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					Paying for Water
A General Consumer Council Information Paper

May 2003

A General Consumer Council Information Paper on the Government Consultation on the Reform of Water and Sewerage Services Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction Paying for Water Protecting Vulnerable Consumers Business Models Regulation Consumer Representation Joined-up Government Other Key Issues More Questions

Appendix A: Research Methodology

Please contact us if you would like an Executive Summary on disk, in large type, in other accessible formats or in minority ethnic languages.

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1. Introduction
“This consultation is underpinned by the proposal to move Northern Ireland’s water and sewerage services onto a self-financing basis … In principle, self-financing arrangements will require the introduction of domestic water charges …“
Angela Smith MP, Parliamentary Under-Secretary of State, March 2003

In March 2003, the Department for Regional Development launched its consultation on Water Reform for Northern Ireland. It means the introduction of direct charges for water and sewerage services and an overhaul of the existing regulatory and supply arrangements.

Water services in Northern Ireland
Water and sewerage services have been paid for out of public funds since midVictorian times, mainly because of implications for health. The right to an adequate supply of safe, wholesome water continues to be considered a basic entitlement today. In Northern Ireland much of our infrastructure remains from those same Victorian days. Therefore, our system is in need of major investment to protect the future safety of our water. This problem was worsened by 30 years of under-investment resulting in an infrastructure that requires major investment to reduce leakage and meet the requirements of increasingly stringent European legislation, for example the Water Framework Directive. Northern Ireland is currently failing to meet European Directives that dictate water supply and sewage disposal standards. The EU has said that continued underinvestment in the public water supply could result in costly fines for failing to meet quality standards. These Directives, especially with regard to improving sewage disposal, must be implemented within the next three to seven years. This will mean a considerable financial commitment. Doing nothing is no longer an option. A policy for capital infrastructure funding is required as a matter of urgency.

Promoting informed debate
The purpose of the document is to help promote a well informed debate and outcome on the key issues in the consultation paper. We believe that the consultation is important for Northern Ireland in order to get the best deal for all at the end of the process. The Council has sought to avoid favouring any particular views at this stage. This paper includes results from a consumer survey carried out by the Council in August 2002 to gauge consumer views on the issue of water charging.

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For ease of reference this paper has been set out, where possible, in the context of the questions and proposals identified in the Department for Regional Development’s consultation document. This will enable the readers to consider the information in this paper alongside the Department’s consultation document. The General Consumer Council will be making a formal response to the consultation in due course.

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2. Paying for Water
In Northern Ireland there is, at best, a confused perception of how water is paid for. The public largely believe that they pay for water through their rates bill. When asked what their rates covered, ‘water’ (41%) was the second most mentioned service after ‘refuse collection’ (61%) 1. This is not an unreasonable assumption for the public to make. Until April 1999 the Regional Rate, the only form of local taxation in Northern Ireland, funded water and sewerage services. The Rates Collection Agency website 2 lists a number of public services the Regional Rate contributes towards including ‘Water and Sewerage’. Since then, funding for water comes via a direct grant from the Northern Ireland Assembly budget, which consists of the Northern Ireland Block Grant (received from HM Treasury) and the income from the Regional Rate. In 1998/99 the average charge for water to domestic ratepayers in Northern Ireland was £127 compared with £242 in England and Wales 3. The consultation document stated that any new charge is likely to be in the region of £350-£400 per household, will be phased in and is likely to rise as investment increases.

Paying for water in Great Britain
In England and Wales two methods of direct water charges are used. Most households pay on the basis of the rateable values of homes. However, all homes have the option to ask for a meter and to pay by volume of water used and around 23% have chosen this option to date. Metered bills are, on average, 17% lower than bills calculated by rateable value4. Water suppliers in England and Wales have the right to install a water meter in properties if the householder uses a particularly large amount of water for non-essential purposes. Glas Cymru/Welsh Water has a policy of voluntary metering. There is no charge for installation. If customers have chosen to have a meter installed they have one month after the first bill to change back to unmeasured charging. If a customer moves into a metered property he cannot have the meter removed. Scottish consumers pay water and waste water charges to Scottish Water (a new public sector organisation, formed from the previous three Scottish water authorities ) via their local councils. Charges for non-metered households are calculated according

1 2

GCCNI Water Survey, August 2002 Rates Collection Agency website ‘How is your rates money spent?’ (www.ratecollectionagencyni.gov.uk/spent.htm) - 24 April 03 3 DoE, Water and Sewerage Services in Northern Ireland. A Consultation Paper (1998) 4 DRD, Reform of Water and Sewerage Service in Northern Ireland: A Consultation Document

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to Council Tax property bands. Households can opt to be metered but the high standing charges have meant that fewer than 1,000 homes have done so. The Water Industry Commissioner for Scotland regulates all household charges. Joining three authorities into one means that increases to charges will be less than under three separate authorities. The aim is to have equal charges across the country by 2006. Currently charges range between £195 and £700.

Cost of delivering water to our homes
It is often argued that water is a free resource that falls from the sky. However, storage, treatment to achieve drinking water quality, the network of pipes for delivery, the provision of sewers, sewage treatment and disposal, rainwater disposal from properties, highway/roads drainage and administrating the system are all costly. Unlike other utilities, such as electricity, the majority of the costs are generated by the provision of infrastructure and water preparation rather than being related to usage. It may be possible for some of the disposal costs (for example, highway drainage) to be paid for by other sectors of society to reduce the burden on householders. This is considered further in Section 8 of this paper under ‘Other Key Issues’. Northern Ireland is a dispersed community with a large rural population, which has implications for increased costs because it is more expensive to supply sparse properties than it is to service denser, urban neighbourhoods.

