“NI Water should continue to be a government-owned company at least for the next five years..”

The Northern Ireland Regional Development minister, Sinn Féin’s Conor Murphy, has welcomed the publication of the Strand 2 report from the Independent Water Review Panel – report available here [pdf file]. The Strand 1 report was noted here previously – and its recommendations, on water charges, were discussed here. Dealing with Management, Governance and Delivery, this report’s timing couldn’t be better.. Included in its recommendations is this one for the Environment minister to consider [added emphasis]

An independent Environmental Protection Agency (EPA) should be established as a non-Ministerial Department similar to the Utility Regulator. It should discharge the current environmental protection roles of the Environment and Heritage Service, the Rivers Agency, the Fisheries Conservancy Board, the Drainage Council and the Loughs Agency. It should also have a specific responsibility to oversee the production of a Water Demand Management Strategy for Northern Ireland.

From the report [pdf file] [Added emphasis throughout]

Strand Two

Further to the publication of our Strand One Report, we have examined the issue of affordability in greater detail. We have also covered the areas of governance, management, and delivery. It has been clear to us from the start that for various historical reasons the reform process under direct rule Ministers failed to secure public
confidence. Action is now urgently needed to ensure that we have not only an effective and efficient system, but one which the public and its elected representatives can trust. That has been our overarching goal.

Our Strand Two conclusions and recommendations may be summarised as follows.

Affordability

In principle, we take the view that everyone should contribute towards the cost of investing in high quality, sustainable and safe water and sewerage services: and that there should be generous support in place for those who can least afford to pay. As a result of the Executive’s acceptance of our Strand One recommendations, households here will save over £153m annually relative to the direct rule proposals: that is the equivalent of £160 for the average home.

We recommended in Strand One that households should pay an amount based on the capital value of their property. This will allow the water and sewerage payment system to be aligned with the rating system. Our recommendation to abolish the standing charge will mean lower bills for around 60% of households, those with a capital value of £110,000 or less. And Northern Ireland will be the only region in the United Kingdom which has introduced a comprehensive incomerelated Affordability Tariff to protect vulnerable people.

In our Strand One report we identified targeting and take-up problems with the proposed Affordability Tariff. In Strand Two, we have considered how best to tackle them. We have concluded that the proposed Affordability Tariff will be effective and should be extended beyond its present limit of 2010; and that all those who are eligible for the recently enhanced Rate Relief Scheme should continue automatically to qualify for it. This will benefit those low income households who are receiving no or only partial help with their rates through Housing Benefit, pensioner households which are asset rich and income poor, and everyone aged over 70 who is not otherwise eligible.

As with the revised Rate Relief Scheme, better-off pensioners who are not eligible for the Affordability Tariff should be able to defer their payments at a concessionary rate of interest for the rest of their life or until their house is sold. To maintain consistency with the rating system, the reduced capital value ceiling of £400,000 should also be applied in calculating water service payments.

Finally, an effective and properly resourced campaign should begin urgently to ensure that all those who qualify for Rate Relief or other passport benefits get them.

Towards Better Governance

That the direct rule Ministers’ reform process failed to secure public confidence is due largely to a lack of openness and transparency in their decision-making and accountability processes. We have also discovered four substantial flaws in the arrangements which they put in place for accountability and regulation: they lack public confidence; clarity about roles and responsibilities; openness and inclusion; and specialised expertise. These deficiencies should be rectified immediately in order to create firm foundations for future stability. The respective roles and responsibilities of the different agencies in the governance system should be clarified and overlap minimised. Overall, the system needs positive leadership, and it must be clear to all concerned who is accountable to whom and for what.

The Minister for Regional Development should assume overall authority and responsibility for the entire water policy development process and for the political oversight of the system’s performance. He should continue to be supported by the Department for Regional Development’s (DRD’s) Water Policy Division and a separate Shareholder Unit, also in DRD.

An independent Water Advisory Panel should be established to report publicly to the Minister on the services’ strategic objectives and priorities. The Panel’s membership should comprise nominees from the business and voluntary sectors, the regulators, consumer representatives, and independent experts. It should be disbanded as soon as it has reported.

