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The Environment Bill — key points for water companies to be aware of

Part 5 of the Bill contains a number of provisions which relate to the water sector, some of which are of considerable significance.

The Environment Bill completed its passage through the House of Commons on 26 May 2021 and began its passage through the House of Lords on the same date, where it has now received its second reading (7 June 2021) and undergone committee stage (21 June to 14 July 2021), resulting in further revisions. 

Part 5 of the Bill contains a number of provisions that relate to the water sector, some of which are of considerable significance. This note outlines a number of the key issues that water and sewerage undertakers may wish to be particularly aware of.

Water resources management plans — joint proposals

Two or more water undertakers may be directed by the Secretary of State or the Welsh Ministers (as appropriate) to prepare and publish a joint proposal identifying measures that the undertakers may jointly take in order to improve the management and development of water resources. The duty to comply with a direction will be enforceable under section 18, i.e. by means of an enforcement order. Regulations may lay down the procedure for preparing and publishing a joint plan, and for the sharing of information between undertakers and with water supply licensees. Such collaborative regional planning will aim to consider the needs of all sectors of water users, including the environment, and will be welcomed by all stakeholder groups.

Drainage and sewerage management plans

Each sewerage undertaker will be required to prepare, publish and maintain a drainage and sewerage management plan.  A plan will be required to address the capacity and resilience of the undertaker’s drainage and sewerage systems, an assessment of future demands, environmental risks, and measures the undertaker plans to take including the timing thereof. Relevant environmental risks will include storm overflows and their impact on water quality (see also next section below). 

The definition of sewerage system in the Water Industry Act 1991 includes all relevant aspects of wastewater, including facilities to empty public sewers, wastewater treatment works and pumping stations. A drainage and sewerage management plan will therefore cover all relevant aspects of wastewater, including public sewers and wastewater treatment works.

A plan must be reviewed annually, and revised at least every five years. The intention is that the planning period is long-term, in the region of around 25 years. The proposal will place on a statutory footing drainage and wastewater planning to assess risks to sewerage networks and network capacity. 

Storm overflows

The Secretary of State will be required to prepare a plan, to be published before 1 September 2022, for reducing the frequency, duration and volume of discharges from storm overflows of sewerage undertakers wholly or mainly in England, aimed at reducing adverse impacts on the environment and public health.  The plan may include provisions for reducing the need for storm overflow discharges, treating sewage discharged, monitoring the quality of receiving watercourses, and obtaining information about the operation of storm overflows.

Three years after the publication of the plan, and thereafter every five years, the Secretary of State will be required to report to Parliament on progress made.

Sewerage undertakers in England will publish annual reports specifying the location of each storm overflow, the frequency, duration and (if available) volume of discharges in the period covered by the report, the receiving watercourse, and information on investigations and improvement works carried out.  The duty to report will be enforceable under section 18, and in addition, the risk of reputational damage will undoubtedly encourage strong performance.

Licence modifications

In relation to undertakers wholly or mainly in England, Ofwat will have the ability to modify the conditions of a company’s instrument of appointment, without needing the consent of that company.

In order to do so, Ofwat will be required to give notice of its intention and its reasons, the nature of the proposed modification, and the period for making representations (being at least 42 days). Having considered any representations made, and unless directed by the Secretary of State not to proceed, Ofwat may decide to proceed with the modification, publishing notice of its decision, the effect of the modification, and its commencement date. Ofwat may also make such incidental or consequential modifications as it considers necessary or expedient.

The remedy available to a company whose licence conditions Ofwat proposes to modify is to appeal to the Competition and Markets Authority. This right of appeal applies not only to the company concerned, but also to any other undertaker whose interests are materially affected by the modification, to a representative body of undertakers and licensees (e.g. Water UK), or the Consumer Council for Water.  CMA permission is required to bring an appeal. An appeal must be brought within 20 working days of publication of the decision appealed against.

The CMA has four months to determine an appeal (or five months in specified circumstances) but can allow an appeal only to the extent that it is satisfied that Ofwat failed to have regard or to give due weight to its duties and strategic priorities, or made its decision on the basis of an error of fact, that the modification would not achieve the effect stated by Ofwat, that Ofwat did not follow the prescribed procedure, or that Ofwat’s decision was wrong in law. In allowing an appeal, the CMA must quash Ofwat’s decision and/or remit the matter back to Ofwat for reconsideration. The CMA is required to make a costs order; the CMA’s costs will be payable by the unsuccessful party, and inter-party costs will normally follow the event.

The existing procedure in the Water Industry Act 1991 for modification of licence conditions by consent will continue to apply to undertakers wholly or mainly in Wales, but will cease to apply in England.

The explanatory notes to the Bill describe these provisions as modernising the process for modification of water and sewerage undertaker licence conditions by Ofwat to bring it in line with other utilities, and to strengthen Ofwat’s ability to improve water and sewerage undertakers’ operations. Notwithstanding such alignment with other utility sectors, the modification provisions may be seen as an unwelcome extension of Ofwat’s powers, reducing regulatory certainty.

Next steps

The Bill’s report stage in the House of Lords is scheduled to take place on 6, 8, 13 and 15 September 2021.

For further information on this Bill or to find out how we can assist you, contact our environmental lawyers. For guidance on the law relating to the water sector, contact our specialist water sector lawyers