Water resources in Northern Ireland
Natural rainfall in Northern Ireland is relatively high compared with, say, the south eastern half of England. This helps replenish the reservoirs, which provide the largest source (47%) of our water supply. Lough Neagh is also a major resource providing 32% of local water. Northern Ireland does not have to rely on groundwater abstraction with only 6% of our supplies coming from these sources. Loughs (9%) and rivers (6%) provide the rest of our water supply 5. We do not have the same concerns that exist in the south of England regarding water shortages, hosepipe bans and the need to conserve water to ensure supply meets consumer demand. However, the Water Service believes that with increasing demands for water and an increasing population Northern Ireland could have a 20% shortfall in its water supply by 2030 6. Water is tested across Northern Ireland. The water supply is safe with regional water quality standards remaining in the highest decile at the latest Drinking Water Inspectorate report. Worryingly however, there have been outbreaks of water-borne disease.

5 6

Source: Water Service, Northern Ireland Water Resource Strategy 2002-2030 Water Service, Water: Providing for the Future 2002

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Leakage
We do have a higher level of leakage than England and Wales. There is approximately 37% leakage of treated water from Northern Ireland’s infrastructure compared with 22% in England and Wales and 36% in Scotland. Indeed, Northern Ireland’s leakage rate is comparable to developing Eastern European countries rather than Western European countries where leakage rates are as low as 9% 7. Addressing leakage is considered further in Section 8 in ‘Other Key Issues’.

What happens elsewhere in the world?
Water charging is increasing throughout the world, both in developed and developing countries. In most countries water is metered. Generally water pricing is moving away from using fixed charges to systems where water usage is charged. In some countries including Hungary, Poland, the Czech Republic and South Korea there has been a move to paying for water by usage without any fixed charge/standing charge element. Other methods of charging are used elsewhere such as in Iceland where users pay for water per m2 of property plus an overall charge per property. Some countries are interested in selective metering, for example compulsory metering where water is scarce, where households are consuming significant amounts of water for non-essential use and where meter installation is relatively inexpensive (new builds). For example in Cambridge, England the water company decided to compulsory meter all sprinkler users. Some countries are experimenting with peak pricing arrangements (seasonal pricing and time-of-day pricing).

Who should pay for water and sewerage services?
Four out of five (79%) consumers believed that someone must pay for water and sewerage services. The largest proportion (34%) stated that Government should pay while a further 16% believed it should be the local Council. Thirty per cent (30%) believed that ratepayers should pay, 22% thought that water users should fund water while 4% felt that businesses should meet the cost.

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OECD, Sustainable Water Use in Europe

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Figure 1: Who should pay for water and sewerage services?
Government Ratepayers All Users Local Government/Councils Income Tax The Householder Businesses Other Don't Know
34 30 22 16 5 5 4 1 5

Response

0

10

20
% of respondents

30

40

Source: GCCNI Water Survey, August 2002. Figures do not add to 100 as respondents were allowed to give more than one answer.

Consumer views on water charging methods
Respondents to the Council’s Water Survey were asked to rate a variety of charging methods for water; assuming charging was to be introduced. As Figure 2 shows there was a high level of support for paying for the amount of water used with 63% supporting this approach. However, this did not take into account the capital cost of installing meters or the replacement and maintenance costs associated with metering. This could well affect support for this option once the true cost is known. Two-fifths (41%) of the sample agreed with a fixed charge for everyone. However, there was also support for a safeguard that those who can least afford water should have to pay the least. The number of inhabitants in the house represented the third preference while the options based on house characteristics (size, value and type of house) were each supported by only about one-fifth to one-quarter of the sample (27%, 23% and 20% respectively). Respondents in non-TSN 8 areas were more likely to agree that future payments be based on these.

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New Targeting Social Need

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Figure 2: Considerations for future payment of water and sewerage services
1 22 5 2 25 4 5 51 6 1 19 7 35 34 2 7 12

Frequency

50

50

52 40 42
4

23
19 2 17 2 19 2 15 2 9 2 8 2

Value of House

Size of House

Type of House

Number of People in House

Fixed Charge Amount of for Everyone Water used

Don' t Know

Strongly Disagree

Disagree

Neither

Agree

Strongly Agree

Source: GCCNI Water Survey, August 2002.

The benefits and disadvantages of metering as a basis for charging are discussed more fully on pages 10-12.

Question 1: What is the most appropriate and effective basis for the determination of domestic water and sewerage charges in Northern Ireland? [Chapter 2; pages 13-18 of the Water Reform NI consultation document]
The consultation considers 3 options other than metering. We have highlighted these below identifying potential advantages and disadvantages for consumers.

Option 1: A uniform (flat) charge that applies equally to all households This charging mechanism treats all properties as equal and is the equivalent of a 100% standing charge per household. Our survey revealed limited support for every household to pay the same for water regardless of income. Three-fifths (61%) of the sample disagreed with this statement. Advantages


Fixed costs are a large proportion of the total cost of providing the service

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 

All households impose broadly similar costs on Water Service Cheap form of billing and collecting payments

Disadvantages     Inequitable, is highly regressive because lower-income consumers pay proportionately more of their disposable household income on a flat rate water charge Does not take account of the householder’s ability to pay Cross-subsidises the better-off at the expense of the worst-off, the heavy user against the light user and the rural property against denser urban housing No incentive to reduce water use or wastage

Option 2: Charges based on the capital or rental value of the property Rateable values [RV] could be used as a proxy for the cost of providing water and sewerage services. However, it may not bear a close relationship to the cost. From 2006 it is proposed that the capital value of a house be used as the basis for the domestic rating system in Northern Ireland. This is considered to be fairer and more upto-date than the previous rental value calculations.

