34)
20. With reference to the Panel’s recommendations at paragraphs 3.33 and 3.34, the Committee endorses the ruling out of privatisation, and is of the view that water and sewerage as vital public services should remain within the control of the Minister and the Assembly. However, it is also not opposed to efforts to investigate models which might provide cheaper finance and hence lower bills to water customers. At this time, Members would not wish to seek to bind any future Assembly on this matter, and would suggest that the issue should be explored in more detail in the future when current arrangements bed down. Such investigations should also include consideration of any advantage arising from changes to Treasury rules on the treatment of assets and expenditure.
Chapter 4: Towards cheaper finance
“We confirm the recommendation in our Strand One report that as the level of risk under the current ownership structure is the same for debt as for equity, the dividend extracted from NIW by DRD should be no higher than what customers would pay under a debt-financed model. This should continue to be the practice for as long as DRD retains an equity stake in NIW. The amounts received by DRD should be returned to NIW to prepare the company for a possible change in status at a later date.” (para 4.18)
“We have concluded that NIW’s current investment programme should be regarded as exceptional and that as such it should be largely funded through borrowing. The loans should be repaid over a period which corresponds with the lifetime of the assets which they cover. Similarly, depreciation charges should be related to the assets’ real life expectancy.” (para 4.21)
21. Should these recommendations prove practical and without negative public expenditure implications, the Committee would be in favour of the above two recommendations.
“We recommend that the Minister should keep under review the potential for moving towards the thin equity approach in the light of the evolving business context as NIW matures.” (para 4.33)
22. The Committee endorses this recommendation if it is practical and without negative public expenditure implications.
“We recommend that the first [GoCo with improved governance] should continue to apply for at least the next five years, but that the Minister should review the potential for moving to the second [Customers’ Company controlled by representatives of the community] in the light of the evolving business context as NIW matures.” (para 4.42)
23. The Committee is of the view that water and sewerage as vital public services should remain within the control of the Minister and the Assembly. However, it is also not opposed to efforts to investigate models which might provide cheaper finance and hence lower bills to water customers. At this time, Members would not wish to seek to bind any future Assembly on this matter. The Committee suggests that the issue of a Customers’ Company should be explored in more detail in the future, with particular emphasis on its impact on the Minister’s powers and Assembly scrutiny. Any explorations of future business models should accord high priority to the protection of customers’ needs and the public interest.
Chapter 5: Investment planning
“We recommend that the Department should give high priority to commencing the process of preparing Ministerial guidance on social and environmental matters; and that this guidance should define clearly the expected outputs of NIW’s investment programme over at least the next five years.” (para 5.19)
24. The Committee endorses this recommendation.
“To this we would add that once the investment programme for the next five years or more has been determined, an Output Monitoring Group should be established, similar in role and membership to that in Scotland, which will report to the Minister on progress towards meeting the planned outputs in the programme. This body will be able to ensure that the programme is on track and to provide an early warning system should any problems emerge.” (para 5.21)
25. The Committee does not endorse this recommendation, but recommends that a robust reporting and monitoring system be put in place.
Chapter 6: Sustainability
“We fully endorse this approach [the Executive’s three cross-cutting objectives – economic, societal and environmental – as set out in the draft Investment Strategy for Northern Ireland 2008-18] and recommend that it be applied to the future development and implementation of NIW’s investment programme.” (para 6.6)
“We recommend that the SUDS [Sustainable Urban Drainage Systems] working group should the potential for offering rates reductions to provide an incentive for ratepayers to conserve or restore permeable surfaces.” (para 6.12)
“We recommend that Building Regulations should be changed to encourage water conservation in new buildings. We also recommend that a reduction in water charges should be used to provide incentives for implementing water efficiency measures in existing dwellings.” (para 6.15)
“We recommend that there is a comprehensive education programme to encourage more responsible behaviour in the disposal of sanitary waste.” (para 6.17)
“We strongly endorse the Burke Report’s recommendation for an independent Environmental Protection Agency and recommend that it should be established as a Non-Ministerial Department. We further recommend that this new agency should discharge the current roles of the EHS, the Rivers Agency, the Fisheries Conservancy Board, the Drainage Council and the Loughs Agency. It should also have a specific new responsibility to oversee the production of a Water Demand Management Strategy for Northern Ireland.” (para 6.32)
“We recommend that OFMDFM add Northern Ireland Water to the list of public bodies required to act to promote sustainable development.” (para 6.38)
“We recommend that more consideration is given to how conflicts over sustainability and efficiency savings are to be determined; that the current biases in favour of end-of-pipe engineering are eliminated; and that incentives are created through the price review process for NIW to invest in sustainable approaches.” (para 6.41)
“We further recommend that all future investment is subject to a full cost-benefit analysis which takes account of environmental and resource costs. The development and application of full cost-benefit analysis should be undertaken jointly by the new EPA and the Utility Regulator and should be published for maximum transparency.” (para 6.42)
“We recommend that DOE produce, as a matter of urgency, a Planning Statement on Water Sustainability in spatial planning and building design. This should include proposals for the legal duties to be followed in making planning decisions.” (para 6.45)
26. With the exception of the recommendation in paragraph 6.32, the Committee endorses all the recommendations made in relation to sustainability. In relation to the recommendations at paragraph 6.32, whilst no final decision has been taken by the Assembly, the evidence received by the Committee was strongly supportive of the establishment of an Environmental Protection Agency. The Committee is also conscious that this recommendation has cross-departmental and North-South implications. Because of the importance of this issue, the Committee will return to consider this matter as part of its response to the public consultation process.
