Clause 40 - Conditions relating to costs

Water Bill [Lords] – in a Public Bill Committee at 7:00 pm on 14 October 2003.

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Photo of Bill Wiggin Bill Wiggin Shadow Minister (Environment, Food and Rural Affairs) 7:00, 14 October 2003

I beg to move amendment No. 103, in

clause 40, page 42, line 28, at beginning insert—

'Subject to subsection (2A) below,'.

Photo of Sir David Amess Sir David Amess Conservative, Southend West

With this it will be convenient to discuss the following:

Amendment No. 104, in

clause 40, page 42, line 31, at end insert—

'(2A) The total payment that may be required of any company pursuant to section 11(1)(c) of the WIA and under this section shall not be increased by more than the amount by which that company is permitted to increase its regulated prices under its appointment.'.

New clause 5—Regulatory methodology—

'After section 2 of the WIA there is inserted—

''2B. Regulatory methodology

(1) The Authority shall prepare and publish a statement of policy with respect to its determination of charges in periodic reviews and interim determinations under all or any of the instruments of appointment of companies as relevant undertakers made by virtue of Part II of this Act.

(2) The Authority's statement of policy under this section shall include a statement of its policy with regard to the following matters—

(a) the carrying out of its duties under this Act insofar as they relate to its determination of charges;

(b) the matters to be taken into account and the methodologies to be applied in its determination of charges; and

(c) the extent to which the performance of functions by persons with powers and duties conferred or imposed by or under this Act or any other enactment are relevant to its determination of charges.

(3) The Authority shall determine charges in periodic reviews and interim determinations under a company's instrument of appointment as a relevant undertaker on the basis of the most recently published statement of policy.

(4) The Authority may revise its statement of policy and where it does so shall publish the revised statement.

(5) Publication under this section shall be in such manner as the Authority considers appropriate for the purpose of bringing the matters contained in the statement of policy to the attention of persons likely to be affected by them and shall not be made less than twelve months before a periodic review.

(6) When preparing or revising its statement of policy under this section, the Authority shall consult relevant undertakers and such other persons as it considers appropriate, subject to the requirements of subsection (7) below.

(7) For the purposes of subsection (6) above—

(a) consultation shall be by way of written notice given by the Authority not less than six months prior to the publication of the statement of policy which it is preparing or revising;

(b) such notice shall state—

(i) the matters which the Authority proposes to publish in its statement of policy and its reasons for including them in the statement; and

(ii) a period of not less than three months within which that person may give written notice of objection with respect to the matters referred to in the notice; and

(c) the Authority shall give each person a reasonable opportunity to make oral representations to it on the matters referred to in the notice.

(8) The Authority shall not issue or publish a statement of policy unless—

(a) no notice of objection to the policy is given to the Authority within the time period specified in its notice under subsection (7); or

(b) if one or more relevant undertakers gives notice of objection to the Authority within that time—

(i) the proportion (expressed as a percentage) of the relevant undertakers who have given notice of objection is less than such percentage as may be prescribed; and

(ii) the percentage given by subsection (9) is less than such percentage as may be prescribed.

(9) The percentage given by this subsection is the proportion (expressed as a percentage) of the relevant undertakers who have given notice of objection, weighted according to their market share in such manner as may be prescribed.

(10) If the conditions referred to in subsection (8) are not met, the Authority shall (within three months of its receipt of the first or only notice of objection) refer the policy to the Competition Commission for review.

(11) Where a reference is made to the Competition Commission under this section, it shall be the duty of the Competition Commission to determine whether the policy which is the subject of the reference operates in a manner best calculated to fulfil the duties of the Authority arising under this Act.

(12) Where a reference is made to the Competition Commission under this section, the Authority shall not prepare or revise its statement of policy other than on the basis of the determinations of the Competition Commission.

(13) The Secretary of State may by regulations make such provision as he considers appropriate for regulating the procedure to be followed with respect to any reference to the Competition Commission under this section.

(14) Without prejudice to the generality of the power conferred by subsection (13) above, regulations under that subsection may, in relation to any such reference, apply (with or without modifications) the provisions of any enactment relating to the references to the Competition Commission under the provisions of this Act, the Fair Trading Act 1973 (c.41) or the Competition Act 1998 (c.41).''.'.

Photo of Bill Wiggin Bill Wiggin Shadow Minister (Environment, Food and Rural Affairs)

It is essential to consider amendment No. 104 as well because amendment No. 103 relates to it. We are talking about the minimum value requirement. Amendment No. 103 refers to subsection (2A). That is inserted by amendment No. 104, which is intended to ensure that the total payment required of any company

''shall not be increased by more than the amount by which that company is permitted to increase its regulated prices under its appointment.''

We are just trying to ensure that the penalties are in line with the price increases that the company is

entitled to make itself. The point is quite technical, but I hope that the Minister can throw some light on this probing amendment.