Advantages    The Rates bill is already tied into the benefits system so needy consumers should continue to easily receive assistance Rates Collection Agency could continue to calculate bills and collect water charges Easier administration if water charges are included in a single rates bill

Disadvantages    Need to protect disadvantaged consumer groups living in high rateable value homes or single occupancy households No incentive to reduce use Does not take into account householder’s ability to pay

Option 3: Combination of a fixed and variable charge Most of the cost of delivering water and sewerage services is fixed due to the capitalintensive nature of the water industry. However, the amount of water used or a measure of a household’s ability to pay could also be considered in water charges.

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Advantages  More reflective of the nature of cost of providing water and sewerage services

Disadvantages   The fixed charge element is regressive and does not take into account a household’s ability to pay No incentive to reduce water use / wastage

Metering
Question 2: Metering of domestic water supplies was specifically ruled out by the Executive as an option for water charging in the Rating Policy Review. Is there a need to revisit the metering of domestic water supplies as an option for water charging? [Chapter 2; pages 18-20 of the Water Reform NI consultation document]

Comprehensive compulsory metering is the charging method for water used in most other countries in Europe and North America. It is also used for all other utilities (electricity and gas) delivered to households. The Council’s recent survey (2002) found that consumers in Northern Ireland were broadly supportive of a volumetric charge but as highlighted earlier this should be treated with caution as respondents were not aware of the likely cost impact of metering all homes and the ongoing replacement and maintenance of a metered service. Figure 3 highlights a number of demand management options and their relative expense in terms of water saved.
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Figure 3: Costs and savings of demand management options Demand Management Option Demand Management Cost (pence/m3) 113

Savings (Ml/day)

Relative Index *

Voluntary Metering
9

538

574

National Consumer Council. (2002) Towards a Sustainable Water Charging Policy. National Consumer Council, London; 8, 9,11, 14, 37, 38.

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Compulsory Metering (all) Offer of £100 cost subsidy to replace pre-1981 WCs with 6 litre flush model Compulsory Metering (sprinklers) Converting 9 litre WCs to 7.5 litre Leakage Control Converting 9 litre WCs to dual flush

94 74.5 51 27.2 19.7 17.2

1233 268 240 543 3151 858

477 378 259 138 100 87

* Leakage control is used as the benchmark against which other initiatives are measured

There are several potential options associated with water metering. First, continue to rule out meters as a basis for charging. Second, the consumer’s right to choose may mean that there should be an option for voluntary metering. Third, it may be appropriate to meter all new properties (new builds). Fourth, all households could be metered either immediately or over a period of time. Finally, high non-essential water users could be metered.

Advantages       Provides an incentive to reduce use The public supports metering as it appears to be fair in linking payment to water used Different metering options exist, as outlined above Meters could be used to provide water allowances per household (for example through rising, decreasing or floating block tariffs) Could be used to charge consumers for non-essential water use Helpful in identifying where leakage may be occurring

Disadvantages   Water used accounts for just 27% of the total cost of supplying water 10 May create affordability problems for low-income families. Larger households [larger family households are the least likely to have a net income of over £20,000 per year (Scottish Executive, 1999)] and consumers requiring large volumes of water for health reasons The average cost of a meter is understood to be approximately £200. This would have to be met from public expenditure or recovered through charges to consumers Money may be better spent renewing the existing infrastructure Voluntary metering is the most expensive form of demand management (refer to Figure 3) with disappointing reductions in water use It is almost twice as expensive to install meters as it is to provide an equivalent amount of water to that saved by metering Meters have to be read and bills issued at a cost Current high levels of water leakage would undermine water savings accrued

     

10

Water Service. (2002) Annual Report.

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

Problem of debt/non-payment, high capital costs, requirement to renew meters after 8-10 years and effects on water bills

An informed decision by consumers on the issue of water metering depends on accurate and timely information being provided to consumers on the real costs of metering, including the proportion of a household bill made up of fixed/standing charges, compared with the potential benefit to consumers.

Principles of water charging
There are several principles that should underline any system of water charging 11. Most importantly, public heath must continue to be protected. Access must continue to be affordable, supply must be continuous and the system must be fair, transparent and sustainable. Further work is necessary to properly evaluate and assess all of the available alternatives, including non-UK models. For each charging system considered, the ‘balance of benefit’ to consumers needs to be established so that all consultees can make an informed decision on the options available. Any change in paying for water also has to be considered alongside the review of rating policy to ensure that Northern Ireland consumers are not faced with massive increases in household expenditure over a short period of time and that the new rates and the new water charge amount to a reasonable total for each household.

11

National Consumer Council. (1997) Review of the Water-charging System in England and Wales. National Consumer Council, London.

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3. Protecting Vulnerable Consumers
Question 3: Which categories of customers may require some degree of relief from the cost of domestic water and sewerage charges? Question 4: How should customers’ needs be addressed and their rights protected within the new water charging regime? [Chapter 2; pages 20-21 of the Water Reform NI consultation document]
The affordability of any water charging regime is a particular concern in Northern Ireland. The needs of disadvantaged consumers and low-income groups must be taken into account to ensure affordability and avoid a huge debt problem occurring.

Household income in Northern Ireland
While it is being widely quoted how much is being paid in Great Britain it has to be considered that household incomes are much lower here - Northern Ireland average household income is 19% below the UK average. Northern Ireland households have an income of £445 per week compared with £550 per week for UK as a whole 12. There is also a greater reliance on benefits here with on average 21% of Northern Ireland household income coming from benefits compared with 12% in the UK as a whole13.

Household expenditure on utilities in Northern Ireland
Consumers in Northern Ireland already pay more for other essential utility services, for example energy. A previous report by the General Consumer Council, Frozen Out 14, highlighted that 170,000 homes here are in fuel poverty and that Northern Ireland households pay on average 26% more (£3 per week) for fuel, light and power than households in the rest of the UK. Any move to impose direct charges for domestic water provision would affect the most vulnerable in society. Water policy must recognise the interests of low-income consumers and take into account people’s actual ability to pay. There would be implications for low-income households if a system of direct charging were introduced and provision or safeguards would have to be considered for those with special needs 15.
12 13

Family Spending 2001-02, Office for National Statistics NISRA, Northern Ireland Family Expenditure Survey Report 1998/99. (2000) 14 GCCNI, Frozen Out: Tackling Fuel Poverty in Northern Ireland (2002) 15 In this context special needs refers to family circumstances requiring exceptionally high water use for reasons of health, for example dialysis or incontinence.

