Water Industry (Specified Infrastructure Projects) (English Undertakers) (Amendment) Regulations 2020 — House of Lords, 2020-06-08
Topic: Environment
Zac Goldsmith (Conservative, Centre-right): My Lords, the instrument before you is a simple amendment to the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013 to remove their sunsetting provision. This would allow the 2013 regulations to continue in force and be available as part of the regulatory framework of the water industry. Without this SI, the 2013 regulations would expire on 27 June 2020. As such, before I talk a little further about the Government’s reasons for bringing forward this amending SI, I will outline the purpose of the 2013 regulations As noble Lords will know, water and sewerage services in England are provided by companies also known as undertakers. The 2013 regulations were designed to help contain and minimise the risks associated with large or complex water or sewerage infrastructure projects, therefore helping to protect undertakers, their customers and UK taxpayers. Containing and minimising risks is likely to reduce the overall cost of borrowing for a given water undertaker and so ensure better value for money for that undertaker’s customers. It also makes sure that delivery of such infrastructure projects will not adversely impact on the existing water or sewerage services provided by undertakers The 2013 regulations enable the Secretary of State or Ofwat to specify by notice an infrastructure project where either is satisfied that two conditions have been met: first, that the infrastructure project is of a size or complexity that threatens an undertaker’s ability to provide services to its customers; and secondly, that specifying the project would likely result in better value for money than if the project was not so specified, taking into account charges to customers and any government financial assistance Once specified, an undertaker is required to put the infrastructure project out to tender and a separate Ofwat-regulated infrastructure provider is then designated to finance and deliver the project. Such infrastructure projects raise many complex issues, particularly around determining the cost of their financing, coupled with a construction risk that is far greater than that normally associated with an undertaker’s typical capital investment. Requiring an undertaker to tender competitively for an infrastructure provider for a large or complex project provides an objective means of testing whether the financing costs of such a project are appropriate and reasonable. Without that tendering process, competitively determining the cost of capital for this type of infrastructure project would not be possible. The ability to create Ofwat-regulated infrastructure providers also helps to ringfence their associated higher risks and should result in more effective risk management for these projects. Creating designated infrastructure providers in this way ensures that a large or complex infrastructure project will not affect the ability of an undertaker to provide its day-to-day services for customers and avoids any resultant extra costs that would ultimately be borne by those customers The amending SI was laid in Parliament following a post-implementation review of the 2013 regulations carried out in 2018. Eight key stakeholders were consulted, five of which—Ofwat, Thames Water, Bazalgette Tunnel Ltd, Bazalgette Tunnel Ltd investors and the Consumer Council for Water—submitted responses. The review found that the 2013 regulations had successfully fulfilled their policy objectives. Accordingly, the review recommended that the 2013 regulations’ sunsetting provision be removed In March 2020 we undertook a further, targeted consultation on our proposal to remove the sunsetting provision. Views were sought from Ofwat, Water UK, Thames Water, Bazalgette Tunnel Ltd, the Environment Agency, the Drinking Water Inspectorate and the Consumer Council for Water. Water companies were consulted via Water UK, and Bazalgette Tunnel Ltd was given the option to consult its investors. Four written responses were received from Ofwat, the Environment Agency, Thames Water and Affinity Water. All indicated that they were in favour of the amendment Currently the only project regulated under the 2013 regulations is the Thames tideway tunnel. However, Ofwat has identified four large or complex water infrastructure projects currently in development that may benefit from being specified in accordance with the 2013 regulations over the next 10 years. These are the south-east strategic reservoir at Abingdon, a joint project proposed by Thames Water and Affinity Water; the London effluent reuse scheme, a project proposed by Thames Water; south Lincolnshire reservoir, a joint project proposed by Anglian Water and Affinity Water; and the River Severn to River Thames transfer, a joint project proposed by Thames Water, Severn Trent Water and United Utilities. A decision would be made on a case-by-case basis at an appropriate time when schemes are brought forward as to whether the infrastructure projects could come within scope of the 2013 regulations The Government are committed to improving water supply resilience, as set out in our strategic policy statement to Ofwat and our 25-year environment plan. This ambition is made more challenging because of a growing population, increased water demand from agriculture and industry, and climate change. We also want to ensure that there is sufficient water left for the natural environment. Without any action, many areas of England will face water shortages by 2050 The starting point for action is to reduce water use by reducing leakage from the water distribution networks and reducing our personal consumption. However, even if leaks and personal consumption are reduced, we will continue to need new water resource infrastructure. In our Water Conservation Report, published in December 2018, we set out our progress to promote water conservation from 2015 onwards. We endorsed the industry’s existing commitment to a 50% reduction in leakage by 2050 and announced a consultation to enable us to set an ambitious target for personal water consumption. We consulted on measures to reduce personal water consumption, including supporting measures on amending building regulations, water efficiency labelling and smart metering. Most of these measures can be taken forward without the need for new primary legislation. We will publish a government position in late 2020. As I have said, alongside reducing leakage and reducing personal water consumption, new water resources infrastructure, including reservoirs and water transfers, is needed to provide a secure supply of water for future generations. In the current price review period, Ofwat has made £469 million available to nine water companies, to investigate and develop integrated strategic regional water resource solutions in order to be construction-ready by 2025. This work will be supported by the Environment Agency’s national framework for water resources, which was published in March 2020 In summary, the instrument before noble Lords enables the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013 to continue in force so that they can continue to be used in the future delivery of large or complex water or sewerage infrastructure projects. Such projects play an essential role in strengthening the future resilience of water resources in England. Retaining the 2013 regulations will help to reduce the associated financial risks of such projects and ensure that water undertakers can continue to deliver their existing water or sewerage services to customers and provide greater value for money. I beg to move.