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Drought and Society > Governance

Drought planning governance space

Water Companies

Descriptive

Water companies are privatised entities with shareholders in England and Wales, a bit more detail on how this is not quite the private organization model: but for Welsh Water, which is a company limited by guarantee with a single shareholder. Many of the English and Welsh water companies are publicly-limited companies traded on the stock market whether they provide water services only or both water and sewerage services.

While water companies have significant discretion in deciding on how to manage water resources they are also considerably constrained in their decisions in relation to the management of water resources, both by the environmental statutory standards they have to comply with, developed and enforced in particular by the EA, and by the regime of economic regulation imposed by Ofwat which can limit expenditure on specific drought management options. The key statutory supply duty for water companies is to limit use of water from the environment: Every water undertaker (statutory term) has a duty to ‘to develop and maintain an efficient and economical system of water supply within its area’ (and to ensure that all such arrangements have been made a) for providing supplies of water to premises in that area and for making such supplies available to persons who demand these and b) for maintaining, improving and extending the water undertakers’ water mains and other pipes’) (Sect 37 (1) WIA 1991).

Analytical

The statutory framework imposes specific statutory duties upon water companies in relation to the efficient use of water resources. For water companies the tricky issue here is that the statutory framework asks them to influence what is potentially not quite under their control, that is their customers’ behaviour: Every water undertaker (or licensee) is under a duty to promote the efficient use of water by its domestic and commercial customers (sect. 93 A (1) WIA 1991), but this power is qualified by a slightly unclear provision that suggests that water companies have no power ‘to impose’ requirements upon their customers or potential customers (sect. 93 A (3)). An example of this is that water companies can only invite but not force domestic customers to have water meters installed, unless the water company operates in an area that has been designated as water scarce by the EA. Interestingly enough, and this further illustrates relationships of power in the governance space, the enforcement of this duty imposed upon water companies to engage in demand side water resource management options is bolstered by further powers available to Ofwat. Ofwat can require water undertakers to take actions or to achieve overall standards of performance in order to facilitate compliance with the duty to ensure efficient use of water by its customers (under sect. 93 A & B WIA 1991). Ofwat’s power is qualified in two ways. First, Ofwat has to take into account practical constraints upon water companies, i.e. has to consider what water resources are actually available to water companies; and second, it has to consult the water undertaker, before exercising this power.

Water companies are compelled to operate in particular ways by the regulatory framework and soft law guidance of both Ofwat and the EA. Water companies share environmental science data and information with the EA and NE and use that data to fulfil statutory requirements. To gather information about service expectations and to develop levels of service, water companies survey customers.

The Environment Agency for England

Descriptive

The EA is the key environmental regulator of drought. Its role in relation to drought is both strategic by being involved in longer term planning processes that seek to prevent water scarcity and drought. It is also responsive in the short-term because it plays an important role in making specific drought management options happen during a drought including granting or denying water company applications for drought permits or making its own applications to DEFRA for drought orders.

Analytical

The EA is the leading regulator of drought planning. Until 1 April 2014, the Agency operated on a three tier structure of areas, regions and head office; after that date the regional level was removed. This restructuring is largely understood as a response to reduced government resources and it has contributed to a sense that this may affect the expertise available through the Agency: ‘So I get the sense that the Agency is changing and it’s a fact that it doesn’t have the skills it used to but it arguably has enough to do its job as a regulator’ (Interview A2.DP1.CON2). For some water companies, the amount of expertise remaining in the EA is significantly limited: ‘Luckily, we still have these little nodes of people who still really know what they’re talking about and still get it and you’ve still got the relationships, but – don’t quote me – you could run over five or six people in the EA in [Region X] and we would be in dire straits’ (Interview A2.RSA.WC3). The reduction in expertise is acutely felt in the collection and assessment of environmental data: ‘Or you could get someone with much less expertise leading and so this produces quite a difference in the nuanced understanding that those with expertise have and the more tick box exercise that can be led by the less expert individuals. So they become more reliant on guidance and are unable to deviate because they don’t understand the hydrological issues’ (Interview A2.DP1.CON3 Sanders).