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Helping vulnerable consumers
Many people believe that everyone should be able to afford enough water to meet their daily needs. There is widespread support for the principle of help being provided to vulnerable groups particularly for the elderly and those who may require assistance on health/medical grounds. When asked, 86% of the respondents agreed that special allowances should be made for the elderly (people aged 65 years and above). Respondents in the older age groups were more likely to favour allowances, particularly on health/medical grounds, for the elderly. There was less support for special allowances for larger families (those comprising more than 6 people) and those with young children (under three years old) [refer to Figure 4].

Figure 4: Perceptions of entitlement to special allowances when paying for water and sewerage services
10 33 37

25

18

15

Frequency

45 56 58 10 53 7 6 4 10 1 2 14 4 2 6 2 34 26 4 8 2 2

5 2

Medical /Health Conditions

Families on Low Incomes

Large Families Criteria

The Elderly

Those w ith Young Children

Don' t Know

Strongly Disagree

Disagree

Neither

Agree

Strongly Agree

Source: GCCNI, Water Survey (August 2002)

However, for those using large amounts of water for non-essential purposes there is little sympathy. Nine out of ten consumers agreed that homes with private swimming pools should pay extra, as should those with large gardens requiring watering (72%) and people using water for other non-essential purposes (54%). The washing of the family car should also represent an extra charge to water users according to two-fifths (39%) of this sample.

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In Northern Ireland non-payment may pose a problem if water charges are imposed as a separate bill rather than incorporated into a Rates bill. Bills must be clear, regular and easy to understand so that bills will not remain unpaid due to confusion, fear or lack of understanding 16.

The consultation outlines three proposals to protect consumers.

Option 1: Charge all households on the same basis with no special protection for the vulnerable It seems reasonable to charge all households the same. This is because supply costs are more significant than the actual amount of water used when calculating the water charge. On this basis option 1 appears reasonable and avoids the problem of crosssubsidy. A consumer’s ability to pay should be taken into account and vulnerable consumer groups protected from impact as a result of water charges being introduced. In England and Wales vulnerable groups are protected by the Water Industry (Charges/Vulnerable Groups) Regulations 1999. However, in the first year of the scheme’s operation (2000-01) only 1,724 successful claims were made, representing just 0.6% of those estimated as eligible17. Household’s water supply cannot be disconnected in England and Wales but debt is a real problem, especially among poorer consumers and those with abnormally high water needs. Nineteen per cent (or 4.4 million 18) of English and Welsh consumers, mainly low-income households, had an average debt of £154 19 at the end of the 2000/2001 financial year. There is potential for debt to become a real problem in Northern Ireland because household incomes here are 19% below the UK average 20. Government intervened and protected large families on low incomes and those suffering certain medical conditions from high measured bills by capping bills at the average measured charges for the local water and sewerage companies 21.

Option 2: Rebates/discounts given to those on low incomes with the shortfall in revenue made up through higher charges to the better-off The introduction of water charges could have health and economic implications for Northern Ireland consumers. There are economic and social arguments for a rebate
16 17

Anon. (2002) Customers in Need. Utility Week, 06.09.02; 20. National Consumer Council. (2002) Charging for Water: the Implications for Consumers, the Environment and Future Supplies. National Consumer Council, London. 18 Papworth, J. (2001) Poorest Pay the Highest Price. Guardian, 21.07.01; 11. 19 Fitch, M. and Price, H. (2002) Water Poverty in England and Wales. Chartered Institute of Environmental Health 20 Family Spending 2001-02, Office for National Statistics 21 Fitch, M. and Price, H. (2002). Water Poverty in England and Wales. Chartered Institute of Environmental Health.

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system. Government social policy, water charging policy or a mixture of both could protect vulnerable consumers when introducing water charges. Legislation covering water charges could allow discounts or special payment arrangements to be offered. In order that the majority do not bear the burden of a large minority it may be preferable if relief is by way of social policy. The existing social security system could protect consumers. Those who already receive certain social security benefits could automatically receive a water benefit. Housing Benefit does not provide a specific rebate for water and sewerage costs but water charges could be automatically incorporated into costs met by the social security system. However, the potential for water bills to increase faster than benefit rates would have to be considered. If water is metered, low-income consumers might be protected by providing an amount of free or low cost water for all or by reserving an amount for less well off consumers subject to a test of eligibility (means testing) 22. This is the method used in Flanders, Belgium, where since 1997, the first 15m3 of water consumed per person in each Flemish household are provided free of charge. In England and Wales, those in vulnerable groups (low incomes and in receipt of specified benefits with three or more children or a medical condition requiring a greater use of water) can apply for a special metered tariff capped at the average household charge. Similarly, Scottish Water provides a reduction in charges for households in receipt of Council Tax Benefit and whose charges are above a set limit. There is a firm view in the industry that help for lower-income consumers should come from Government (through taxation) and not be subsidised by better-off consumers who pay their bills. The principle of transparency and the need for efficiency mean that cross subsidies should be avoided where possible and be open to public scrutiny where they do exist. If new water charges are introduced, cross-subsidies may occur between higherincome and lower-income households, large households compared to single people living in properties with a high rateable value, the rural property-dweller against denser urban housing, and those who pay their bill and those who don’t. These and possibly other categories could be disadvantaged from the averaging of costs across all consumers. Other groups which may require protection if direct water charges are imposed include large families and those with medical conditions that require an abnormally high water use.

