Response to the Joint Committee on the Future Funding of Domestic Water Services

Response to the Joint Committee on the Future Funding of Domestic Water Services

Ref: FFDWS_1_0012_2017

Role of Regulators

Q12. Operating expenditure costs

a)What progress has been made to date in driving down operating expenditure costs? To what degree is there scope for further driving down operating expenditure costs?

Irish Water has made operational savings of €72m to the end of 2016. Irish Water has a cumulative target of €1.1bn of operational efficiencies by the end of 2021. The profile of operational savings is given in Figure 1 below.

Figure 1 Irish Water efficiency targets

However, it is worth noting that as Irish Water improves and increases services there will be a corresponding increase in operational costs for these new services, e.g. the operation of a new wastewater treatment plant drives a cost increase. This is classified as growth operational expenditure or “Growth Opex”.

Note Irish Water has provided detailed expenditure information in response to previous questions.

b)What role does the Public Water Forum play in driving these efficiencies?

The functions of the Public Water Forum are set out in Section 7 of the Water Services Act 2014. In terms of driving efficiencies, the Public Water Forum has a consultative role and can provide Irish Water with comments and suggestions on the performance of Irish Water’s functions. Also Irish Water understands that,prior to making its decisions on Irish Water’s costs and revenues, the CER consults with the Public Water Forum on it proposals.

c)What resources do the Commission for Energy Regulation and the Public Water Forum need to ensure they are “adequately resourced with the tools and expertise to drive efficiency targets in the sector”? Are the resources available to them at present at an appropriate level?

This is a question for the CER and the Public Water Forum.

Q13. Interaction with EPA

a)How can Irish Water and the EPA best work together to ensure that Ireland meets its requirements under EU legislation?

The EPA is the environmental and drinking water regulator: it sets compliance standards based on Irish and EU legislation, monitors and reports on Irish Water’s performance and, where necessary, enforces compliance. The EPA is also responsible for drafting elements of the river basin management plans, the State’s plan for achieving the requirements of the Water Framework Directive.

Irish Water works closely with the EPA to ensure that the best information possible is used by both organisations to enhance the approach taken to achieve drinking water and environmental compliance. Irish Water consults with the EPA on the development of its strategic plans and capital investment plans. These plans provide the framework for providing investment and service improvements. Close cooperation between the EPA as the environmental regulator, the CER, the economic regulator and Irish Water ensures that investments are made in areas where they are most needed and the best outcomes can be achieved.

However, the EPA is the regulator and ultimately makes decisions that Irish Water has to comply with.

b)The report notes that the EPA also plays an important role as the drinking water and environmental regulator. How does drinking water quality and environmental standards in Ireland compare with other countries?

Drinking Water

Irish Water proposes the establishment of a Drinking Water Inspectorate (in line with the UK approach) with a view to having one body that makes critical determinations regarding public health and strikes the appropriate balance between environmental concerns and public health concerns regarding investment decisions (e.g. lead, THMs).

The standards for drinking water quality in Ireland are those implemented by the EU Drinking Water Directive 1998 (98/83/EC) and transposed into Irish law by the European Union (Drinking Water) Regulations 2014 (S.I. No. 122 of 2014). The standards with which Ireland must comply are the same as for other European Member States.

Table 1 below is taken from the most recent European Commission Synthesis Report on the Quality of Drinking Water (Com (2016) 666 final), and shows that Ireland’s compliance with the drinking water standards for large supplies (greater than 1,000m3/day or serving more than 5,000 people) is on a par with other European Member States.

While the overall compliance with key indicator parameters for Ireland is relatively good, there are specific issues which are of concern, in particular elevated levels of trihalomethanes and lead within supplies, and an emerging issue regarding pesticide contamination. The issues relating to trihalomethanes and pesticides arise primarily due to the use of surface water (rivers and lakes) as the primary source of drinking water in Ireland (Figure 2), while lead is an issue primarily related to internal lead plumbing within older buildings. The compliance performance figures do not give an accurate indication of ‘risk’ associated with a drinking water supply. The EPA has compiled a list, the remedial action list or RAL, of drink water schemes where there is a significant risk that treatment works will fail. The RAL provides Irish Water with an independent appraisal of the risks to drink water treatment and aids in the prioritisation of capital investment.

