Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government, further to remarks by Baroness Hayman of Ullock on 29 January (HL Deb col 251), what is the breakdown of the £150 million in fines issued to water companies since 2015.
Answered by Baroness Hayman of Ullock - Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs)
The Environment Agency prosecutes Water and Sewerage Companies (and the courts hand down fines) for environmental offences under the Environmental Permitting Regulations and other offences including polluting discharges to water and land, breaches of environmental permit conditions and obstruction of investigations.
Below is a breakdown of the 150 million in fines issued to water companies since 2015, as mentioned in Baroness Hayman of Ullock’s remarks on 29 January.
Water and Sewerage Company | Sum of Total Fine (£) |
Anglian Water | £5,475,000.00 |
Northumbrian Water | £807,000.00 |
Severn Trent Water | £4,056,000.00 |
South West Water | £3,406,834.00 |
Southern Water | £92,024,000.00 |
Thames Water | £37,721,000.00 |
United Utilities Water | £2,816,000.00 |
Yorkshire Water | £4,678,750.00 |
Grand Total | £150,984,584.00 |
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government what estimate they have made of the cost of acquiring control of England’s water companies.
Answered by Baroness Hayman of Ullock - Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs)
The Government has no intention to nationalise water companies.
Nationalisation would put a huge burden on the public purse at a time when public finances are already stretched and would not fix the root of the problem.
If the whole industry was nationalised, shareholders and debt holders would need to be compensated, which could cost over an estimated £90 billion [this is based on Ofwat’s Regulatory Capital Value 2024 estimates]
Instead, this government is focused on tackling the public’s immediate concerns to clean up the nation’s polluted waterways and turn around the sector’s performance, focusing on improving the privatised regulated model.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government how Ofwat adjusted the regulatory capital value of each water company to take account of (1) capitalisation of interest payments, and repair and maintenance costs, and (2) intragroup debt and interest payments.
Answered by Baroness Hayman of Ullock - Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs)
The Regulatory Capital Value (RCV) of a water company represents the net stock of investment that has been contributed by debt and investors over time in delivering their investment activities. This is used by Ofwat for the purposes of setting its regulatory determinations.
Ofwat calculates an efficient totex (total expenditure) allowance for each company, covering operating, maintenance, and enhancement costs. Totex is funded in one of two ways; pay-as-you-go expenditure funded through revenue allowances, or long-term investment funded through the RCV and run-off from the RCV over time. Pay-as-you-go expenditure generally reflects forecast operational costs. Capital costs are generally added to the RCV, with the RCV run-off allowance providing companies with a funding allowance for carrying out activities such as maintenance.
As the RCV represents only the net stock of investment for delivering investment activities, it takes no account of intragroup debt and interest payments. Ofwat set the allowed return for companies on the basis of a notional capital structure which makes no assumption about the need for intragroup debt and interest payments. Where such arrangements exist, these arrangements are not funded in the determinations that are set by Ofwat and are matters for companies and their investors.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government why Ofwat did not use actual gearing levels of water companies in its calculation of weighted average cost of capital for the 2024 pricing review.
Answered by Baroness Hayman of Ullock - Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs)
In all of Ofwat's price determinations since privatisation, Ofwat has set the allowed return by reference to a notional capital structure. Ofwat uses a notional capital structure as it protects customers from bearing the risk of companies' actual financing decisions and it sets a signal to companies and investors on regulatory expectations about the allocation of risk within the capital structure. The use of the notional structure means it is companies and investors, rather than customers, that bear the risks of their capital and financing choices where the financing arrangements depart from the notional structure.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government what was the amount of fines paid by each of the water companies in each of the past five years.
Answered by Baroness Hayman of Ullock - Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs)
We will not let companies get away with illegal activity and where breaches are found, the regulators will not hesitate to hold companies to account.
The Water (Special Measures) Bill will provide the most significant increase in enforcement powers to the regulators in a decade, giving them the teeth they need to take tougher action against water companies in the next investment period, which is due to start in April this year.
Details of the enforcement action taken against water companies by regulators are available on the relevant regulator’s websites.