Option 3: Subsidies to the vulnerable paid from the NI Departmental Expenditure Level at the expense of other programmes resulting in cuts in public services This interpretation could be seen as misleading. Any continuing public subsidy for water services should not result in cuts in public services. If water services become completely self-financing an additional £250 million would become available for the
22

National Consumer Council. (2002) Towards a Sustainable Water Charging Policy. National Consumer Council, London.

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Northern Ireland budget. It may be that some of this money could be used to provide protection for less well-off consumers. Consideration could be given to a scheme similar to the Warm Homes Scheme used to deal with fuel poverty. Qualification for help under Warm Homes is triggered by the Social Security system i.e. people who qualify for certain benefits can access help through the scheme. However, consideration may need to be given to other vulnerable groups such as those who are ‘near benefits’. Efforts would be required to ensure maximum take-up of such schemes. Just under one-quarter (23%) of the sample in the Council’s 2002 survey believed that the public should pay more for water and sewerage services in order to raise money for other essential public services.

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4. Business Models
Question 5: Which business model for delivering water and sewerage services would be best for NI? [Chapter 3; pages 22–34 of the Water Reform NI consultation document]
Currently, there is direct civil service provision in Northern Ireland via Water Service, an Executive Agency of the Department for Regional Development. Throughout the world there is greater involvement of the private sector in the delivery of water and sewerage services. This includes the financing, building, management of infrastructure or facilities. However, Governments are maintaining a role in the system albeit they are becoming regulators of water services rather than deliverers. It is now common to see the public and private sectors working more closely together in the delivery of water and sewerage services to consumers. Consumers, in most cases, are not overly concerned about actual ownership of water and sewerage services but are concerned about how a product or service is delivered. Consumers want a safe, clean and affordable service that provides an efficient, reliable and continuous water supply and sewage disposal. Irrespective of the option chosen water and sewerage services will be a monopoly. Therefore, the organisation must be clearly accountable to customers and be subject to strong regulation of activities to protect the interests of consumers and the environment. The following issues should be taken into account when considering a new operational structure:       Who should own the assets? If public assets are to be transferred to a new owner, is it important to retain some control over their disposal and if so how? Which system will provide best value for money and keep down charges? What would provide the highest quality service and secure EU compliance? How should the service be accountable to Ministers and customers? What is the balance of benefit for consumers from each model? Adequate provision would be required in relation to contingency measures in the event of bankruptcy or other reason for water or sewerage service withdrawal by the supplier. Do other models exist elsewhere in the world?



The consultation paper sets out a range of options for consideration. In all of these Government retains responsibility for setting and enforcing performance standards but can have varying degrees of involvement in the direct delivery of services.

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Privatisation A 1993 GCC survey found that 71% of the Northern Ireland public were opposed to privatising the water supply. In the past 10 years this opposition has grown - 92% stated their opposition to privatisation in the 2002 GCCNI Water Survey while just 4% supported the option. While information is available on public attitudes to privatisation, views on the range of alternative business models ranging from part private to publicly owned are not available.

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5. Regulation
Question 6: What is the most effective model for the economic and consumer regulation of water and sewerage services in NI? [Chapter 4; pages 35-41 of the Water Reform NI consultation document]
In the absence of competition, regulation is essential to replace the disciplines of the marketplace. Regulatory and water charging structures promote the protection and wise use of water resources. Northern Ireland does not have any system of economic regulation, therefore the Water Service is not pressurised for efficiencies by an external, independent body. The Regulator should have a range of responsibilities. These should include:       Powers to penalise those who fail to meet contracts/licences Role to encourage innovation in service delivery and water conservation The ability to introduce price control Setting and monitoring the quality of service provided and enforcing compliance with minimum quality standards and with contracts Monitoring infrastructure investment Social policy responsibilities

The regulator should work closely with the consumer representative body in relation to the needs and interests of water service users in all his/her decisions. The consumer interest should always be considered but arrangements for its expression should remain independent of the Regulator’s office. This is considered in Section 6 on Consumer Representation. Robust, effective and independent regulation of water and sewerage services is necessary to ensure that all environmental, water quality and service standards and obligations are met. For any regulatory system the following principles apply:     Ministers’ and regulators’ roles should be well defined Regulators should be seen as independent of Government Government determination through statutory guidelines how regulation should meet broader social and environmental objectives Water users should be taken into account in all the regulators’ decisions

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    

Regulation duties should monitor economic planning and performance, efficiency and cost-effectiveness It should approve the allocation and recovery of costs and service charges It should encourage water conservation and provide consumer information Services should be publicly accountable Operational policies and performance should be transparent and open to public scrutiny

There are three options for economic and consumer regulation:

Option 1: Appoint a Northern Ireland Utilities Regulator This option would extend the role of the Northern Ireland Authority for Energy Regulation to embrace water and sewerage delivery. This means that the Authority, established by the Northern Ireland Energy Order 2003, could potentially have responsibility for the economic and consumer regulation of the water and energy industries in Northern Ireland. Advantages include the use of an existing pool of regulatory skills and expertise within OFREG/Northern Ireland Authority for Energy Regulation and potential f or cost savings through economies of scale. This could minimise the cost implications for Northern Ireland utility companies and consumers who will pay for the service. It could also provide an opportunity for greater co-ordination of utility roadworks/road openings. However, the Authority does not at present have any prior direct experience relating to the water industry.

Option 2: Establish a Water Regulator for Northern Ireland This option would involve establishing a specific regulator for water and sewerage services. This regulator would have the specific focus and water industry background. However establishing a separate regulator is likely to cost more than the other options, which centre on extending the remit of existing regulatory bodies.