Moreover, there is a general feeling among consultants and water companies that ‘there’s a geographical variation in how the Agency gets involved’ (Interview A2.DP1.CON3). ‘The Environment Agency is a big organisation and different sites have different representatives and they’ll all have their own local understanding of the sites that they look after, and actually it’s hard for us to disentangle whether the reason different aspects and different types of data will be looked at is because that’s the particularity of the site, or actually that’s just the preference of the individual’ (Interview A2.DP1.WC6).

Legal & Information Resources

The EA is a statutory consultee for water companies’ Water Resource Management Plans (WRMPs) (Sect. 37A(8)(a), WIA 1991) and Drought Plans (Sect. 39B(7)(a), WIA 1991). The EA is a statutory consultee in relation to water company applications for drought orders (Schedule 8 para. 1 (1) (a) WRA 1991). And, the EA develops soft law guidance which steers how water companies fulfil their statutory responsibilities of developing Drought Plans, including guidance on how drought is actually defined through so-called triggers in the drought plans.

The EA exchanges information resources with most of the other key actors in the governance space of managing drought. Many of the exchanges between the Agency and other key actors are bilateral, and involve water companies, Natural England, Defra, environmental consultants and customer-citizens. At the area level the EA rarely engages with Ofwat, DWI, or CCW; it is unclear how much engagement EA Head Office has with any of those actors. In part this is a limitation of our research: Representatives of the EA at the local level were unable to comment on EA Head Office activities and EA Head Office gave no strong indication of regular engagement with those other actors.

There is an increasing sense that the EA is pushing water companies and/or consultants to produce more environmental science data and certainly any data they need to support application for a regulatory tool such as a drought permit or order. For example, ‘there’s been a lot of tension through this about water companies will often say you in the Environment Agency, you’re supposed to be monitoring the environment, you go and do it. Whereas if there’s no need for us to do it, it’s a need for the company to basically justify that drought permit order application. So we push it back to the company and say actually it’s only you who need this information. In those cases, I would expect some of those water companies might hold onto that information rather than share it…water companies, if they have to support a drought permit application, they need environmental monitoring information and they will have to actually go and find that information themselves, or they can actually commission us to do the work; but the onus is on the water company to actually complete that work’ (Interview A2.DP1.REG5).

Consultants

Descriptive

Consultants based at consultancy firms are key actors in the governance space where they mediate knowledge exchange and expertise between regulators and water companies.

Analytical

Consultants hold considerable expertise on the regulatory regime and how it is interpreted by various government agencies. They work for many of the other actors in the governance space and translate knowledge between them. One consultant stated: ‘As a consultancy, the consultancy I work with and the likes of [Consultancy] who we work with very closely on some projects, we feel that if your clients include both the regulators, Natural England, and water companies, then it allows you to get a view from each side. Some people may argue that you’re never going to be giving an unbiased picture because you might always feel you’re working for your own particular client. I believe that, as professional consultants, the objective is to give a balanced view on evidence and interpretation of the regulations and so on and to give the best advice to your client, whether that’s a regulator or a water company, and to my view, working for both sides can be helpful but it does need care’ (Interview A2.DP1.CON1). Consultants often fill expertise or capacity gaps at water companies: for ‘lack of time and resources. Some expertise I think as well, we are specialists’ (Interview A2.DP1.CON2, person a). And, ‘I think expertise as well, to be fair. I think because the detail required [by the regulations] needs specialist knowledge of fisheries and water chemistry and those sorts of things, so we provide that as well as the overall putting it together and making sure it meets the Environment Agency’s requirements and legislation’ (Interview A2.DP1.CON2, person b).

That consultants develop ‘a view from each side’ and are often engaged by actors lacking in-house capacity or expertise, means that consultants are major brokers of data, information and expertise. With respect to proprietary data and information they may be restricted by legal agreement from sharing it with other actors in the governance space.

Consultants are subject to legal rules as they work as agents for their clients who are subject to the regulatory regime; they are rarely decision-makers. Consultants transmit considerable information between different parties.

