Memorandum submitted by Ofwat (FL 111)
EXECUTIVE SUMMARY
1. Ofwat's role as the economic regulator
of the water and sewerage sector is to protect consumers, promote
value and safeguard the future. The recent floods have clearly
impacted consumers of both water and sewerage services, as well
as highlighting the importance of planning and investing in infrastructure
in the context of climate change.
2. First, looking at how the floods impacted
on consumers, we will review water and sewerage companies' role
and performance in managing the 2007 flood events. If we find
shortcomings we will take regulatory action where appropriate
and require companies to demonstrate what they are doing to rectify
the situation.
3. This review will look at three main areas:
— how sewerage companies managed the
extent of flooding given their responsibility for effectual drainage;
— how companies limited adverse impacts
on consumers or the environment in terms of water or sewerage
services; and
— companies' processes for reviewing
experience and identifying lessons for the future.
4. We will publish a report later this year
focusing on the issues that fall within our regulatory remit.
5. Second, we will take the lessons learnt
from our review and feed these into wider reviews, including this
one. We consider that the implications of these lessons for future
policy is of fundamental importance. And all parties must take
a consistent, evidence-based approach to the development of such
policy.
6. A key focus of these reviews must be
how to deliver more integrated and sustainable solutions to flooding,
having regard to climate change and weather patterns. While the
sewerage system may be part of this solution, to focus only on
upgraded sewers would be enormously expensive, will not stop all
future flooding events and would distract attention away from
other more sustainable methods of managing flood risks. Future
planning needs to be informed by proper cost benefit analysis
and requires a multi-agency response with wider thinking about
urban design, design standards and land use planning such as using
green spaces to receive flood waters.
7. Also, with a view to future planning,
the evidence around climate change and the impact this will have
on emergency planning, protecting assets and design standards
for sewerage assets must be carefully considered. We will, through
our review and our ongoing work, continue to ensure that our regulatory
policies promote proper long-term planning by water and sewerage
companies, including identifying best value priorities for adapting
to changes in flood risk arising from climate change.
INTRODUCTION
8. Ofwat (the Water Services Regulation
Authority) is the economic regulator of the water and sewerage
companies in England and Wales. The industry comprises 23 regional
and local monopoly companies. Ofwat has been in existence since
1989 and became a corporate body with a Board structure from 1
April 2006.
9. Our main duties are to protect the interests
of consumers, wherever appropriate by promoting effective competition,
and to enable efficient water and sewerage companies to carry
out and finance their functions. The price limits we set, every
five years, allow the companies to maintain water and sewerage
infrastructure, meet growth or changes in demand and reduce the
incidence of sewer flooding to properties from overloaded or damaged
sewers.
10. The companies' price limits enable them
to invest in maintaining and improving both the sewerage and water
networks; but we ensure consumers pay no more than necessary for
the service they receive. We set outputs, as part of the price
review, and monitor each company's performance. This includes
monitoring the long-term service capability (or "serviceability")
of each company's assets for water and sewerage, the number of
properties at risk of sewer flooding as well as customer service
measures. Where a company's performance is inadequate we require
it to take action to put it right.
11. Ofwat seeks to protect consumers, promote
value and safeguard the future. So as the economic regulator we
will review water and sewerage companies' role and performance
in managing the flood events. We will be working with companies,
and technical auditors, to review this to provide independent
oversight. If during our work we do find shortcomings we will
look to the companies to demonstrate that they have put this right
and consider other regulatory action.
BACKGROUND
12. The flooding events of this summer were
exceptional, with some areas seeing two months' worth of rainfall
in just 12 hours. They also highlighted the multiple agencies
responsible for drainage and for handling the response to extreme
weather events. Each sewerage company is largely responsible for
ensuring that its area is effectually drained. Consumers pay for
this through their sewerage bills. Each water company is responsible
for providing a water supply to its consumers. As part of its
responsibilities each company must have contingency plans to maintain
essential water supplies in all circumstances, even when the piped
water supply fails.
13. The floods brought disruption to many
people's lives. They followed exceptionally heavy rainfall onto
already saturated catchments, with Yorkshire, East Anglia and
the Midlands as some of the worst-affected areas. In some areas
the rainfall events would be expected to occur less frequently
than once every 150 years. Such events would far exceed the current
normal design standard for newly installed sewers at 1 in 30 year
return periods and the Environment Agency's 1 in 100 year return
period design standard for flood defences.
