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Water Industry (Specified Infrastructure Projects) (English Undertakers) (Amendment) Regulations 2014

Volume 757: debated on Tuesday 9 December 2014

Motion to Consider

Moved by

That the Grand Committee do consider the Water Industry (Specified Infrastructure Projects) (English Undertakers) (Amendment) Regulations 2014.

Relevant document: 14th Report from the Joint Committee on Statutory Instruments

My Lords, these draft amendment regulations before the Committee today will amend the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013. The SIP regulations, as they are known, concern the provision of large or complex infrastructure for the use of water or sewerage undertakers.

The main purpose behind these amendments is to give Ofwat the power to include conditions in an infrastructure provider’s project licence that allow for matters or questions to be referred to the Competition and Markets Authority for determination. This will give infrastructure providers the same right as water and sewerage undertakers to require Ofwat to refer its price control decisions to the CMA.

Extending Ofwat’s power to include such conditions will ensure that any potential future disputes between the Water Services Regulation Authority—Ofwat—and an infrastructure provider are resolved promptly. That should minimise the time-related costs of such disputes, which are ultimately met by customers, and will help to keep water and sewerage bills as low as possible.

The SIP regulations came into force in June last year and implement Part 2A of the Water Industry Act 1991. They give the Secretary of State and Ofwat the power to specify, by notice, large or complex water or sewerage infrastructure projects in certain circumstances: in particular, where the specification of the project is considered likely to deliver better value for money for taxpayers and customers.

Once specified, the relevant undertaker has to procure competitively a separate infrastructure provider to finance and deliver the project. After the successful bidder is designated as “the infrastructure provider”, Ofwat may then grant it a project licence, regulating it under a bespoke regime set out in the SIP regulations. A separate Ofwat-regulated infrastructure provider provides an objective means of testing whether the financing costs of a project are appropriate and reasonable, and allows the Government to target any financial support more effectively.

Following public consultation, the Secretary of State specified the Thames tideway tunnel project as an infrastructure project on 4 June this year. Thames Water Utilities Limited, as the incumbent undertaker, subsequently put the delivery and financing of the bulk of the tunnel works out to tender on 10 June. The tendering process is under way and expected to conclude in the summer of next year. This is the first and currently the only infrastructure project to be specified under the SIP regulations.

The proposed amendments would bring Ofwat’s powers relating to licensed infrastructure providers into line with those which already apply under the Water Industry Act 1991 as regard English water and sewerage undertakers. They would allow Ofwat to include certain conditions in an infrastructure provider’s project licence, giving the infrastructure provider the right to ask Ofwat to refer certain questions relating to its project licence to the CMA for determination. The proposed amendments would give an infrastructure provider the same right that water and sewerage companies already have to require Ofwat to refer its price control decisions, such as on interim determination of price limits or an increase in allowed revenue, to the CMA.

Without the proposed amendments, the only way for an infrastructure provider to challenge Ofwat price control decisions would be to seek judicial review on a point of law before the High Court. This is a time-consuming and expensive process, the costs of which are ultimately met by customers.

The statutory consultation on the draft regulations ran for six weeks, between 28 July and 8 September 2014. Its purpose was to inform those who represent interests likely to be affected by the regulations. The consultation was based on the GOV.UK website, and it was open to members of the public to submit their comments. Invitations for comments were also issued by e-mail to 324 interested organisations and individuals, including the CMA, Ofwat, the English water and sewerage undertakers, the Consumer Council for Water, Members of Parliament in London and the Thames Water region, members of the Greater London Assembly, and the Mayor of London. Five responses were received and a summary was published on the GOV.UK website last month.

We have noted the range of views and comments received on the proposed amending regulations and those relating more generally to the Thames tideway tunnel project. As a result, we have adopted some drafting points raised during that consultation in the amending regulations and are proceeding with the draft regulations. I commend them to the Committee.

My Lords, these are the regulations we have all been waiting for. I thank the Minister for his introduction to the instrument before the Committee concerning the amendments to the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013.

From this side of the Committee, we support these changes to the SIP regulations. As the Minister has explained, their purpose is to bring Ofwat’s powers to include conditions in an infrastructure provider’s project licence into line with those which exist for a water or sewerage undertaker. With this inclusion, Ofwat is able to refer any disputes over price determinations to the Competition and Markets Authority on request by the licensed IP, in the same way that a water or sewerage undertaker already can. In the absence of such conditions, as the Minister said, the only route of challenge against an Ofwat determination would be by an application for judicial review on a point of law—a costly and time-consuming activity.

The SIP amendment regulations concern infrastructure providers in their activity of financing and delivering large and complex projects, most notably the Thames tideway tunnel. The SIP regulations are entirely sensible. The public consultation recently undertaken produced the five responses to which the noble Lord referred. The purpose of the consultation was not to review the merits of the tunnel but to consider amendments to the SIP regulations. Although most of the points raised were on aspects of the tunnel project itself, and not relevant to the consultation, nevertheless the respondents were supportive of the draft SIP amendment regulations on the grounds that the availability of an appeal route in common with other water industry companies will help lower perceptions of project risk and keep the cost of procuring a proposed IP as low as possible. It would so remove a distinct disincentive to invest and enable any potential future disputes to be resolved promptly.

I am sure that the use of the CMA to adjudicate will be helpful in convincing consumers that the decisions reached have their best interests at heart. The removal of an unnecessarily burdensome process for the appeals should also help to deliver lower costs for consumers. I see no reason to delay further the Committee’s agreement to these regulations.

Motion agreed.