Irish Water has adopted a new approach of developing Drinking Water Safety Plans to identify and eliminate risks to ensure a safe and secure public drinking water supply. This approach which was developed by the World Health Organisationand is now advocated by both the European Commission and the Irish EPA.

The EPA’s drinking Water Report for 2015 lists the priority areas for attention by Irish Water as follows:

• Eliminate long-term Boil Water Notices through continued progress of the National Disinfection Strategy;
• Implement action programmes for improved THM treatment submitted and approved under the RAL;
• Assess public buildings likely to have internal lead plumbing for action under the National Lead Strategy;
• Encourage increased replacement of private side lead under the National Lead Strategy;
• Progress action programmes for all drinking water supplies on the EPA RAL;
• Protect drinking water sources and abstraction points; and,
• Progress and complete Drinking Water Safety Plans.

Table 1 – European Member State Water Quality Compliance

Country / Microbiological parameters / Chemical parameters / Indicator parameters
AT / 99.84 / 99.9 / 99.6
BE / 99.75 / 99.9 / 99.1
BG / 99.25 / 99.5 / 99.3
CY / 99.01 / 99.9 / 96.3
CZ / 99.91 / 99.9 / 99.2
DE / 99.88 / 99.9 / 99.7
DK / 99.80 / 99.8 / 98.6
EE / 99.99 / 99.8 / 99.1
ES / 99.62 / 99.8 / 99.4
FI / 100.00 / 99.9 / 99.6
FR / 99.84 / 99.8 / 99.4
GR / 99.64 / 99.9 / 99.5
HU / 99.71 / 98.6 / 97.1
IE / 99.97 / 99.5 / 99.3
IT / 99.20 / 99.6 / 99.6
LT / 100.00 / 99.3 / 99.0
LU / 99.77 / 100.0 / 99.5
LV / 99.92 / 100.0 / 98.7
MT / 100.00 / 99.9 / 90.1
NL / 99.97 / 100.0 / 100.0
PL / 100.00 / 100.0 / 99.8
PT / 99.57 / 99.9 / 99.3
RO / 99.69 / 99.7 / 99.2
SE / 99.94 / 100.0 / 99.1
SI / 99.25 / 100.0 / 98.7
SK / 99.52 / 100.0 / 99.4
UK / 99.98 / 99.9 / 99.9

Figure 2 – Sources of Drinking Water in EU Member States

Environmental Quality and Waste Water Treatment Standards

The standards for waste water treatment under the Urban Waste Water Treatment Directive (91/271/EC) (UWWTD) apply to approximately 170 of the larger cities and towns in Ireland. The standards within the UWWTD apply across all European Member States and are implemented in Irish law by the Urban Waste Water Treatment Regulations, 2001 (SI 254 of 2001), originally implemented by the Environment Protection Agency Act, 1992 (Urban Waste Water Treatment) Regulations, 1994 (SI 419 of 1994).

Ireland’s performance[1]in the implementation of waste water treatment in accordance with the requirements of the UWWTD has been poor, and we are ranked within the lowest 25% in terms of compliance (Figure 3). This poor rating is primarily due to our poor performance in meeting core stringent treatment standards for discharges into nutrient sensitive waters (under Article 5 of the directive).

Figure 3: Compliance results per Member State for Articles 3 of the UWWTD (collection), 4 (secondary treatment), and 5 (more stringent treatment). Member States are classified showing first those with lowest compliance levels for Article 5, and then in increasingorder of compliance.

