Greener guidance for Ofwat

Defra has launched a consultation on the draft statutory Social and Environmental Guidance to Ofwat as part of the Water Strategy. Merlin Hyman discusses the EIC's reaction to it.

Defra's consultation on the draft statutory Social and Environmental Guidance to Ofwat as part of the Water Strategy will not have a direct regulatory impact on Ofwat, but the organisation will need to take it into account.

The draft guidance considers the role Ofwat could take in taking forward the policies set out in the Water Strategy in PR09, and the longer term.

The role envisaged for Ofwat in delivering the Water Strategy includes:
  • A renewed focus on affordability and fairness of charging for water
  • A greater emphasis on climate change mitigation and adaptation to be embedded in the water sector
  • New consideration to be given to the arrangements for surface water drainage
  • The balance between water supply and demand to be carefully considered, with opportunities for water savings and water efficiency more fully examined in the first instance
  • Water quality to remain a priority with a particular focus on a catchment scale approach and tackling diffuse pollution at source
The Environmental Industries Commission's (EIC) Water Pollution Control Working Group welcomed the increased focus on sustainability and environmental responsibilities in the guidance to Ofwat. But, despite welcoming several of the environmental policies, EIC members believe that the guidance should be strengthened, particularly in the area of sustainable development.

The EIC would like to see Ofwat setting its sustainable-development responsibilities as widely as possible so that social matters including promotion or sustainability of employment within the water sector are addressed. With this in mind, Ofwat should try to moderate the boom and bust regime caused by the current five-year industry investment cycle. As EIC has argued in the past, one method of partially resolving this issue would be to allow staggered investment programmes so that water companies run to different, overlapping five-yearly cycles.

In its recent consultation on the next Periodic Review, Ofwat recognised the issue of the boom and bust cycle and proposed to tackle it by requiring water companies to prepare 25-year strategic direction statements setting out how they will develop and run their businesses.

But, given that this is in effect a long-term business plan, it is difficult to see how it will have much more than a minimal impact on the established five-year investment cycle.

In the short term, the guidance to Ofwat should include the requirements to:
  • Ensure the 25-year strategic direction statements contain clear statements of investment priorities and how water companies will maintain investment progress across the five-year cycles
  • Actively assess water companies' proposals for their encouragement of environmental innovation
Environmental policies
Mitigation:
For some time, the EIC's Water Pollution Control Group has been championing the cause of greater energy efficiency in the water sector and therefore the EIC welcomes the requirement in the guidance that water companies should reduce CO2 emissions through the Carbon Reduction Commitment (CRC) scheme. The scheme, through the use of financial incentives, should drive carbon reduction initiatives within the water industry.

The EIC supports the fact that Ofwat will be driving down carbon emissions from the water industry by a variety of means - encouraging energy efficiency, maximising energy production within the water industry and promoting alternative renewable energy sources are seen by EIC as particularly effective methods of reducing the industry's carbon footprint.

Longer term planning as a result of strong 25-year strategic direction statements and the changes to the Periodic Review process outlined above, would also lead to more energy efficient solutions to the requirements of increasing water quality. So, EIC members believe the guidance should require Ofwat to demand that companies plan for the most energy-efficient solutions over time frames longer than the current five-year Periodic Review cycle.

Supply - demand balance:
In the future, the balance between supply and demand of water will be put under increasing stress. Summer rain in the UK is predicted to decrease. And population is predicted to increase in the South-east, which experiences the lowest levels of rainfall. EIC welcomes the focus in the guidance on water companies' responsibility to increase water efficiency in domestic buildings and in the non-domestic sector. And it welcomes the guidance on reductions in leakage rates to combat water shortages.

Surface water flooding:
The UK faces significant challenges from increasing levels of flooding. Sustainable urban drainage systems (SUDS) offer advantages over traditional drainage methods to reduce flood flows; improve water quality; and provide environmental benefits. SUDS seek to reduce surface water run-off and improve urban water quality by mimicking natural processes such as infiltration and attenuation through vegetation and wetlands.

Use of these systems has been promoted in national and local planning policy and guidance on their design has been available for several years. Nevertheless, implementation of these techniques has been much lower than expected and they are far from being accepted as standard practice in designing surface water drainage systems.

The EIC's Water Pollution Control Working Group has recently investigated why this is so, and what needs to be done to remedy the position.

The group found that the main problems revolved around administrative and institutional issues rather than technical ones. In particular, the issue of adoption, by which a drainage authority agrees to accept a new system and maintain it as part of the surface water drainage network, forms a real barrier to the widespread use of SUDS.

The government's Water Strategy presents an opportunity to change the approach to urban drainage. And EIC welcomes the direction that Ofwat should encourage companies to engage with local authorities over planning for surface water management and SUDS, which should facilitate a greater level of uptake of them.

Resilience to natural hazards:
EIC welcomes the fact that Ofwat will ensure that water companies take action to protect their assets from potential climate change effects such as increased incidence of flooding. The use of a risk-based approach to this potential problem is particularly welcomed.

Water quality:
EIC members believe that catchment-based regulatory approaches should be adopted to ensure environmental benefits are maximised within each river basin in line with the requirements of the Water Framework Directive. EIC particularly supports the principle that Ofwat should support water companies who wish to adopt innovative approaches to improving water quality. Allowing companies to carry out research in these areas to identify the best approach to take would also be beneficial. n

Merlin Hyman is EIC director.
T: 020 7935 1675

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