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Draft Water Services (Scotland) Bill
UNISON Scotland's response to Scottish Executive Consultation
on Proposed Provisions for the Water Services (Scotland) Bill
- UNISON is the largest trade union in the Scottish Water industry.
- UNISON rejects the view that competition in essential utilities
brings benefits to consumers. We believe that the Scottish Executive
approach to the Competition Act should be based on the general
exclusions as set out in Schedule 3 of that statute.
- UNISON supports the prohibition on common carriage in the draft
bill. We have previously highlighted the technical problems, environmental
and public health consequences of allowing even regulated access
to the water and wastewater systems.
- UNISON also supports the prohibition on retail competition for
households. The loss of charging based on ability to pay and the
inevitable ‘cherry-picking' of high-banded customers negates even
the alleged benefits of competition.
- UNISON does not support licensed non-household competition.
Business separation, billing, marketing and the associated bureaucracy
will place a further burden on the hard pressed water charge payer
for little benefit. Smaller high street businesses will be disadvantaged
as the out of town and larger businesses become the focus of competition.
- Unlike the privatised utilities the water industry does not
have the regulatory infrastructure to operate a competitive framework.
To introduce such an infrastructure would divert resources from
improving the physical networks to bureaucratic information systems.
- UNISON believes that Scottish Water needs a period of stability
to focus on the key tasks of updating Scotland's ageing infrastructure.
Business separation in particular is an unwelcome disruption that
benefits no one other than the signwriters.
- The introduction of limited competition is a further step on
the road to the full privatisation of Scotland's water.
UNISON is Scotland's largest trade union representing
over 150,000 members working in the public sector. As the largest
trade union in the Scottish water industry, UNISON members are both
providers and users of water in Scotland. UNISON Scotland welcomes
the opportunity to comment on the Scottish Executive's consultation
on proposed provisions for the Water Services (Scotland) Bill. This
response needs to be seen in the context of our previous submissions
to recent Scottish Executive consultations on the water industry.
The Draft Bill
This is the latest of a number of legislative developments
affecting the water and sewage industry in Scotland including the
establishment of a public water corporation, Scottish Water
and a revised regulatory framework. This bill focuses on the development
of competition in networked water and sewage. Competition already
exists in off-network services.
The driver for this legislation is the UK Parliament's
Competition Act 1998 that seeks to prevent the restriction or distortion
of competition and the abuse of a dominant market position. UNISON
Scotland water briefings have previously highlighted the danger
of this ill thought out legislation for essential public services.
In essence the draft Water Services (S) Bill seeks to implement
the provisions of the Competition Act whilst minimising the adverse
impact on Scotland. It should however, remind the Scottish Parliament
to be vigilant about other international competition initiatives
that impact on public services. In particular, reforms of the EU
internal market and GATS.
The draft Bill seeks to create a structure that
balances the alleged benefits of competition with the obvious risks
to what is an essential public service. The Executive is therefore
proposing the following:
- Prohibiting common carriage on the public networks. In
response to previous consultations UNISON highlighted the technical
difficulties in allowing third party access to the water and sewage
networks. In addition we pointed to the risk to public health
through contamination and interruption of supply. The Executive
has concluded that the risks to public health and the environment
outweigh any possible benefits from competition.
- Prohibiting retail competition for households. The Executive
has again concluded that retail competition would not develop
in a way that would benefit all customers. In particular the risk
that new entrants would ‘cherry pick' customers in high banded
properties at the expense of the remaining customers.
- Licensing non-household retail competition. With Scottish
Water remaining the wholesale supplier through its control of
the networks the Executive is proposing that new entrants could
retail non-household water and sewage services. In effect the
system would operate like the energy market with different suppliers
selling the service from networks operated by a regulated operator.
It is argued that this would provide competition and an additional
spur to efficiency. Scottish Water can continue to supply alongside
the new entrants who would be licensed by the Water Industry Commissioner
(WIC). The WIC would have the power to regulate the wholesale
charge based on a fair and proportionate share of total network
costs. Scottish Water will be directed by Ministers to place its
retail activities into a separate retail subsidiary. The licensing
regime will come into effect on 1 April 2006.
Risks and benefits of competition
The policy basis for this section of the consultation
takes a more realistic view, than the original Water Services Bill
consultation in 2001, on the alleged benefits of competition. Experience
in other utilities has shown that the alleged benefits are more
apparent than real and comes at a significant cost to the consumer.
UNISON rejects the view that competition in essential
utilities brings benefits to consumers. There is no evidence to
support the contention that competition "encourages efficiency,
keener prices, greater customer responsiveness, innovation and improved
The Competition Act 1998 introduced a new framework
for competition bringing into domestic law (this is a reserved power
to the UK parliament) provisions which enact European law on this
issue. In particular it introduces new sanctions for anti-competitive
behaviour. The Act applies to Scottish Water and is enforced by
the Director General of Fair Trading (DGFT) as the WIC in Scotland
does not have the same powers as the water industry regulator in
England and Wales, OFWAT.
The Act includes provisions for exemptions and
exclusions on a number of grounds. UNISON believes that the provisions
of Schedule 3 (7) remain a sound basis for an exclusion under the
Competition Act. Water and sewerage is an essential service in a
civilised society and competition puts that service at risk, particularly
for disadvantaged customers. The public policy grounds could relate
to rural, economic and social exclusion strategies under this heading.
