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UNISON Scotland Response
Managing Change in the Water Industry
A Consultation Paper
1. INTRODUCTION
1.1 This paper constitutes a response from UNISON Scotland
to the Scottish Executive consultation paper Managing Change
in the Water Industry. UNISON is the largest trade union
in the Scottish water industry.
1.2 The provision of effective water and sewerage services
are the hallmark of a civilised nation. The three publicly
owned Scottish water authorities serve nearly five million
customers and have a combined turnover exceeding £600m.
They are also important employers, often in remote rural
communities, employing some 6500 staff.
2. POLICY OBJECTIVES
2.1 The Scottish Executive's stated objective is to
safeguard the benefits of Scotland's water and sewerage
systems. These benefits include lower charges and accessibility
which help promote social inclusion, maintain public health,
protect the environment and underpin economic development.
2.2 UNISON supports this objective. However, the Executive
then claims that these benefits can be safeguarded through
competition. No evidence is produced to support this view.
In our view there is substantial evidence both in the privatised
water industry in England and Wales and in other privatised
utilities that competition for essential public services
does not safeguard the benefits currently provided by Scotland's
water and sewerage services. Even on charges recent research
prepared by Sussex University concluded that gas and electricity
privatisation has not benefited consumers and had little
impact on the price of energy.
2.3 The Executive claims to remain firmly committed to
the authorities remaining within the public sector. To staff
working in the industry this commitment rings somewhat hollow
when they see the gradual privatisation of the industry
through the Private Finance Initiative. The very same English
water companies which the Executive wants to see water authorities
"competing fairly and successfully with”, have
already been awarded significant new water and waste water
facilities in Scotland.. When Scotland voted overwhelmingly
against the last government's privatisation plans they
did not expect a Labour government to promote privatisation
through PFI.
2.4 UNISON Scotland believes that the Scottish Executive
should explicitly recognise that competition will undermine
the benefits of the current system. New entrants will inevitably
seek to ‘cherry pick' the most profitable customers
leaving poorer domestic customers and the taxpayer to pick
up the bill for last resort supply.
2.5 We of course recognise that Scotland has to operate
within the EU competition regime as reflected in the Westminster
Parliament's Competition Act 1998. However, that does
not preclude the Scottish Executive in partnership with
the UK Government, recognising the damage competition could
do to Scotland's water services and therefore adopting
a policy objective to minimise the impact of the competition
regime. Other EU nations, most notably France, have taken
just such a stance over key industries including energy.
2.6 Within the Competition Act there are provisions which
would allow for the exclusion of competition from water
and sewerage services in Scotland, either in perpetuity
or for a protected period. In particular, certain of the
general exclusions set out in Schedule 3 could apply to
these services. We would argue that Scotland's water
authorities are "an undertaking entrusted with the
operation of services of general economic interest”
(para 4). In the alternative it could be argued that "there
are exceptional and compelling reasons of public policy”
(para 7) for excluding the prohibitions in the act. Even
without a general exclusion there are measures which the
Scottish Executive could take to protect these services.
2.7 UNISON Scotland believes that the legal means exist
to safeguard Scotland's water. What appears to be missing
is the political will to recognise that competition is not
the appropriate way forward. We would urge the Scottish
Executive to adopt policy objectives which recognise this.
3. THE SCOPE FOR DEVELOPMENT OF COMPETITION IN THE WATER
INDUSTRY
3.1 It will be apparent from our submission above that
UNISON Scotland does not believe there is scope for the
further development of competition in the water industry.
The consultation paper gives insufficient recognition of
the current freedoms to provide water and sewerage without
risking the integrity of the network or undermining the
service to the vast majority of consumers.
3.2 UNISON believes that very few capital assets of water
authorities should be defined as ‘essential facilities'.
The onus should be placed on new entrants to justify a claim
that a particular asset is an essential facility.
3.3 When considering access to ‘essential facilities'
consideration needs to be given to the capacity of the system.