Customer-Citizens

Descriptive

Includes citizens, organized non-governmental organisations, such as the Rivers Trust and affiliated local action groups, such as ‘Action for the River Kennet’, as well as unaffiliated local action groups, such as GARD, the Group Against Reservoir Development at Abingdon. Citizens are important actors in the regulatory space because the legislation requires that their views are considered. Citizens in the sense of domestic customers’ views are also a significant influence on Ofwat’s work since their views on what they would be prepared to pay for through their domestic water supply bills will influence Ofwat decision-making during the price review process for water companies. Moreover, domestic customers’ views will also be considered through ‘willingness to pay’ surveys that water companies conduct, when developing their charging schemes, and when drafting their water resource management plans.

Analytical

The role of customer-citizens has not been the major focus of our research. Still, we find that for water companies the engagement of customers could be better placed – as below, when the public seems to lack clarity on which plan to comment on – or that the regulatory regime might be differently structured. For example, the public consultation process for a drought plan seems to elicit relatively fewer comments then the consultation for application for a drought order: ‘We get more responses to a Drought Permit application or Drought Order than we ever had for our Drought Plan… and I’m afraid that’s what you always tend to find. You always find that it isn’t until you make the application that you suddenly get all the bits coming out and some people, I do believe some groups use it as a lever to get other things looked into.’ Drought orders and permits that may be applied for in the event of a drought are set out in the drought plan. If the public is seeking or finds it easier to engage in drought management during a drought then we must consider if the consultation processes are properly structured. Under the stress of drought it is less likely that tradeoffs most acceptable to most people will to be found.

in public consultation processes: when draft drought plans (and water resource management plans) are considered (Water companies have to bring the draft drought plan to the attention of people likely to be affected by it. Citizens then can make representations to the Secretary of State in relation to the draft drought plan (Sect. 37 B (3) (a) WIA 1991). when applications for drought orders are considered: citizens for whose protection the drought order has been made and who are so specified in the drought order, those to whom a prohibition or limitation on the use of water specified in the drought order applies, and who are named in the drought order, and owners, occupiers or lessees of land who are affected by the drought order, where the drought order authorizes the occupation or use of land (Schedule 8, para. 1 (a) WRA 1991) Information Resources

There is a sense that perhaps the public doesn’t understand the difference between drought plans and broader water resource management plans. Due to an amendment in the Water Act 2014, the plans now both run on 5 year cycles, but they are still separate processes that do not proceed concurrently. In response to this, one water company noted: ‘It’s confusing enough I think for some of our customers anyway who don’t know quite what to say in response to which plan sometimes. Saying build a reservoir in response to our drought plan isn’t quite the right plan to respond that way in.’ Customers (or a tiny fraction of them) are critical information sources for water companies conducting willingness to pay surveys in order to derive levels of service.

OFWAT

Descriptive

Ofwat is the economic regulator of the water industry in England and Wales. It regulates the water industry because even after privatisation water companies are still regional monopoly operators of the water industry and there is no direct competition governing the supply of water services. Market forces that would normally be expected to favourably influence prices charged for water and its quality are therefore largely absent. Ofwat conducts a price review process every 5 years through which it limits prices that water companies charge domestic and non-domestic customers. Ofwat’s regulatory oversight function reaches deep into the business decisions of water companies, affecting how much capital they can spend on infrastructure development from reservoirs to desalination plants. As the economic regulator, Ofwat shapes drought management through decisions on infrastructure investment, e.g. Sutton and East Surrey Water Drought Plan 2013 notes that its preferred supply side development – involving the upgrading the capacity of water treatment works at Bough Beech reservoir – was not supported by Ofwat in its determination of price limits for 2010-15.

Analytical

The institutional regulatory structure established in England and Wales is unique in international terms, with: private companies, a separate independent economic regulator, environmental regulator, policy making body (Defra), statutory consumer council and drinking water inspectorate etc. In many countries, water companies remain under state ownership and prices for the supply of water are therefore set by the state. In this way, the economic regulatory framework as mainly implemented by Ofwat, in its decisions and the incentive systems it creates, can steer toward specific drought management options. That economic knowledge and analysis can feature prominently in proceedings associated with specific drought orders.

