The sun is out - and the Water Bill has arrived
The sun is shining and the last hosepipe bans have now been lifted, but the deluge of recent months makes July's draft Water Bill somewhat timely.
This potentially far-reaching piece of draft legislation has been introduced by Defra to Parliament for pre-legislative scrutiny. The government has indicated it expects the Bill to receive Royal Assent in 2014, with a likely target date for its main provisions of April 2017. Some way off, but the Bill is ambitious.
The backdrop to the Bill is a regulatory regime which essentially came about with privatization in the late 1980s. However, the industry structure reflects the geographical footprint of the former area water boards, which evolved alongside the smaller statutory water companies established by the Victorians.
Today, the bulk of production, distribution and retail water supply are handled on a regional basis by one of 21 local, privately owned water companies, appointed by regulator Ofwat.
Attempts were made to give water competition a kick start with limited reforms in 2003, designed to encourage new entrants and stimulate customer switching but only for the very largest business customers. However, the result of this has seen just seven new companies hold an Ofwat water supply licence - and of these, only one actually has a customer (from amongst 2,200 qualifying businesses able to switch).
These somewhat unsuccessful reforms have operated alongside an 'inset' regime which has been around for some time, whereby the developers of greenfield sites can choose an alternative to the local water company, but again take up has been very low.
So competition is in a sickly state - although that's not to say of course that the threat of competition hasn't encouraged the incumbents to keep their prices competitive for those largest customers.
The fundamental aim of the Bill is to modernise the water sector, by driving greater innovation, reducing red tape and giving consumers more choice. Headline measures will give businesses and public sector bodies a much bigger say in who supplies their water and sewerage services, with one of the objectives of greater competition being lower prices.
This will come as a welcome move for businesses now familiar with the idea of shopping around for electricity and gas - although the changes will only apply in England (the Welsh government is doing its own thing).
Indeed, the government hopes that opening up the water market and allowing greater 'customer switching' could save the economy £2 billion over 30 years. The Scottish model, which has already undergone similar reforms, looks set to deliver around £20m of savings for the public sector alone over the next three years.
At the moment, with a few exceptions, only business consumers that use very large volumes of water can choose their supplier, and even then the process of switching is tortuous. The qualifying annual consumption threshold was actually reduced from 50 million litres to 5 million litres back in December, but the Bill will abolish the threshold altogether. However, it stops short of extending freedom of choice to domestic consumers, which is perhaps not surprising given the complexity of the task.
Nonetheless, this means around 1.2 million businesses and public sector bodies will have the freedom to shop around for their water and sewerage services for the first time - good news for procurement managers. Indeed, potential costs savings of up to £80,000 per year have been suggested for multi-site companies.
And for such consumers with sites up and down the country, such as retail and hotel chains, the idea of a single nationwide water and sewerage bill will be attractive.
Aside from introducing more freedom of choice for customers, the Bill also seeks to tempt more suppliers to the market. The process for new entrants will be simplified, with more supply chain options for newcomers and a new set of governance rules in the form of market 'codes' (akin to the gas and electricity sectors).
Some of the reductions in red tape, including streamlining the charging structure, will also be a welcome boost to developers. The 'one stop shop' environmental permitting regime will also expand beyond pollution prevention to include water abstraction and impounding licences, flood defence consents and fish pass approvals.
Other beneficiaries of the changes will be those water companies which are most efficient and charge the lowest bills, who will be well placed to respond as market competition takes hold.
We may also see upstream consolidation, with water companies expanding their focus of investment out of their regions. Whilst a national water grid is probably unfeasible, it is sensible to see greater interconnection between regional networks so that water can be moved more easily around the country to manage local supply constraints.
But with the problems of water scarcity in some parts of the country and an underlying scenario of climate change, does the Bill do enough to encourage demand management? Take metering for example. In the gas and electricity sectors, a compulsory roll-out of smart meters across all households is set to be complete by 2019. In contrast, many water consumers remain unmetered, and whilst the Bill contains some measures to manage the demand from businesses more effectively, it stops short of compulsory meter installation.
Whilst it is admittedly very difficult to keep a balanced perspective when the country has just emerged from months of relentless rain and some terrible floods, the headline facts are a current global population of 7 billion, with another 2 billion expected to join us by 2050. That will place an incredible strain on the world's natural resources, including water.
We're not immune to a changing climate here in the UK, and a longer term view is required. A change in behaviour at consumer level must surely be a part of the thinking. The Bill contains many welcome measures, and greater competition in the sector is undoubtedly a good thing, but I worry that, for all its ambition, it may not quite be ambitious enough.