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UNISON Scotland Response

Managing Change in the Water Industry

A Consultation Paper


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.


2.1 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.


3.1 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.


4.1 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.



5.1 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.


6.1 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.


7.1 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.


8.1 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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