Chapter 7: Affordability
“We have concluded that everyone should contribute towards our water and sewerage services. If every household pays, no matter how little, this reminds people of what an important asset water is and gives them a stake in the services’ future.” (para 7.14)
27. There was no Committee consensus on this recommendation. The Committee will revisit this issue as part of its response to the public consultation.
“We accordingly recommend that all vulnerable households, including the asset rich, should be entitled to the Affordability Tariff. For those better off pensioners who are not eligible for the Affordability Tariff, we recommend that a deferment scheme, similar to that proposed for rates payments, should be made available. This would allow them the choice of either paying the charges now or deferring them at a concessionary rate of interest until the sale of their house. The debt would be secured by creating a charge on their property.” (para 7.22)
28. There was no Committee consensus on the above recommendation. The Committee will revisit this issue as part of its response to the public consultation.
“We recommend that the Affordability Tariff should continue after 2010; that it should continue to be funded out of general public expenditure; that it should be improved as necessary to compensate for any upward movements in prices; and that all those entitled to rate relief should continue to be entitled to the Affordability Tariff.” (para 7.29)
29. There was no Committee consensus on the above recommendation. The Committee will revisit this issue as part of its response to the public consultation.
“We recommend that an effective and properly resourced campaign should begin urgently to ensure that all those who qualify for Rate Relief or other passport benefits get them.” (para 7.33)
“We recommend that the Rate Relief Scheme should be renamed the Rate Refund Scheme. This sounds relatively neutral and does not carry pejorative overtones.” (para7.34)
30. The Committee endorses the above two recommendations. Members are aware that the take up of entitlements is a longstanding problem which has proven difficult to address, and would stress the importance of an effective take-up campaign as a critical element in the revised arrangements.
“We recommend that the £400,000 capital value cap as recently announced for domestic rates should also be applied in calculating water and sewerage bills.” (para 7.41)
31. There was no Committee consensus on the above recommendation. The Committee will revisit this issue as part of its response to the public consultation.
32. The Committee discussed in detail the complex issues raised in relation to affordability and water poverty. While there was no Committee consensus on the recommendations in paragraphs 7.14, 7.22, 7.29 and 7.41 of the Panel’s Report, the Committee is keeping the matter under active consideration and will conclude on these issues as part of its response to the public consultation.
Additional comments
33. Committee consideration also touched on the outstanding issues from the Strand One Report which, Members understand, remain with the Executive pending further exploration and consideration. These include the capacity and cost issues of single billing by the Land and Property Services, the level of bad debt provision, the transfer of road drainage costs, opex and capex efficiency savings, and metering policy. The Committee will consider these issues and formulate its views when the Executive has completed its further work and consideration.
34. The Committee’s Strand One response recommended that further consideration be given to alternative methodologies for determining the level of past contribution to water and sewerage services made through the rates. In addition, the issue of the cost and capacity of the Land and Property Services agency to effectively and efficiently manage the complexities of a single billing system for rates and water and sewerage charges remains to be established.
35. The Committee recognises the importance of, and the challenge posed by the Review and is happy to make itself available to consider this work as it progresses. For the Committee, the new arrangements must both protect the most vulnerable in our society from poverty and hardship, and ensure that all the households and enterprises in Northern Ireland have clean, safe and reliable drinking water and sewerage services, that are provided in an efficient, sustainable, fair and transparent manner.
36. The Committee notes that there will be a public consultation process, and stresses the need to ensure that this is as wide as possible. Members would encourage groups and individuals to participate fully.
37. Finally, the Committee asks that you respond to its initial response as expressed in this letter and bring the Committee’s views to the attention of the Executive in its consideration of the Strand Two Report. Members look forward to future, fruitful engagements with you on the development and implementation of policy in this important area.