New clause 5 is intended to add to the regulatory methodology and orders the authority to

''prepare and publish a statement of policy with respect to its determination of charges in periodic reviews''.

There is a whole debate to be had on water pricing. The hour is late, so at this stage I shall just probe the Minister about my initial amendments. I might have to return to the matter later this evening, if need be.

Photo of Elliot Morley Elliot Morley Minister of State (Environment and Agri-Environment), Department for Environment, Food and Rural Affairs

I understand that the intention behind new clause 5 is to give companies greater certainty by placing a duty on the authority to produce and consult on a statement of policy before the periodic review. To that extent, it is good practice and we do not disagree with that. Ofwat already produces a detailed methodology for the periodic review, which is open for consultation. However, the new clause goes beyond that and tries to set in concrete a process that the regulator must follow. It sets a rigid timetable for consulting on, and publishing the statement of policy before, the periodic review.

Other deadlines in the new clause greatly restrict the flexibility of the review procedure and its ability to develop over time. At some point, it may be desirable to change the process. The chief executive of Water UK said to the Institute of Water Officers in April that

''the Periodic Review is no longer fit for purpose and should be reformed or replaced with something more suited to modern needs.''

There is an argument about whether that is the right way forward. However, if we wanted to change the periodic review process, the new clause would prevent that because it puts in place a rigid structure. The new clause would also lengthen the recently shortened review process against the recommendations of the Environmental Audit Committee.

Although the change would provide extra powers for the water industry, it would do nothing for the consumer. Measures are already in place for the industry to appeal against price determinations through the Competition Commission. Any increase in the powers would risk shifting the delicate balance of interests against consumers. We must balance the interests of the industry and consumers.

We agree on the importance of best practice, but the new clause is an example of how writing it down in statute can work against those laudable aims. Amendments Nos. 103 and 104 are intended to tie the fees paid by each undertaker to each year's price limit as set by Ofwat in its periodic review. I understand the concern that regulatory bodies should not become a financial burden on the regulated companies, but safeguards to prevent that are already in place. The conditions of appointment already contain a cap on the level of fees payable to Ofwat and the regulator levies less than it is entitled to.

Paragraph 10 of schedule 2 gives the Secretary of State and the National Assembly the power to control the consumer council's budget. I can assure the hon. Gentleman that the Government are determined that

the CCW will be an efficient organisation—I know that will be its objective as well—and it will not be allowed to become a financial burden on the industry. We have recently let a consultancy contract to examine the internal and regional structure of the proposed new consumer council and that will help to ensure that the CCW combines effective use of its powers with an efficient operation. I hope that that deals with the hon. Gentleman's points.

Photo of Bill Wiggin Bill Wiggin Shadow Minister (Environment, Food and Rural Affairs)

The Minister dealt with the first two amendments extremely nicely, and I am grateful to him for that. However, new clause 5, which we are also considering, concerns the methodology. In his reply, the Minister did touch on what we are trying to achieve. We want to make the thinking of the regulatory authority very clear to companies before they digress. It is a cart and horse situation. We are trying to ensure that people know how the thinking will take place before they challenge it.

The long and complicated new clause is designed to do something fundamental and extremely important. I know that the Minister's Whip is rushing around pressing us on the question of timing. Like all Committee members, I seek to scrutinise the Bill properly. I feel that I am doing my best when I proceed through a new clause as long as this one as quickly as I have been. I am not seeking to press the matter to a vote, but I want the Minister to go away and consider the methodology argument.

When drafting the clause, we were looking for a clear steer on how a regulatory body will be thinking before it has to be tested. In the same way that hon. Members are not allowed to seek legal advice when putting together parliamentary questions, the new clause would mean one could avoid having to seek legal advice before one gets into hot water—to make an appalling pun for which I apologise. The new clause is important, and if the Minister will confirm that he will seek to advise on the best way to get the methodology over to the people to whom it applies, I would be grateful.

Photo of Elliot Morley Elliot Morley Minister of State (Environment and Agri-Environment), Department for Environment, Food and Rural Affairs

I can certainly assure the hon. Gentleman that the methodology is important. It is important that it is in the public domain and there is the opportunity for people to comment and consult on that. That is the Government's position, it is Ofwat's position and I am sure that it is the position of the consumer council as well. We have returned to the fact that the hon. Gentleman's new clause is very long and complex and therefore very restrictive. Ofwat already produces a detailed methodology on how it will carry forward the periodic review. It consults on that, as I mentioned, which therefore influences the regulator's thinking. I hope that that is adequate reassurance for the hon. Gentleman.

Photo of Bill Wiggin Bill Wiggin Shadow Minister (Environment, Food and Rural Affairs)

I am grateful to the Minister, and that is adequate reassurance at this stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 40 ordered to stand part of the Bill.