Option 3: Engage the skills and resources of an existing water industry regulator (OFWAT or the Scottish Water Industry Commissioner). Scotland has faced a similar legacy of under-investment and faces challenging levels of capital investment over the next decade providing a useful comparator for Northern Ireland. This option would provide access to regulatory skills and water industry-

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specific expertise and avoid set up costs and diseconomies of scale of a separate Northern Ireland regulator [Water Reform Unit, 2003]. There are three regulators for water in Scotland. The Independent Commissioner promotes the interests of customers of the Scottish water and sewerage authorities and regulates all aspects of the economic and customer service performance of the water authority. The Scottish Environmental Protection Agency (SEPA) regulates the discharge of treated wastewater and ensures compliance with EU law, such as the Urban Waste Water Treatment Directive. The Scottish Executive Water Services Unit is responsible for the regulation of drinking water quality. The Water Bill is currently going through Parliament (published on 20 February 2003, had its second reading in the House of Lords on 6 March) and is expected to gain Royal Assent before the end of 2003. It includes provision for the abolition of OFWAT and the transfer of its functions to a new Crown body to be known as the Water Services Regulations Authority. It will have broadly the same duties as OFWAT but will have the additional duty to have regard to guidance on social and environmental matters. Water companies will also have additional duties in relation to consumer matters and social issues. Appropriate controls must be established to ensure that services are delivered effectively, that sound investment decisions are made and the consumer interest is recognised in the setting of charges.

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6. Consumer Representation
Question 7: What is the most effective model for customer representation on water and sewerage issues in NI? [Chapter 5; pages 42-44 of the Water Reform NI consultation document]

Why consumer representation is important
There is no official consumer representative body to articulate the views of Northern Ireland’s 647,500 households. Consumer representation is particularly important because Northern Ireland’s water and sewerage services are a natural monopoly. As a result consumers have no meaningful chance of influencing the provider through the normal market mechanisms. Therefore, domestic consumers are often in a weak and vulnerable position. They need to be confident that their interests are being effectively represented to decision-makers. The interests of both present-day consumers and future consumers need to be represented, and balanced, especially to ensure these vital services are affordable to all, and to ensure the sustainable use of resources. Almost three-quarters (74%) of the Council’s 2002 sample believed that there is a need for an organisation to represent the views of water users. An effective framework for consumer representation is therefore essential.

Principles underpinning effective consumer representation
Any consumer body must be:  Independent - In its governance and management, the body should be independent of the industry, regulator, central and local government, particularly in its choice of work and in the views expressed. Effective - To be effective consumer advocates, the body needs to be respected for its policy analyses and recommendations. Its work must be well informed and based on sound, high quality research including research into consumers’ experiences and the regulated companies’ activities. Representative of domestic consumers - The body should have a general duty to advance the interests of existing and future consumers with a specific duty to represent the particular needs of disadvantaged and vulnerable consumers. Transparent and accountable - The body should operate under the principle of openness and be publicly accountable.







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

In touch with consumers - The body should develop dialogue with consumers, both to inform consumers about their choices in the competitive marketplace, and also to collect information about consumers’ views and experiences.

Operational requirements


Clear powers and duties - These should include: The legal standing to represent consumers’ interests to relevant decision-makers A prime duty to represent consumers’ interests with specific focus on domestic, disadvantaged and vulnerable consumers Powers to investigate complaints and propose remedies Powers to publish research and other information Duties on regulators and others to consult the consumer representatives Duties to have clear and accessible procedures Relationships with regulators set out in clear memoranda that are reviewed at least every 3 years



Access to information - The body should have the power to obtain relevant information directly from regulated companies and regulators. A core of inf ormation (on debt, complaints and service standards) should be routinely available.

There should be clear and fair procedures for challenging refusals to disclose information. The body should have powers to monitor and investigate key aspects of customer service and complaints by regulated companies.  Rights to challenge regulators’ decisions - The body should have the right to be consulted by the regulator on competition and non-competition issues with the legal right to appeal against all the regulator’s decisions. Openness - The body must be open in all it does; provide clear reasons for withholding any information and provide the opportunity to appeal against any decision to withhold information. Adequate resources - The body should have adequate financial resources to carry out and plan these functions effectively and efficiently in consumers’ interests. Its independence from funders must be maintained. Research capacity - The body should have duties and the capacity to carry out social/economic research into complaint trends, consumers’ experiences and market developments. Open appointments - The body should be large enough to have an adequate spread of expertise and interest taking into account the range and diversity of consumers’ interests. Members and staff should be recruited through a transparent and accountable appointment process.





 

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

Links with other consumer bodies - The body should liaise with other bodies that collect consumer information and handle complaints. It should consult other consumer bodies prior to major changes in its work programme. It should liaise with other consumer bodies on issues of common interest.

The options
The consultation paper presents three models for consumer representation: 1. 2. 3. A new customer representation body on water issues Strengthen the role of the Northern Ireland Water Council Strengthen the role of the General Consumer Council for Northern Ireland

Either options 1 or 3 would be suitable because both meet the criteria for effective consumer representation. 

Northern Ireland Water Council

The Northern Ireland Water Council has an important function in providing advice to Ministers on the role of DRD, DOE, DCAL and others in respect of any water-related issue. However, this role is very different from consumer representation as described above and should be performed separately. The Water Council could not be transformed into a consumer body without losing its current role. 

New customer representation body or enhanced General Consumer Council

A new customer representation body on water issues would need to be properly resourced, have the desired background and have the critical mass and experience to discharge its role effectively. However, there are reasons supporting strengthening the role of the General Consumer Council as the consumer representation model of choice.

