Office of Water Services

WATER INDUSTRY ACT 1991, SECTION 13

PROPOSALS BY THE DIRECTOR GENERAL OF WATER SERVICES FOR THE MODIFICATION OF THE CONDITIONS OF APPOINTMENT OF WATER UNDERTAKERS AND SEWERAGE UNDERTAKERS IN ENGLAND AND WALES

The Process Any objection to, or representation about this proposal must be in writing and received by the Director General of Water Services, Centre City Tower, 7 Hill Street, Birmingham B5 4UA, (fax 0121 625 3606 or e-mail allan.merry@ofwat.gsi.gov.uk) to be received no later than 5.00 pm, on 24 September 2002. Please quote Ref LEG/31/1/15. The Proposal Each of the water undertakers and sewerage undertakers in England and Wales (except Albion Water Limited) was originally appointed in 1989 by the Secretary of State for the Environment (the Secretary of State for Wales in the case of Dwr Cymru and Dee Valley Water). Section 7(2) of the Water Industry Act 1991 makes provision for the giving of notice to terminate these appointments. Condition O of each Company’s licence sets out the circumstances under which its appointment can be terminated. At present, at least 10 years’ notice must be given, which must not expire earlier than 31 August 2014. Ofwat proposes to amend Condition O to require the Secretary of State to give at least 25 years’ notice of termination and delete the reference to the earliest date for expiration of such notice. The proposal does not apply to Albion Water Limited, which holds a licence for a single customer and has separate arrangements for licence termination. Reasons for the Proposal Ofwat wishes to ensure that the regulatory environment for the water industry avoids unnecessary uncertainty. Stability is important to allow companies to plan ahead and in particular to enable them to raise the long-term finance required to implement their capital investment programmes. Although notice of termination can be given before 2004, that date has been seen as important because it is the latest date at which a notice of termination could be served, if the appointments were to be terminated at the earliest possible opportunity in 2014. As 2004 approaches, this is creating increasing uncertainty. Ofwat believes that if no action is taken, this uncertainty is likely to affect the cost and availability of finance to companies, to the detriment of customers. A 25-year notice period would bring the water companies into line with the regulated electricity companies and would help to remove this uncertainty, allowing companies and their investors to plan ahead more securely. Ofwat believes this is in the interests of both customers and investors in the industry. The Government and the Welsh Assembly Government have indicated that they support the proposal. The proposal does not affect Ofwat’s ability to take action against poorly performing companies, including in the last resort recommending that the Secretary of State apply to the High Court for the appointment of a Special Administrator. Neither does it have any effect on Ofwat’s ability to modify Company’s conditions or area of appointment following mergers or changes of ownership. Office of Water Services July 2002.