Enforcement action by Drinking Water Inspectorate can be found on the DWI website.
Enforcement action by Ofwat can be found on the Ofwat website.
Enforcement action by the Environment Agency can be found on the EA website.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government, further to the remarks by Baroness Hayman of Ullock on 23 July (HL Deb col 364) that nationalisation of water companies “would cost billions of pounds”, whether they plan to provide details of that calculation.
Answered by Baroness Hayman of Ullock - Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs)
The cost of nationalisation was calculated in a report published by the Social Market Foundation titled ‘The cost of nationalising the water industry in England’. The report estimated the costs of nationalising water companies would be £90 billion. This research draws on a range of existing academic studies, as well as publicly available data from Ofwat, the London Stock Exchange and the annual accounts of the water companies. The research can be viewed on the Social Market Foundation’s website www.smf.co.uk.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government whether water companies are required to have full and complete maps of their sewage network infrastructure, and if so how this is enforced.
Answered by Lord Douglas-Miller
Having a full and detailed map of sewerage assets is a vital part of understanding the network and identifying areas for improvements. Water companies are already required to map their assets under Section 199 of the Water Industry Act 1991. The section, and the requirement to map assets, is enforceable under powers laid out in Section 18 of the Act. Sewerage undertakers are not required to keep records of assets that were laid before 1 September 1989, but only if either:
1) the undertaker does not know of, or have reasonable grounds for suspecting, the existence of the drain, sewer or disposal main;
2) it is not reasonably practicable for the undertaker to discover the course of the drain, sewer or disposal main and it has not done so.
As part of the Environment Act 2021, a new duty has been created for sewerage undertakers in England to produce Drainage and Wastewater Management Plans (DWMPs). DWMPs set out how a sewerage undertaker intends to manage and improve their drainage and wastewater systems over the next 25 years. DWMPs will complement existing requirements to map the sewerage network, to facilitate a detailed understanding of the network and help ensure that drainage and wastewater services are better managed and properly supported, as well as delivering greater efficiencies for customers and supporting investment in nature-based solutions.
In addition, the Storm Overflows Discharge Reduction Plan sets out that the Government expects that water companies have maps of their sewer networks, to understand where properties with separate rainwater pipes are connected to their combined sewer network.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government what is their assessment of Ofwat giving water companies a return on capital invested based on an assumed level of equity even if they do not hold that level of assumed equity.
Answered by Lord Douglas-Miller
When providing company determinations, Ofwat set a sector wide allowed return, on the basis of the notional capital structure. The notional capital structure provides clear signals about the allocation of risk. It protects customers from bearing much of the risk of companies' actual financing decisions and provides strong incentives on companies to raise finance efficiently. This approach is consistent with other UK sectors that are subject to regulatory price controls and is recommended by the UK Regulators’ Network.
The actual achieved equity return for any company will depend on the company's unique actual capital structure and company performance. Considerations about the actual capital structure are matters for each company and its investors to manage, consistent with the clear allocation of risk and responsibility for a company's actual financing and capital structure.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government what plans they have made for the nationalisation of water companies.
Answered by Lord Douglas-Miller
Water companies are commercial entities. However, as you would expect, the Government prepares for a range of scenarios across its regulated industries – including water – as any government would.
The Defra Secretary of State and Ofwat (with consent of the Secretary of State) have the power to request the court to place a company in Special Administration Regime so that its business can either be rescued or transferred as a going concern to new owners.
Asked by: Lord Sikka (Labour - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government on how many occasions OFWAT has blocked or reduced dividend payments by water and sewage companies.
Answered by Lord Douglas-Miller
The Government is clear the overall performance of the water sector is unacceptable. That is why we have given Ofwat increased powers under the Environment Act to hold companies to account for poor performance and ensure dividends are linked to delivery for customers and the environment.
Furthermore, under the “Cash Lock-Up" licence condition, companies must not make a dividend payment where it would pose a risk to their financial resilience. We are confident Ofwat will not hesitate to act when a company has failed to meet these requirements.