A Business Advisory Panel should also be established with the narrow and specific purpose of supporting the Minister as Shareholder in setting NI Water’s business objectives and monitoring its financial performance. This Panel should remain in existence for as long as the Minister is the majority shareholder.

We propose that the 2006 Order should be amended to clarify the powers, roles and responsibilities of the Department, the Utility Regulator and the Consumer Council, and to bring them into line with the Energy Order 2003. The future legislation should give the Consumer Council equal status with the Utility Regulator as the statutory representative of consumers’ interests. Both should be able jointly to make regulations setting out guaranteed service standards for NIW’s domestic customers. Given that privatisation is no longer an option, the Utility Regulator should no longer have to secure reasonable returns on capital from NI Water.

Finally, the desirable criteria for selection to Board level positions in NI Water and the Utility Regulator should include demonstrable knowledge, experience and understanding of the political, economic and social context in Northern Ireland.

Future Business and Financial Model

The choice of business model should secure public confidence; ensure that good services are delivered at the lowest possible cost to Northern Ireland’s users and ratepayers; and minimise any negative impacts on other areas of public expenditure.

It would be neither appropriate nor practicable to reverse the water reform process and reinstate NI Water as an executive agency within DRD. To do so would cost our public expenditure budget over £90 million per year and increasing.

We have concluded that NI Water should continue to be a government-owned company at least for the next five years, subject to the improved governance and accountability arrangements outlined above.

For beyond 2013, the Minister should consider what potential there might be for reducing bills by restructuring NI Water as a company limited by guarantee working in the interest of its customers, a model which we have called the “Customers’ Company”. We believe that such a restructuring could in the right circumstances have the potential both to reduce financing costs and to strengthen customers’ sense of community ownership. The transformation could be implemented with relatively little disruption by retaining NI Water as fully as practicable as it is but establishing the Customers’ Company with the specific purpose of taking over the Minister’s shareholding interest.

In the interim, the dividend extracted from NI Water by DRD as shareholder should be no higher than what customers would pay under a debt-financed model, and this should continue to be the case for as long as DRD retains an equity stake. The amounts received by DRD should be returned to NI Water as a contribution to its capital investment programme, thus lowering customers’ bills.

Investment Planning

The Minister should give immediate and high priority to preparing guidance on social and environmental matters which will clearly define the expected outputs of NI Water’s investment programme over the period to 2013 and beyond. NIW’s current investment priorities should be completely reviewed in the light of this guidance. The new independent Water Advisory Panel should support the Minister in producing this guidance, through a process which is inclusive, open and evidence-based.

Once the Water Advisory Panel has completed its report, it should cease to exist and an Output Monitoring Group should be established, including representation from the Consumer Council. Its role would be to advise the Minister on the company’s progress towards meeting the targets in the investment programme.

Sustainability

In line with the Executive’s Investment Strategy, investment in the water and sewerage services of the future needs to promote sustainability along three dimensions: economic, societal and environmental.

An independent Environmental Protection Agency (EPA) should be established as a non-Ministerial Department similar to the Utility Regulator. It should discharge the current environmental protection roles of the Environment and Heritage Service, the Rivers Agency, the Fisheries Conservancy Board, the Drainage Council and the Loughs Agency. It should also have a specific responsibility to oversee the production of a Water Demand Management Strategy for Northern Ireland.

OFMDFM should include NI Water in its list of public bodies required to act to promote sustainable development. All NIW’s major capital investment projects should in future be subject to a full cost-benefit analysis which takes account of environmental and resource costs, to be undertaken jointly between the new EPA and the Utility Regulator.

The DOE should produce as a matter of urgency a Planning Statement on water sustainability in spatial planning and building design. This should include proposals for legal duties to be followed in making planning decisions.

Building Regulations should be changed to encourage water conservation measures in new buildings. For existing homes, consideration should be given to the possibility of offering cuts in water service bills as an incentive to conservation. These actions could be supported by a comprehensive public education programme.