The general legislative mandate imposed upon Ofwat (Sect. 2(2)(A)(a) WIA 1991) includes the duties to: further the consumer objective, to ensure that the functions of water and sewerage undertakers are ‘properly carried out’ in respect of every area of England and Wales; to ensure that water and sewerage undertakers are able to finance the proper carrying out of their functions, in particular by securing reasonable returns on their capital; that the provisions in the licence of a water supplier are properly carried out and the statutory requirements the water supplier is subject to are complied with; and in the context of drought management, to further the resilience objective (an objective that is still being mooted).

Ofwat has minimal input into the process of drought planning and it seems to be on the wane. According to one industry consultant, ‘I think in recent years, the reorganisations at OFWAT mean that there are far fewer people whose technical remit covers water resources and drought planning. In the past, there were people there who one knew had a water resources background and would give an informed OFWAT view, knowing the technical context of water resources. I don’t think that’s the case anymore’ (Interview A2.DP1.CON1). For another consultant ‘OFWAT is quite hands-off on drought planning and possibly too hands-off. In practice we write to them because they’re a statutory consultee and we get a letter response that says please remember to consider customers’ (Interview A2.DP1.CON3). From one water company representative, ‘[Ofwat] want us to produce a plan that’s clear, that customers can read, can understand, that we take account of all of our statutory obligations and what we do, we do it in an efficient way as possible so we’re not unduly having to raise bills and that’s we’re in line with all our levels of service, and all that sort of normal obligations. They don’t really get into the detail of the drought plan’ (Interview A2.DP1.WC2). According to another water company representative, Ofwat’s main concern even in drought is competition: ‘So during the 2012 drought when it was very clear that there was a very intensive drought, they [Ofwat] were keen to ensure that, where possible, [water companies were] supplying other companies where [they] could with water and vice versa. So it’s very much they’d be looking at it from that sort of competition angle, but equally to ensure that we’re not being anti-competitive in doing anything” (Interview A2.DP1.WC1).

DEFRA

Descriptive

DEFRA is the UK government Department for Environment, Food and Rural Affairs. It represents the executive in the regulatory space. It heads the civil service and develops policy and proposes legislation. In relation to drought management DEFRA has important legal decision-making functions.

Analytical

Defra’s role in drought planning is to set the policy framework and propose legislation. With respsect to implementing drought plans its role is limited. Defra approves or rejects statutory water company drought plans in part on the basis of the advice of the Environment Agency, but Defra does not have to follow the EA’s advice.

Legal & Information Resources

The Secretary of State (SoS) heading Defra must be consulted by water companies when they prepare their draft drought plans (Sect. 39B(7)(c), WIA 1991); the SoS has the power to direct the content of water company drought plans (Sect. 39 B(9)(b), WIA 1991). The SoS decides whether to approve or reject a water company or an EA application for a drought order during a specific drought scenario (Sect. 73(1), WRA 1991). Apart from legal resources there are also a range of information resources available to DEFRA which are key to its contribution to drought management in the UK.

Our research suggests that Defra engages in minimal transfer of information. It acts on information from the EA regarding water companies’ Drought Plans and drought order applications, in order to deliver formal decisions on acceptance or rejection of drought plans and granting or denial of drought orders.

Natural England (NE)

Descriptive

Natural England (NE) is the government’s advisor in relation to the natural environment. Its main role is as a consultee in relation to water company draft WRMPs and draft drought plans where these affect protected species and their habitats. In particular, NE reviews proposed drought orders or permits with a specific goal of advising on the potential impact of increased abstraction of water from the environment on protected species and habitats.