This is particularly the case when providing for new developments.
Water authorities must be able to specify capacity limitations
on any access.
3.4 We do not believe that any changes are required to
the regulations on private water supplies and private discharges
at present. The highest standards should be applied to off-network
services and these will need to be reviewed regularly if
there is an increase in this type of provision.
4. A NEW STATUTORY FRAMEWORK
4.1 If the Scottish Executive decides to support the introduction
of competition there will need to be a robust statutory
framework to protect the integrity of the current water
and sewerage system.
4.2 The licensing regime should do more than establish
"basic requirements” for all new operators. The
highest standards must apply to new operators from the outset.
4.3 If competition is introduced UNISON Scotland supports
the gradual introduction of licences. However, this should
not be done on the basis of a small number of high value
customers first. This approach would simply encourage ‘cherry-picking'.
4.4 New entrants must be charged the full economic cost
of access to each part of the network. This charge should
be based on a full share of the total cost of providing
the asset, not the marginal cost. This may vary in different
parts of Scotland and therefore we can see no basis for
a common access charge.
4.5 The licensing regime must ensure that new entrants
have to meet the cost or provide treatment facilities for
wastewater they put into the system. In addition to the
highest regulatory standards there should be a requirement
for performance bonds to underpin a system of penalty and
compensation payments. The new entrant should also meet
all the administrative costs incurred by the water authorities
in dealing with each application.
4.6 Criminal liability for contamination clearly has to
be extended to new entrants and this should be at Director
level. The contract for access has to ensure that the strictest
practicable arrangements are in place to identify the source
of contamination. Public safety is the first priority -
not making effective competition possible. Water authorities
will require full powers to cut off supplies when they believe
it is necessary to safeguard the system. New entrants will
also have to meet water authority costs for sampling their
water.
4.7 The water authorities will have to be responsible for
managing a comprehensive access code to ensure that there
is adequate supply. This code should cover all possible
situations including seasonal demands, bursts, drought provision
etc. There will have to be physical systems in place to
isolate new entrants supply and provision for ‘last
resort' supply. All the costs associated with these
systems should be met by the new entrants not by existing
water authority customers including emergency supply and
clean up costs. The costs of introducing competition should
fall on those who wish to compete.
4.8 The charging arrangements must discourage ‘cherry
picking' and ensure that the vast majority of households
do not have to meet the additional costs of introducing
competition. The costs imposed on new entrants should be
a full share of the total cost, not the marginal costs.
We are not convinced that the structure of distribution
charges in the electricity industry is a sound basis for
the water industry. There are real differences in the physical
and technical systems needed to move water through the networks.
4.9 The introduction of new entrants could lead to a wider
application of metering as suppliers seek to cherry pick
areas to supply. This brings the prospect of self disconnection
to Scotland for the first time with the obvious consequences
for low income users and public health. UNISON Scotland
believes such an approach is incompatible with the Scottish
Executive's commitment to social inclusion. Every consumer
should have the right to have their water supplied without
a meter in addition to the no disconnection provisions.
4.10 The arrangements in place in other utilities for disadvantaged
customers are generally very limited. Arrangements in the
Scottish water industry should go much further than this
and we welcome the Scottish Executive's forthcoming
consultation paper on this issue. All new entrants must
be required to participate in arrangements for protecting
disadvantaged consumers.
5. THE ROLES OF THE WATER INDUSTRY COMMISSIONER AND
THE DRINKING WATER QUALITY REGULATOR
5.1 UNISON Scotland supports the extension of the Water
Industry Commissioner's remit to the customers of all
licensed undertakers and as administrator of the licensing
regime, subject to binding advice from the environmental
regulators. Changes to the licensing regime should always
be subject to public consultation.
