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The Water Act 2014 received Royal Assent on 14 May 2014. It is the culmination of several years of drafting and consultation which began with the 2011 Water White Paper - “Water for Life”. The purpose of the Act, according to Defra, is to “reform the water industry to make it more innovative and responsive to customers and to increase the resilience of water supplies to natural hazards such as drought and floods”.

New measures

The main measures for the water sector summarised by Defra, include:

  • enabling all business, charity and public sector customers in England to switch their water and sewerage supplier
  • establishing a cross-border arrangement with Scotland
  • enabling businesses to provide new sources of water or sewerage treatment services
  • developing a national water supply network by making it easier for water companies to buy and sell water from each other
  • enabling owners of small-scale water storage to sell excess water into the public supply
  • enabling ministers to set the level to which a water company needs to plan to cope with droughts
  • enabling developers and new water or sewage companies to connect new building developments to the water mains and sewerage system
  • improving the regulations relating to merger of water sewage undertakers
  • providing Ofwat a new over-arching duty to take greater account of long-term resilience and changes to improve Ofwat’s regulation of the water industry

The Act is also advertised by Defra as:

  • providing measures to restore the sustainable abstraction of water
  • improving the way water resource management and drought planning are managed
  • providing powers to streamline the environmental permitting framework which enables operators to apply for a single rather than multiple permits with the inclusion of licensing schemes for water abstraction and impounding, fish passes and flood defence consents
  • encouraging the use of Sustainable Drainage Systems (SuDS) by clarifying that building and maintenance of SuDS can be a function of sewerage undertakers
  • reducing the bureaucracy relating to the governance of Internal Drainage Boards
  • transferring the responsibility for maintaining main river maps to the Environment Agency and the Natural Resources Body for Wales

Increased competition

The Water Act’s primary function is to increase competition within the water industry – where there is presently little competition and water and sewage companies source and supply water on a mostly regional basis. The Act also introduces a new “resilience” duty for Ofwat.

The Act makes the model for retail and supply similar to that of other utilities by not only increasing competition in the retail side of the water industry – but also crucially allowing competition in the “upstream” market which includes sewage treatment and, crucially, “abstraction” of water. To facilitate this, Part I of the Act provides for the opening-up of the market to non-water companies to allow all abstractors – including industrial and agricultural abstractors - to sell their water or transfer their licences more easily to existing water companies.  The Act also allows for trading of bulk water supplies between water companies through standardised agreements which will be overseen by the regulator – Ofwat.

No compensation for revocation/variation of abstraction licences

The Act expressly ends the right for water companies to be compensated where an abstraction licence has been varied or revoked where it is deemed to cause environmental damage. This had been seen as a deterrent on the Environment Agency acting to remove licences where it is perceived that the abstraction is having a detrimental effect on the ecology of a river. Section  58 of the new Act withdraws compensation for “undertakers” by repealing part of the Water Resources Act 1991. The way in which this new arrangement will work is that the cost of the investment needed to allow the revocation or variation to go ahead will need to be borne ultimately by the consumer – subject to the oversight of Ofwat – through the periodic review process.

Concerns for campaigners

There has been some disappointment from campaigners that the politically difficult issue of  universal metering has been side-stepped. There are no provisions to deal with this in the Act, leaving section 144B Water Industry Act 1991 in place, restricting water undertakers from charging by volume (i.e. metering) except in narrow circumstances

The opening up of the market has been seen as potentially beneficial by some NGOs and the industry in the sense that competition can lead to greater innovation and efficiencies which could mean less water abstracted or encouraging switching sources in some rivers -  where water is scarce - to other more plentiful supplies across England and Wales. However, there remain serious concerns that the  abstraction regime has not be dealt with fully in the Act.

Abstraction and pressures on water bodies

In the words of the environmental coalition - Blueprint for Water – the abstraction regime is “fundamentally broken”. The use of unused capacity in existing licences for abstraction, where a catchment is already under considerable pressure due to over-abstraction, could cause a jump in the volume of water removed, exacerbating damage to aquatic ecology.

However, the Government has compromised to some extent by including in the new Act commitments to future change to abstraction licensing and some safeguards to require a degree of consultation with the Environment Agency and Natural Resources Wales, for example, before parties enter into bulk-supply agreements.

A further Water Bill has been promised in the next Parliament to reform abstraction licensing itself and to this end, section 57 of the Act requires the Secretary of State to prepare a report setting out progress made in reforming the arrangements for managing water abstraction in England and to  lay before Parliament a copy of the report before the end of the period of five years beginning with the day on which this Act is passed, i.e. by 2019.

However, the water companies, farmers and energy providers are already expressing concern over the Defra’s suggestions for change in the abstraction regime. Defra has put forward two options which both include the lowering of abstraction in catchments if water levels drop below a regulatory minimum. Whilst these proposals may be advantageous for rivers – they may be restrictive economically.

Abstraction status quo

Until proper reform of abstraction is delivered, there will remain doubts over the ability of DEFRA, the Environment Agency and Natural Resources Wales to protect to the aquatic environment, particularly in times of water shortage.

In the meantime, protection of the aquatic environment will be left down to a set of overlapping processes and drivers, including Catchment Abstraction Management Strategies (CAMS), the 6 yearly assessment of catchment- level abstraction - and the Restoring Sustainable Abstraction programme (RSA), which is designed to identify, investigate and prioritise protected sites which are being damaged by abstraction. Where a river or other water body is designated or protected as a Special Area of Conservation (SAC), the Habitats Directive requires action by 2015 to restore aquatic habitats to the correct level. . 

Water companies are also required to produce Water Resource Management Plans to identify the volume of water needed to meet a forecasted demand level over a 25 year period. If the volumes of water currently available to the water company do not meet the predicted demand, taking into account natural variability of rainfall and demand, then they will need to propose solutions to restore the balance between supply and demand. 

Most important of all, the UK has obligations under the Water Framework Directive, subject to a exceptions and loopholes built into the Directive, for its water bodies to reach good ecological status or good ecological potential by 2015. River Basin Management Plans developed under the WFD are designed to identify the changes required and will influence how abstraction will be planned on a river basin scale.

It remains to be seen how the tension between demand on the one hand and protection of rivers on the other will play out. The reform of abstraction has been left for future debate and it remains to be seen if the new regime will finally provide sufficient protection for rivers and lakes.

This article was written by Justin Neal, one of our environmental law experts. It was originally published in Environmental Law Monthly in June 2014 and is reproduced here with their permission.

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