Analytical

NE is a small agency with limited resources at arm’s length from Defra. It might be described as the little sister organisation to the EA. The EA and NE have slightly different remits and work closely together when reviewing water company statutory plans. NE’s input is very important with regard to particular environmental decisions. According to the EA, NE ‘play quite a big part in the review of water company drought plans and actually in drought in terms of environmental impacts’ (Interview A2.DP1.REG3).

NE is not a statutory consultee on drought plans (Sect. 39B(7), WIA 1991). Rather, NE is a consultee as provided for in soft law such as: EA online Drought Guidance (7 Dec 2015) ‘If your plan is likely to affect a designated conservation site then you must also consult with Natural England or Natural Resources Wales for sites in Wales at the earliest opportunity. You should also consider if your plan is likely to affect any local wildlife sites that have been designated by the local authority and consult with the managers of these sites’; EA Drought Plan Guidance (June 2011); and DEFRA/Welsh Assembly Government/EA Guide to Drought Orders and Permits.

NE provides to the EA and water companies environmental science knowledge of designated sites. NE reviews drought plans and proposed drought permits and orders if they are likely to affect a designated conservation site. Natural England’s comments are considered important: ‘They [NE] consulted on our plan and it’s particularly important that we take into account everything that they say in response to our plan, because the sites that they’re involved in managing are sensitive ones and we work closely with them’ (Interview A2.DP1.WC1). And, ‘Natural England’s comments on the impact of a drought permit or drought order are also very important’ (Interview A2.DP1.WC11).

The Consumer Council for Water (CCW)

Descriptive

CCW is an independent statutory representative of household and business water consumers in England and Wales. Its work includes handing complaints from water consumers in relation to water companies. The Consumer Council for Water participates in Ofwat’s Price Review Process through Customer Challenge Groups. CCW also contributes to long-term strategic policy planning such as market reform, in order to ensure that non-domestic customers will benefit from market reforms and that those serviced by regional monopoly suppliers are not disadvantaged. The CCW educates consumers about efficient water use and encourages water companies to provide information to customers on leakage measures.

Analytical

The water industry considers the CCW an important source of information about consumer views of the water industry, e.g. acceptable leakage levels.

The legislative mandate of the CCW is to exercise its powers and perform its duties in such a way as to promote sustainable development (Sect. 27 A (12) WIA 1991). The CCW Operational Business Plan for 2014-5 refers to two areas of activity specifically that are relevant for dealing with water scarcity. First, the CCW will develop research into water efficiency gains through metering of water use, and will facilitate work by water companies introducing water metering, also by supporting customers switching to metered charging. Second, the CCW will contribute to the Steering Group for the Water Resource Management Plan Review to represent the water consumers’ voice.

The Drinking Water Inspectorate (DWI)

Descriptive

DWI regulates the quality of drinking water and helps Ofwat to fulfil its legislative mandate regarding water supplier licences and compliance with statutory requirements. To effect this, the DWI participates in Ofwat’s price review process and thus the review of Water Company’s Business Plans, in particular in relation to those parts of the plan that concern the financing of the maintenance or improvement of drinking water quality. Water companies put forward improvement schemes they consider as necessary to meet their obligations. Water companies identify improvement schemes they consider are required, DWI challenges the justification for those schemes and then puts the agreed drinking water quality programme in place by using various legal instruments.

Analytical

The DWI’s role in relation to drought management is rather indirect. Where water scarcity constitutes a risk for the quality of drinking water supplies the DWI’s regulatory powers would then be an indirect lever for augmenting the quantity of water supplies in order to dilute pollutants that in higher concentrations would lead to breaches of legal requirements for the quality of drinking water.

The DWI implements EU legislative standards on drinking water quality, i.e. the European Union Drinking Water Directive, (Council Directive 98/83/EC of 3 November 1998 on the quality of water intended for human consumption). We did not interview any respresntatives of the DWI, but according to a representative of the EA local/regional level, they ‘don’t tend to deal with DWI or OFWAT specifically in a drought’ (Interview A2.DP1.REG3).

Further information

Lange, Bettina, and Christina Cook. “Mapping a Developing Governance Space: Managing Drought in the UK.” Current Legal Problems (2015): cuv014.