5.2 We would not support the establishment of the Water
Commissioner as a statutory regulator because of the powers
of the Scottish Executive to set charges etc. However, we
do believe that there is merit in considering some method
of devolving the powers of DGFT to Scotland. Our experience
of other utility regulators is that they rarely pay more
than lip service to the special needs of Scotland and quickly
seek to establish common UK systems. A good example of this
is the current Ofgem proposals for Scottish Electricity
Trading Arrangements (SETA).
5.3 The London based DGFT with sole jurisdiction is unlikely
to understand or reflect the needs of Scotland. Simply requiring
them to take advice from the Commissioner is unlikely to
be strong enough. One of the major difficulties with the
other utility regulators is their limited remit and their
interpretation of customer interest. This is generally short
term and takes little or no account of the wider economic
interest or any account of the social or employment consequences
of their decisions. UNISON Scotland would therefore support
the devolution of these functions to a department of the
Scottish Executive.
5.4 UNISON Scotland supports the introduction of wider
statutory powers for drinking water inspection. We also
believe there is a case for transferring these powers, with
the necessary resources to SEPA.
6. SUPPORTING THE WATER AUTHORITIES
6.1 UNISON Scotland supports greater flexibility in the
rules for establishing joint ventures although the criteria
should be robust enough to ensure that the public sector
model is not undermined. The primary purpose of such joint
ventures should be to bring in specialist expertise to develop
new forms of service, not to provide private finance or
to encorage further ‘back door' privatisation.
6.2 UNISON Scotland does not support the creation of Public
Private Partnerships. They are unnecessary due to the current
state of public finances and have resulted in significant
additional costs to the Scottish taxpayer. As we indicated
above they have been used to partially privatise the Scottish
water industry contrary to the stated will of the Scottish
people. We would support a relaxation of the borrowing rules
to enable water authorities to obtain conventional finance
for capital projects.
6.3 On the role and structure of boards we remain to be
convinced that the NHS Trust model has been such a success
that it can be copied into the Scottish water industry.
There have been major difficulties in achieving accountability
and management time has been diverted from the essential
functions of managing the key departments. It is in our
view essential to retain accountability through democratically
elected representatives.
7. LONG TERM ISSUES
7.1 The consultation paper suggests that the authorities
need a period of stability to address the major competition
issues and therefore the Executive would prefer not to undertake
a radical restructuring at this time. UNISON Scotland supports
this view although we recognise that if the Scottish Executive
allows competition into the industry structural change is
inevitable.
7.2 In a competitive environment Scotland's water
authorities are too small to compete effectively. Even one
combined Scottish Water Authority would be small compared
with the average English private water company and their
multinational backers. These companies have the financial
muscle to pick off and close down large parts of the Scottish
water industry with long term costs falling on the Scottish
taxpayer.
7.3 UNISON therefore believes these issues need greater
consideration than has been provided for in this consultation
paper. They should therefore be the subject of further consultation.
In the meantime the Scottish Executive should promote greater
collaboration between the three Scottish water authorities.
7.4 The Scottish Executive should also ensure that Scotland's
water authorities operate on a level financial playing field
with their privatised counterparts in England. This requires
the cancellation of debt as happened south of the border
at the time of privatisation.
7.5 A major omission in the consultation paper is any mention
of staff working in the Scottish water industry. They have
an important role in delivering high quality water and sewerage
systems and this role has received little or no consideration
in these proposals.
8. CONCLUSION
8.1 UNISON Scotland believes that the policy objective
of safeguarding Scotland's water and sewerage systems
will not be achieved through competition. We would therefore
urge the Scottish Executive to reject this approach.
8.2 If the Scottish Executive chooses to put Scotland's
water and sewerage systems at risk by supporting competition,
then these risks can at least be minimised by a comprehensive
regulatory framework. The cost of this framework to be met
by those who wish to compete - not the Scottish taxpayer.
Dave Watson
Scottish Organiser (Utilities)
August 2000
UNISON House, 14 West Campbell Street, Glasgow G2 6RX.
Tel: 0141 332 0006 e.mail: d.watson@unison.co.uk
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