14. Flooding occurred because of a combination
of rivers overtopping their banks, sewer flooding and surface
water flows. Where rivers burst their banks, flood defences were
insufficient and storm drains submerged. Sewers could not relieve
this level of flooding. The precise sources of flooding and their
relative importance in different locations will reflect the complex
interactions between rivers, overland flows and drainage infrastructure
as well as the topography of specific water catchments.
15. Gloucestershire was one of the worst
affected areas with widespread flooding throughout the county.
Flooding of the Mythe water treatment works in Tewkesbury resulted
in water supplies being cut off for 140,000 properties in Gloucestershire.
Severn Trent Water implemented its emergency plan to maintain
drinking water supplies by deploying 1,200 bowsers and distributing
bottled water supplies while it restored the piped supply.
16. We need to understand the implications
of this summer's events for water and sewerage services. Building
a sewerage network that is robust to weather events of this magnitude
would be prohibitively expensive and could still not address flooding
from sea, rivers or overland flow into storm drains. We need to
understand whether the companies did all they could, and should
have done with the information and plans they had available. Perhaps
more fundamentally we need to review what we mean by extreme weather
events and what type of events we should plan for in the long
term.
OFWAT'S
FLOODING REVIEW
17. In the aftermath of these events it
is clear that service for many consumers was adversely affected,
as was the ability of water and sewerage companies to carry out
their functions. In view of our statutory duties to protect consumers'
interests, we are carrying out a review focusing specifically
on water and sewerage companies' role and performance. Our review
will look at three main areas:
— how sewerage companies managed the
extent of flooding given their responsibility for effectual drainage;
— how companies limited adverse impacts
on consumers or the environment in terms of water or sewerage
services; and
— companies' processes for reviewing
experience and identifying lessons for the future.
18. We will publish a report later this
year focusing on the issues that fall within our regulatory remit.
This will also feed into wider reviews and consideration of any
implications for future policy which we consider should be a key
focus for all players.
19. We believe it is premature to draw conclusions
on the recent events, or to make any assessment of the response
by individual companies. In addition to our own review, we will
review closely the work being done by individual companies to
understand the implications of the flooding events. We will also
liaise closely and feed into the Flooding Lessons Learned Review,
chaired by Sir Michael Pitt, and the Environment Agency's own
review work. We will take appropriate action on behalf of water
and sewerage consumers if necessary.
RESPONSIBILITY FOR
WATER AND
SEWERAGE INFRASTRUCTURE
Sewerage
20. Each sewerage company has a legal duty
to provide a sewerage system to ensure that its area is and continues
to be effectually drained. We enforce that duty.
21. However, sewerage companies are only
part of the picture in terms of responsibility for drainage infrastructure.
This can be complex and is shared between different organisations,
including water companies, local authorities, highways authorities
and the Environment Agency. This complexity reflects the different
types of drainage and the way they interact:
— Sewerage companies (which we regulate)
are responsible for the public sewers. In most cases these are
in roads or public open spaces but in certain circumstances they
may run through private land. Sewerage companies are legally
obliged to provide connections to the public sewer for foul and
surface water drainage from properties.
— The drains and any private sewers
which carry household waste are normally the householder's (or
the landlord's) responsibility. This applies whether they are
within the property boundary or beyond the property boundary and
up to the point they connect with the public sewers.
— Local authorities including highway
authorities are generally responsible for the drainage of surface
water from roads and public spaces and the operation of highway
drains.
— The Environment Agency has responsibility
for maintaining some water courses, and general supervisory duties
over all matters relating to flood defence.
22. The current practice is to design sewers
to handle a 1 in 30-year storm event. However, some older sewers
which still function well in general, may have been built to different
design standards. In addition, the demands now being placed on
the infrastructure may well have changed since they were commissioned,
because of further development and changes in the catchment. However,
even if the entire sewerage system were designed to a 1 in 30-year
standard it would not have been able to drain the stormwater associated
with the extreme rainfall events observed this summer.
23. Sewerage systems can become ineffective
when rivers are in flood, as sewer overflows are unable to discharge.
During extreme rainfall events, underground drainage systems
can fill up quickly. Once the drainage system is full to capacity,
then surface water flows cannot enter it. This backs up the entire
drainage system inundating low-lying areas. In these circumstances
the question is to how to manage "exceedance" of the
system, creating pathways for flows to direct floodwater away
from homes and properties.
Water
24. Each water company has a legal duty
to develop and maintain an efficient and economic system of water
supply within its area. We enforce that duty. Water companies
are also responsible for making sure that their assets are protected
to the right standard on the advice of the Environment Agency
for flooding and on the advice of the security services for protection
against security risks.