The implementation of the requirements of the Water Framework Directive (2006/06/EC) and the Dangerous Substances Directive in Irish Legalisation resulted in the development of a system of authorisation of waste water discharges under the Waste Water Discharge Regulations 2009. The licences issued by the EPAunder these regulations frequently contain more stringent limits than those imposed under the UWWTD. This is as a result of Article 10 of the Water Framework Directive which requires more stringent limits than implemented by the UWWTD where this is required to meet the environmental objective set for the receiving waters.

Q14. Regulatory oversight of Irish Water

a)What indicators could be used to ensure that Irish Water is held to account for the timely delivery of its improvement programmes?

Regulatory oversight of Irish Water is provided by the EPA, the CER and the Government from a environment, economic, financial and governance perspective . Indicators relating to Irish Water’s performance are included in the following publications:

• Water Services Strategic Plan: This plan was subject to public consultation and includes performance targets out to 2040.
• Irish Water Business Plan to 2021 which sets out targets for cost savings and performance improvements for which Irish Water can be held to account for this period.
• Irish Water’s price control submissions to the CER which include information on performance from the previous price control period and targets for the next period.
• CER published view on Irish Water performance for the previous price control period, the proposals for the coming period and the CER’s own proposed revenue allowance for Irish Water
• Annual reports by the EPA on Irish Water’s performance on drinking water and wastewater compliance
• CER reports on Irish Waters progress in delivering the codes of practice and customer service performance set out in our Customer handbook.
• The CER framework for annual performance assessment will be implemented in 2017. Also the CER framework to monitor Irish Water capital expenditure is expected to be in place shortly.

There are many indicators that can be used to monitor Irish Water’s performance and delivery of its investment programme. It is important that metrics used to monitor Irish Water’s performance relate to what households and commercial customers value most, provide an overall view of performance and are cost effective and practical to implement.

Figure 4 below is an extract from Irish Water’s recent capital investment plan.

Figure 4 Summary of key Irish Water performance metrics

b)What role does the Public Water Forum have to play in this process?

Based on the Public Water Forum functions set out in the Water Service Act 2014, the Public Water Forum has a consultative role representing the views of water services customerson issues of policy or matters of implementation. It is the role of the CER to determine Irish Water’s revenue and charges and in doing the CER can request the views of the Public Water Forum before making a decision.

c)The report states that “we see the need for an open and transparent and inclusive process to be established to ensure that properly costed and deliverable medium term plans are developed by Irish Water that meet the needs of water users, the State, and all other stakeholders”. Can you comment on how this could be achieved?

The current legal framework provides for an open, transparent and inclusive process to determine Irish Water’s capital investment plan and service delivery plans. The key features include:

• Section 33 of the Water Services (No. 2) Act 2013 requires Irish Water to prepare a Water Services Strategic Plan (WSSP) setting out its objectives in relation the delivery of drinking water and wastewater services. The WSSP is subject to public consultation, covers a 25 year period and is subject to approval by the Minister. The WSSP must be consistent with other spatial strategies, such as the national spatial strategy, regional and local development plans. The WSSP is subject to review every 5 years; the next review is due in 2020.
• Under to Part 3 of the Water Service (No.2) Act 2013, Irish Water is subject to a revenue control framework determined by the CER. The regulatory framework implemented by the CER is open and transparent. Irish Water submits its proposals for operational and capital expenditure. The CER reviews the proposals and hosts a public consultation on the proposals. Ultimately the CER makes a determination of Irish Water allowed costs, publishing its decision, the underlying rationale and the consultation responses.
• The Code of Practice for the Governance of State Bodies sets out the governance requirements for Irish Water and includes a requirement for Irish Water to have a business plan setting out itsoperational costs, investments and performance targets. Irish Water has published a business plan covering the period 2014 to 2021.
• The EPA publishes annual reports on Irish Water’s compliance with drinking water and wastewater standards. Within these reports the EPA sets out it views on the priorities for operational improvements and investments.
• The CER reviews Irish Water’s performance as part of the revenue control process. It is also developing an annual performance monitoring framework and a capital investment monitoring framework.
• Irish Water is also subject to Freedom of Information (FOI) and Access to Information on the Environment (AIE) legislation.