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An enhanced General Consumer Council
The General Consumer Council would appear to be well placed to fulfil this function:  The Council is Northern Ireland-focused. It would be a more cost-effective solution given the size of Northern Ireland and avoids unnecessary duplication of consumer bodies, systems and resources. The Council already has expertise among members and staff in the wider consumer field, in water matters and in relation to a regulated monopoly, for example coal, gas, electricity and public transport. Enhancing the present GCC will give it a dedicated focus while facilitating read across of best practice from other fields. The Council’s existing statutory functions and responsibilities in all other utility sectors (electricity, gas, coal and passenger transport) means that, with the addition of water, it is the only organisation that could become a one-stop shop for all utilities. It will assist easy recognition by consumers and avoid confusion (using March 2003 data, 64% of consumers had heard of GCC 23). It makes sense in terms of the Council’s experience in representation, policy making and handling of transport complaints (for example, from 1.6 million potential passengers). It would deal with ‘second stage’ water complaints where the complainant has already approached the company but remains dissatisfied with its response. It would advise first stage complainants to approach the relevant authority and would redirect queries/complaints to where they may be better resolved; for example, technical queries. Additional responsibilities in relation to water and sewerage services need to be properly resourced and supported by legislation to ensure statutory authority to exercise its functions properly. Extra resources for the GCC (additional members, staff and guaranteed ongoing funding) would buy a better level of service compared with setting up another consumer body. A certain critical mass is required for effective consumer representation. There are complex issues surrounding the regulation of utility industries. The best guarantee of addressing them is to have sufficient staff with the necessary range and depth of professional experience. Staff with the appropriate technical and professional expertise can provide the team environment and corporate memory to give effect to the policies and strategy determined by the Council members. GCC already has the necessary critical mass and, with enhanced resources, could deliver the best service to Government, all water consumers and the regulator.



 





23

GCC Consumer Proficiency Study March 2003 (not yet published)

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7. Joined-up Government
Question 8: Do you have any comments on how it is proposed to integrate Water Reform within other Government policies? [Chapter 6; pages 43-47 of the Water Reform NI consultation document]
The Department for Regional Development has indicated in its consultation document a range of other Government policies that will be considered as part of the consultation process. These are:

i) ii) iii) iv) v) vi) vii)

Equality Impact Assessment Rural proofing Health impact Sustainable development and environmental impact (opportunity to discuss grey water initiative etc) New TSN assessment will be undertaken Regulatory Impact Assessment in terms of costs, benefits and risks Human rights

The importance and consideration being given to integrate water reform within other government policies is in keeping with the principle of joined-up government. Full recognition should be given to the role of joined-up government in the development of any future regulatory and charging regime. One area that has not been included but is relevant to the outcome is the ongoing review of rating policy. Any proposed increases to domestic rates bills as a result of the rating policy review should be considered alongside water charging to ensure that overall Northern Ireland consumers are not being disadvantaged.

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8. Other Key Issues
Re-allocation of costs
It may be possible for some water supply and sewage disposal costs to be paid for by other sectors of society. For example, while water supply is the most obvious of the water services, there are also three other quite distinct disposal services: sewage disposal, rainwater disposal from properties, and highway drainage. If no surface water from a property drains into the public sewers, the householder may be eligible for a reduction in his bill. Currently, everyone pays for highway drainage even though it is not a domestic service. The Council survey asked respondents who they thought should pay for rainwater disposal from houses and for highway drainage from public roads and motorways. Almost one-fifth (19%) stated that they believed the householder should pay for rainwater disposal while one in eight (13%) felt that road users should pay for highway drainage. This is important because Northern Ireland has more than double the length of road per head of the population than the rest of the UK [refer to Figure 5]. Serious consideration should be given to paying for highway drainage from general taxation and not from charges paid by water consumers.

Figure 5: Kilometres of roads per 1000 population: Great Britain v Northern Ireland
6.9

Great Britain

Northern Ireland

14.7

0

5

10

15

20

km of road per 1000 population

Source: GB figures – Transport Statistics Great Britain: 2002 Edition, Department for Transport. NI Figures – DRD Transport Statistics 2001-2002. Population figures taken from 2001 Census

Leakage control
Leakage control is an important means of improving the efficiency of production of the treated water supply and should be monitored by a regulatory body. A total of 250 million litres of water is lost each day in Northern Ireland according to the Assembly’s Public Accounts Committee. This is the equivalent of approximately 40% of all treated water in the public water supply. To set this into context, Northern Ireland consumers use approximately 145 litres of water per person per day while approximately as much water is leaked.

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The aim is to reduce leakage in Northern Ireland to an economic level of 180 Ml per day by 2006 24. The average figure for the water and sewerage companies in England and Wales is 203 Ml per day (with companies ranging between 80 to 455 ML of leakage per day). The Economic Level of Leakage (ELL) is the level of leakage at which it would cost more to make further reductions than to produce the water from another source. Operating at ELL means that the total cost to the customer of supplying water is minimised and the supplier is operating efficiently. The desirability of operating at the ELL needs to be communicated to the consumer in order to displace the perception that operating at zero leakage is an economic alternative. However, reducing leakage requires significant capital investment to replace Northern Ireland’s decaying pipe infrastructure.

Demand management
Consumers have a responsibility to use water sensibly in order that there is a sustainable supply. There are long-term benefits in raising consumer awareness of the need to use water wisely. It has been calculated that it is 2 to 4 times cheaper to save water rather than to build a completely new water source 25. This will become ever more important when consumers start to pay for water. Some demand management incentives (listed below) and the development of new initiatives may be considered the duty of the Department for Regional Development as part of a wide education initiative. This would need to be coupled with a public awareness and advertising campaign. Non-financial incentives


 



 

Education – this is a key initiative. This could alert households to water wastage e.g. the fact that between 5 and 10 litres of water can be lost for every minute a tap is left running while brushing teeth. Targeted information in the form of household water audits Fitting water-efficient devices and appliances (for example low-water-use washing machines and dishwashers, timed garden sprinkler systems and low-flush toilets in households) Recycling grey water (water from the bathroom, including showers, baths and wash basins) can reduce water use by 30% to 50% if, for example, it is used when watering gardens or washing cars. Waste water re-use and water usage restrictions Capture rainwater for use (water butts)

Appliance standards There is no incentive in England and Wales for the majority of households to conserve water. Since 1996 Finland’s toilets have a 2 to 4 litre flush compared to England’s 9.5
24 25

Robinson, P. (2002) Water Resource Strategy 2002 – 2030. National Consumer Council. (2002) Towards a Sustainable Water Charging Policy. National Consumer Council, London.