25. Under the Security and Emergency Measures
Direction 1998 (SEMD) water companies must have independently
certified plans in place to deal with any emergency, which are
produced by the companies under guidance from Defra. In the first
instance, water companies should try to maintain a piped water
supply to the requirements laid down in the Water Industry Act
1991 for as long as possible. In the event of the piped supply
failing they must provide at least 10 litres of water per person
per day to all those affected within the first 24 hours and maintain
the supply until the piped supply is restored.
THE CURRENT
INVESTMENT PROGRAMME
IN ENGLAND
AND WALES
Sewerage
26. When we last set price limits for all
companies in December 2004 we required water companies to invest
between 2005 and 2010:
— £1.25 billion in maintaining
their underground sewerage infrastructure assets (plus £3.8
billion for above-ground assets such as treatment works);
— £0.95 billion on improving their
underground sewerage infrastructure assets (plus £3.25 billion
for above-ground assets) to meet environmental standards;
— £679 million on their sewerage
assets to accommodate changes in demand and new development; and
— almost £1.2 billion, in total,
specifically on containing and reducing the risk of sewer flooding
incidents. This includes those parts of the investment in capital
maintenance and accommodating new development and growth (set
out above) targeted on reducing flooding.
All these costs are presented in 2006-07 prices.
27. The price limits should enable companies
to resolve or mitigate every high-risk, internal sewer flooding
problem caused by overloaded sewers identified in the companies'
plans where they propose to take action by 2010. This will help
some 9,200 householders whose homes could be at such a risk.
28. We assess each company's performance
every year. This includes looking at each company's ability to
maintain their asset systems over the long term ("serviceability")
each year. This year (2006-07), our assessment for sewerage service
assets, indicates some adverse trends for both above-ground and
underground assets. Six companies have adverse trends in sewer
collapses or pollution incidents and four companies report adverse
trends in compliance at sewage treatment works, albeit against
environmental standards that have become much tighter over the
past decade. We will be monitoring companies' performance closely
to ensure that they deliver for consumers and if companies fail
to improve by the time of our next price review in 2009 we will
make appropriate financial adjustments so that consumers are not
disadvantaged. As noted earlier the sewerage system could not
have stopped this year's floods. But we will review its performance
as part of our work with the companies.
29. We do not yet know what, if any, the
implications of the flooding will be for the investment on sewers
at the next price review in 2009. Companies will need to assess
future planning standards and the likely impacts of climate change
in developing their long-term plans. We will work with the companies,
the Environment Agency and others to take forward the lessons
that can be learnt from our own review and those of others.
Water
30. All companies are required to have contingency
plans in place to maintain clean supplies of water in the event
of emergencies affecting their ability to maintain piped supplied.
Each water company is responsible for its contingency plan. And
the plans are agreed with Defra. At the last price review in
2004 we assumed in price limits proposals to increase stocks of
mobile plant such as tankers, bowsers and works to protect key
sites offering good value for money.
THE RECOVERY
OPERATION
31. The floods that disabled the Mythe water
treatment works in Tewkesbury leaving consumers without a supply
of water across large parts of Gloucestershire were well publicised.
Following warnings from Severn Trent supplies began to be cut
off on 22 July. Meanwhile, Severn Trent implemented a recovery
operation to provide alternative water supplies. Bowsers provided
water for hygiene and sanitation and bottled water was provided
for drinking and cooking purposes. By the end of 24 July 140,000
properties were affected. After the flood waters receded, Severn
Trent put in place plans to restore the piped supply from the
treatment works. Supplies were restored incrementally as the necessary
drinking water quality standards were reached. Full supplies to
all properties (safe to drink) were restored on 7 August.
32. In Gloucestershire, Yorkshire, East
Anglia and elsewhere life has begun to return to some form of
normality, although in certain areas it will take much longer.
We are concerned for consumers and others and it is important
that lessons are learnt. This is why we will play our part by
carrying out our review and contributing to the review of others.
We will also ensure that the industry plays its fair and proper
part in learning lessons from these events and planning for future
events of this nature.
WHO WILL
PAY FOR
THE COSTS
OF THE
FLOODS?
33. Water and sewerage companies' consumers
should only pay the costs necessary to improve infrastructure
to maintain their water supply and adequate drainage of their
properties.
34. The companies cannot seek an increase
in consumers' bills to pay for the additional expenditure arising
from the response to, or recovery from, flooding events. The costs
of the floods for water companies will be met to a large extent
by companies' insurance policies. Any additional costs will be
met by the company, as a business risk. If however, at the next
price review, a company can justify the need to enhance its assets
or its contingency planning in anticipation of more frequent flooding
in future this additional cost would be borne by consumers.