Compliance with EU Law

Section 5.2.3

a)In its letter to the Expert Commission dated 24 November 2016, the European Commission asserts that “[t]he ‘polluter pays’ principle requires consumers to pay charges in return for safe drinking water at the tap and proper waste water treatment infrastructure”. Is that assertion incorrect? Can a system funded by taxation genuinely satisfy the ‘polluter-pays’ requirement?

Determining what policies are needed to comply with European legislation is a policy matter and Government is best placed to provide a response to this question.

b)How will this incentivise domestic users to use water resources efficiently, as required by Article 9(1)?

As outlined above the policies needed to ensure compliance with EU legislation is a matter for Government. Charges for excessive use above an allowance will incentive those that consume above the allowance to conserve water. It may be appropriate to have a rebate scheme to incentivise those with consumption below the allowance to conserve water.

Section 5.2.4 (1)

a)Does classifying households by reference only to the number of occupants exclude other relevant criteria (e.g. urban/suburban/rural locations, or the age of the occupants)? As a result, would it tend to cause efficient users to subsidise inefficient ones, and so work against the polluter-pays principle and fail to incentivise efficient use of water resources, contrary to Art. 9(1)?

Household consumption varies widely even after controlling for the number of occupants. A number of other factors such as the age and number of water appliances, time spent in the home, location, type of home and personal preference all have an impact on the amount of water normally consumed within a household. Many of these factors cannot be practically used in the determination of an allowance. Also the more complex the criteria for determining the allowance, the more difficult it becomes for domestic users to understand and the more costly it becomes to implement and maintain.

Where the costs of normal usage are covered by taxation, the issue of cross subsidisation does not arise.

Ultimately whether the Expert Commission’s recommendations meets the requirements of Article 9(1) is a matter for Government.

b)Would this system make it difficult for authorities to reduce allowances, even if increased household efficiencies or changed consumption patterns warranted it? As a result, would it not fail to incentivise efficient use?

It is not fully clear what the question refers to. Once a methodology for determining the normal usage allowance is in place it would be expected that this methodology could be refreshed as required to update the allowance if necessary. From a billing systems perspective the allowance would be capable of being changed if required. Issues regardinguser acceptance should be assessed as part of the policy considerations.

Section 5.2.4 (2)

a)Would basing the allowance on current consumption levels and patterns tend against the Directive’s objective of improving the efficiency of use of water resources?

This is a matter requiring the interpretation of the Directive and as such it is a matter ultimately for consideration by Government.

b)Are these bases of calculation (the consumption rates of 90% of [current] users or 150% of [current] average domestic consumption) overly broad or simply too high? As with Option (1), would basing the allowance on these result in subsidisation of inefficient users by efficient ones, and so fail to incentivise efficiency? Similarly, would it not fail to apply the polluter-pays principle?

The design of the allowance is a policy matter. There isno internationallyagreed level of “normal” consumption for domestic water usage. Using current data to set the allowance with clear criteria (e.g. as outlined in the question, consumption levels of 90% of usersor 150% of average domestic consumption) is objective and transparent. Where costs are paid for by taxation issues of cross-subsidisation do not arise.

c)As with Option (1) above, would this not make it difficult for authorities to reduce allowances, even if improved efficiencies or changed consumption patterns warranted doing so?

As outlined above from a billing systems perspective the allowance would be capable of being changed. Issues around user acceptance should be assessed as part of the policy considerations.

Section 5.2.6

a)Is this new approach consistent with the current programmes submitted under Art. 11 of the Directive? Will it conflict with the 2nd Cycle RBMPs?

This is a matter requiring the interpretation of the Directive and ensuring consistency with the RBMPs is most appropriately a matter for Government to address.

b)What form of taxation is to be used? As asked above, can a system funded by taxation rather than household (or similar) charges genuinely satisfy the polluter-pays principle or incentivise efficient usage?