In addition the Executives environmental objectives will be difficult
to achieve in a competitive framework and this provides a further
public policy basis for an exclusion.
Prohibiting common carriage on the public networks
UNISON Scotland agrees that the risks to public
health and the environment outweigh any foreseeable benefits from
allowing access to public water and wastewater systems.
In our response to the original Water Services
Bill consultation we highlighted some of the many technical difficulties
in achieving common carriage including:
- Many existing mains have no spare capacity for additional water
- The Fraser Report (Burncrooks) recommended the zoning of water
from different sources as a precaution against contamination.
- Arrangements for proving and compensating for mains pipes fractures
caused by third party supply e.g. pressure surges.
- Responsibility for boosting disinfectant residuals.
- Backflow protection to stop accidental or fraudulent back-syphonage
- Allocation of the cost of leakage or lost water e.g. misuse
of fire hydrants.
- Pipe size incompatibility when new sources are attached to the
Scottish Water would have to be responsible for
managing a comprehensive access code to ensure that there was adequate
supply. This code would be enormously complex covering all possible
situations including seasonal demands, bursts, drought provision
etc. There would also have to be costly physical systems in place
to isolate new entrants supply and provision for ‘last resort' supply.
The consequences of common carriage even with costly
systems intervention could include at worst contamination of water
supplies or at best interruption and damage to the water and sewage
infrastructure. The public health consequences are obvious and therefore
the provisions in the draft bill prohibiting common carriage are
Prohibiting retail competition for households.
UNISON Scotland agrees that retail competition
poses risks for households.
For household customers water charges, linked to
Council tax bands, reflect broadly the ability to pay. The current
arrangements include a discount for single adult households. UNISON
supports revisions to the current banding system being considered
as part of a wider review of local government finance. Competition
would bring separate water charges and the loss of the essential
progressive charge basis, which is in our view a requirement for
an essential public service. There is no practical alternative to
piped water and sewage disposal.
The arrangements in place in other competitive
utilities for disadvantaged consumers are generally very limited.
For example fuel poverty still impacts on one in six Scottish households
despite the excellent measures taken by the Scottish Executive to
address this issue.
The consultation paper rightly identifies the serious
risk that new entrants to the market would ‘cherry-pick' high-banded
properties. UNISON highlighted this risk in the original Water Services
Bill consultation. This has also been the experience in other utilities
where existing suppliers have been forced, because of competition,
to chase ‘high value' customers at the expense of other consumers.
Not only would charges increase for most consumers
but Scottish Water would be left with stranded assets brought about
by off network provision.
UNISON Scotland therefore agrees that competition
would develop in a way that would not benefit all customers and
welcomes the provisions in the draft bill prohibiting this form
Licensing non-household retail competition
UNISON Scotland does not support the introduction
of retail competition in non-households. The 160,000 premises covered
by this competition are a significant part of Scottish Water's operation.
Business separation will be a further and unwelcome disruption to
the corporation, which is attempting to address the long-standing
problems facing the industry.
Some of the main problems include:
- Experience in the energy industry shows that business separation
is an expensive business. The loss of integrated operations, economies
of scale, rebranding etc all add to the costs charged to customers.
- A whole new industry is created with new customer service, billing,
marketing and sales operations, all of which divert resources
which could be more effectively deployed improving our water and
- Further systems will have to be established to allow switching
between suppliers. This has caused chaos in the energy market
and will inevitably do the same in water and sewage.
- As Scottish Water will have a statutory obligation to supply
everyone they will be left with disjointed retail operations.
Many of the cherry-picking arguments set out above also apply
to non-household competition. Most of the 160,000 properties are
small businesses in high street locations. New entrants will inevitably
focus on larger consumers or those in geographically concentrated
areas such as out of town estates in urban areas. Again it will
be the disadvantaged consumer who will suffer.
- The WIC will gain further powers to directly set wholesale charges.
Current experience indicates that this may not be wholly beneficial
to either customers or the industry. Unlike other utilities the
water and wastewater systems are not organised into a cohesive
network. The industry has not diverted essential investment resources
into management information systems that are an integral part
of a regulated market. This is reflected in the WIC's reports
on Scottish Water's alleged performance. Despite the apparent
detail the judgements are based on limited data. In the privatised
utilities the companies establish extensive regulatory functions
to engage with the regulator. Again all of this would be recharged
to the customer.
UNISON Scotland broadly welcomes the provisions
of the draft bill as being a more realistic recognition of the realities
of the industry that those set out in the original Water Service
Bill consultation in 2001.
The major problem relates to the proposals for
non-household retail competition. We suspect that this more modest
proposal reflects a concern to be seen to provide an element of
competition in accordance with the philosophy inherent in the Competition
Act. However, the proposals still constitute a major upheaval for
little value to the consumer. It is also a further stage along the
road to the full privatisation of Scotland's water.
For further information please contact:
Matt Smith, Scottish Secretary
14, West Campbell Street,
Glasgow G2 6RX
Tel 0141-332 0006 Fax 0141 342 2835
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