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litre flush. Efficiency standards could be established for domestic appliances in much the same way as for energy efficiency or a date could be set after which all new appliances must reach certain water efficiency standards, for example dishwashers and washing machines.

The right to information
The consultation document accepts that consumers are not aware of how they currently pay for water. This lack of knowledge is unlikely to improve if consumers are not educated. Any changes to how water is currently funded and which public services are funded through rates would need to be coupled with a public awareness and advertising campaign. Clear advice leaflets on the new charging system would need to be produced and made readily available to customers across Northern Ireland. Water or rates bills should clearly state the contribution of domestic payments to Water Service and a breakdown of the main elements of service: water supply, sewerage disposal, rainwater disposal and highway drainage. Incentives and information need to be provided to raise public awareness about how to reduce household water use. This would be particularly important if consumers are charged for water on the basis of amount used. It would also be in keeping with government policy for sustainable development.

Domestic and non-essential water consumption
There may be an argument to distinguish between domestic and non-essential use when charging households for water. Higher charges may be appropriate for households using abnormally high amounts of non-essential water. For the purpose of water charging in Britain, domestic use has been defined as water supplied on any premises for drinking, washing, cooking, central heating and sanitation. In the case of houses, it includes water used for garden watering and car washing but only if the water is drawn from a tap inside the house, without using a hosepipe or similar apparatus 26. Non-essential use is not necessarily easy to determine. Car washing would be hard to monitor; the owner of a large garden may not be sufficiently interested to want to water it, and private swimming pools are thought to be sufficiently rare that a significant sum might not be raised. These issues must be considered in any decisions made.

Pollution
The contribution of agriculture to total water contamination is still growing. However, at present, water customers pay for clean-up costs resulting from diffuse pollution. The Chairman of Watervoice, the consumer body for England and Wales, has already said
26

National Consumer Council. (2002) Charging for Water: the Implications for Consumers, the Environment and Future Supplies. National Consumer Council, London.

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that it would be unfair if sectors like transport and agriculture did not carry part of the burden for cleaning up Britain’s watercourses in order to meet the requirements of the Water Framework Directive.

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9. More Questions
The General Consumer Council has sought to provide considerable information in this paper. However, it is clear that many questions may remain unanswered. We have identified a number of questions and areas where we believe answers or additional information would aid informed debate and enable consultees to make considered decisions once the information and facts are made available:

1.

There is a distinction between direct charging and being self-financing. Selffinancing by nature represents a ‘profitable’ model to realise the significant sums required for infrastructure investment. What restrictions, if any, would be made on the ability to make profits/surpluses at the consumers’ expense?

2.

In light of the high infrastructure cost, why has any element of subsidy been ruled out when other infrastructure-intensive industries (for example the British railways network) still receive public subsidy? Some of the business models would result in the removal of ‘crown immunity’. Would consumers be responsible for paying the costs of fines or compensation resulting from legal rulings e.g. if the new sewerage provider is fined for pollution? Will householders be liable only for the proportion of costs that can be attributed to the supply of water and sewerage services to homes? For example, who will pay for water delivered to ‘support’ services such as schools, hospitals and any other bodies/organisations/government departments who may not already pay for water services? What proportion of infrastructure costs will be apportioned to householders as opposed to other users of the network?

3.

4.

5.

Would the business plan of the proposed supplier be open to public consultation and scrutiny given that this is likely to have an indirect effect on consumer prices? In the event of an investment deficit or business failure what measures will be put in place to secure services? Does water charging have to be collected separately from rates or could they still be collected together, albeit charged and allocated separately? What will be done to prevent debt or self-disconnection from the water supply? What other charging mechanisms exist throughout the world that take account of ability to pay without externalising these costs onto other consumer groups?

6.

7.

8. 9.

10. What role does Government Social Policy have in relation to securing adequate provision of water and sewerage services to all consumers?

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11. What consideration has been given to redirecting money saved from public expenditure to provide protection of vulnerable consumers? 12. What evidence is available from elsewhere, e.g. nTSN areas or Health Action Zones in England, Wales or Scotland, on the impact of the introduction of water charging on consumers? 13. Who will be responsible for informing and educating the public about issues such as water payment and conservation and how will this be managed/regulated? 14. Is there any evidence of an education programme in the UK or elsewhere to advise consumers how to conserve water supplies and what consideration has been given to its roll out in Northern Ireland? 15. In light of consultation reliance on GB examples it would be helpful for other worldwide models to be considered at the next stage.

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APPENDIX A
 Research methodology
In order to inform the water reform consultation in Northern Ireland the Council commissioned research into consumers’ views and concerns of the water and sewerage service. In total, 1,014 consumers were interviewed in their own homes in an ad hoc survey using a quota-based sampling strategy that was representative of the Northern Ireland population. Interviews took place in late-August across all 26 local government districts. MORI MRC carried out all research and data analyses. The sample comprised 497 (49%) males and 517 (51%) females. Socio-economic groupings were as follows: ABC1 = 34%; C2 = 22% and DE = 44%. More than onequarter of the sample (27%) was from new Targeting Social Need (TSN) areas. The results have been used in this information paper.

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Elizabeth House 116 Holywood Road Belfast BT4 1NY Telephone/Textphone 028 9067 2488 Fax 028 9065 7701 e mail info@gccni.org.uk Websites www.gccni.org.uk www.consumerline.org ISBN No: 1 871095 28 X May 2003

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