35. Consumers affected by flooding in their
own homes will be able to claim on insurance for meeting the cost
of any damage from the floods. Most will not be entitled to compensation
from companies, even where their water supply was affected.
36. Under normal circumstances, consumers
of all water companies in England and Wales are protected by a
Guaranteed Standards Scheme (GSS). The GSS are minimum standards
of service established by Government. The GSS includes provisions
for the continuous supply of water for public consumption. These
are legally set standards of service. Where the level of service
provided to a consumer falls below the GSS, the company concerned
must make a payment in recognition of this. In the case of unplanned
interruptions to supply, the regulations state that the standards
do not apply where the interruption is caused by severe weather.
This summer's flooding represents such an event. Companies must
ensure that their infrastructure is robust to the challenges of
climate change. However, if we required companies to invest to
prevent failure in every eventuality the cost to consumers would
be huge. Therefore we believe that it is appropriate that the
GSS exemption remains and that the companies, with Defra, continue
to agree upon contingency plans under SEMD for exceptional weather
events.
37. The Consumer Council for Water and Severn
Trent have held a number of focus groups, in Gloucestershire,
to find out the views of people affected by the flooding. The
Consumer Council for Water reported in August that, rather than
compensation for individuals, consumers want companies to act
to protect their infrastructure against severe weather events
in the future. Severn Trent has donated £3.5 million as a
gesture of goodwill to communities affected by flooding in Gloucestershire
and Worcestershire. The company is also carrying out a full investigation
of the circumstances surrounding the inundation of its treatment
works. We will contribute to the company's investigation as appropriate.
PLANNING FOR
THE FUTURE
38. Flooding is a natural phenomenon, and
it will never be possible to prevent it entirely. There will
always be exceptional events that exceed the capacity of underground
sewerage systems, and other parts of our drainage or flood defence
infrastructure. Climate change may also increase the incidence
and intensity of storm events. This means that we need to keep
the emerging evidence on climate change under close review, and
indeed, we consider this to be a focal point for all of the reviews
under way.
39. Planning to protect and mitigate against
flooding is not just a matter for water and sewerage companies.
All of the agencies involved must examine the lessons from these
flood events for their own role (and assets), as well as the potential
impacts of climate change.
40. We expect companies to take a strategic
and proactive approach to the challenges they will face over the
next 25 years while recognising that investing to deal with storm
events that occur every 150 or 200 years would be unrealistic,
as well as enormously expensive to consumers. In the longer term,
bigger sewers are not the necessarily the answer.
41. Such long-term planning is crucial.
At our instigation each company is preparing, and will publish,
a 25-year strategic direction statement (SDS) by the end of 2007.
This is the first time such documents have been prepared and they
are intended to show us, and other stakeholders, how each company
plans to develop its business over the long term. This includes
how they plan to run their business more sustainably and how they
plan to tackle the challenges posed by climate change. Then, during
2008 and 2009 each company will develop a business plan which
is consistent with its SDS. We will use each company's SDS and
its business plan when we next set price limits for the period
2010-15 for all appointed companies in 2009. The SDS will provide
us with the longer-term context for companies' business plans
which we will review as part the price setting process. This will
enable us to set price limits that enable companies to deliver
for consumers both now and in the future including mitigating
against, and planning for the effects of, climate change for water
and sewerage.
42. A coherent approach to long-term planning
is essential. A rush to invest in upsizing sewerage assets, as
well as being enormously costly to build and maintain, would not
eliminate the risk of floods and indeed may not be the most sustainable
or cost beneficial way to tackle flooding problems. Future planning
needs to be informed by proper cost benefit analysis looking at
the full range of measures to handle flood risks. That is why
we believe the lessons learned from this summer's events should
be about how to deliver more integrated solutions to flooding.
The challenge for the industry is how it adapts in the long term
in a range of areas including planning for new development, promoting
more sustainable urban drainage systems (SUDs) and ensuring drainage
is planned in an integrated way. Much of the latest thinking in
urban drainage is around how to prevent water from entering the
sewerage system, and how to manage and retain surface flows so
that they do not result in flooding and damage homes and properties.
This requires a multi-agency response with wider thinking about
urban design, design standards and land use planning such as using
green spaces to receive flood waters.
43. The water industry also needs to examine
the evidence around climate change and the impact this will have
on storm return periods and planning standards for sewerage assets.
The industry needs to build a robust understanding of climate
change and the long-term implications for its assets. In our role
to protect consumers we will continue to ensure that our regulatory
policies promote proper long-term planning by water companies,
including identifying best value priorities for adapting to changes
in flood risk arising from climate change.
Ofwat
September 2007
| 
