Water Services etc (Scotland) Bill: Stage 2
I welcome members of the press and the public, as well as pretty much the entire bill team—so I am told—for the Water Services etc (Scotland) Bill and the Deputy Minister for Environment and Rural Development, Lewis Macdonald.
This is our second day of stage 2 consideration of the Water Services etc (Scotland) Bill. If members have no relevant interests to declare, I ask them to check that they have with them copies of the bill as introduced, the second marshalled list of amendments and the groupings of amendments. The clerks have spare sets of everything if members need them.
As with previous stage 2 consideration, I will call the amendments in strict order from the marshalled list. It is my intention to complete consideration of stage 2 today—at the moment, I do not think that there is anything that might throw us off course.
Section 12—Water and sewerage services subsidiary
The first group of amendments is on the establishment of Scottish Water's business undertaking. Amendment 37, in the name of the minister, is grouped with amendments 38 to 43, 45 to 53 and 70.
All the amendments in the group relate to the retail undertaking that Scottish Water will be required to establish under section 12 of the bill to allow it to take part in the licensed retail provision of services to non-domestic customers. We want Scottish Water to have flexibility in the way in which it establishes its own retail undertaking to ensure that it has the best chance of success.
As the bill is phrased, Scottish Water may choose to establish a subsidiary. Amendment 37 provides that Scottish Water is not tied to the subsidiary model, but free to create a subsidiary or a partnership or to make some other arrangements to put the undertaking in place. Under section 25 of the Water Industry (Scotland) Act 2002, Scottish Water already has powers to use all the structures that amendment 37 envisages, so the amendment simply makes the bill's provision for the retail provider consistent with the previous legislation on Scottish Water as a whole. Of course, whichever model Scottish Water chooses to use to establish its retail provider will be subject to ministerial approval. Amendment 37 also provides flexibility for the arrangements for, and the timing of, the setting up of the undertaking, by allowing ministers to require certain steps to be taken at certain times rather than requiring that everything be done at once.
Amendment 40 is slightly different. I referred to it last week, when the committee agreed under amendment 6 to the removal of ministers' general power to alter the licence application procedure that is set out in schedule 2. As I promised last week, amendment 40 provides that ministers may instead make an order to modify the procedure in respect of only the first application for a licence by Scottish Water's retail undertaking. The amendment makes it more specific that that power relates to the initial application. It is appropriate to streamline the process in that way because Scottish Water retail might be licensed in advance of any other retailer entering the market and will take on functions that are currently delivered by Scottish Water. We have narrowed the definition of the power to respond to concerns, which the Subordinate Legislation Committee raised, that the provision should be precise and specific about its purpose in the bill.
Amendments 45 and 50 are simply drafting refinements to two subsections of the bill and restate in slightly stronger terms provisions that are in the bill already. They are intended to place beyond doubt Scottish Water's duty to comply with the requirements that ministers place on it under subsections (1) and (5) of section 13 in regard to the transfer of staff, property and liabilities to Scottish Water retail. Amendment 70 is also connected to that and requires Scottish Water to include in its annual report details of steps that are taken to comply with any such requirements. Together, amendments 45, 50 and 70 ensure that ministers must give Scottish Water and its staff clarity on the actions that are required of them once arrangements for the retail undertaking have been agreed.
Amendments 38, 39, 41 to 43, 46 to 49 and 51 to 53 are consequential amendments that replace the term "subsidiary" with "undertaking" to reflect the change made by amendment 37. I seek the committee's support for all the amendments in the group.
I move amendment 37.
Amendment 37 agreed to.
Amendments 38 to 43 moved—[Lewis Macdonald]—and agreed to.
Section 12, as amended, agreed to.
After section 12
Group 2 is on Scottish Water's business undertaking and covers financing, borrowing and guarantees. Amendment 44, in the name of the minister, is grouped with amendment 71.
Amendment 44 relates to the funding of Scottish Water's retail undertaking. The amendment is designed to provide flexibility to allow Scottish Water's retail undertaking to receive funding directly from ministers—if appropriate—by grant, by loan or by a guarantee of a financial obligation such as an overdraft. That flexibility will allow ministers to decide which funding mechanisms are the most appropriate in the light of their approval of the exact form that the retail undertaking will take.
The amendment provides that the mechanisms are available subject to an order-making power for ministers. That will provide additional control and parliamentary scrutiny.
The financial provisions that are being put in place are similar to those that exist for Scottish Water under the Water Industry (Scotland) Act 2002, to ensure accountability to Parliament for public money used in regard to Scottish Water—in this case Scottish Water retail—and to ensure the repayment of the sums with interest.
Amendment 71 is consequential to amendments 40 and 44. It provides that orders under the appropriate sections will be subject to the negative parliamentary procedure.
I move amendment 44.
Amendment 44 provides ministers with the right to advance money to Scottish Water retail. Will there be a requirement under the bill to ensure that such an advance gives them no commercial advantage over any other retailer?
Yes. The bill establishes a level playing field. That is not affected by the provisions that are proposed in the amendment.
Amendment 44 agreed to.
Section 13—Transfer of staff etc to the subsidiary
Amendments 45 to 53 moved—[Lewis Macdonald]—and agreed to.
Section 13, as amended, agreed to.
Section 14—Scottish Water to provide certain services
Group 3 covers Scottish Water's duties as regards the continuation and discontinuation of water and sewerage services. Amendment 54, in the name of the minister, is grouped with amendments 55 to 60 and 72.
The amendments relate to trade effluent within the context of sewerage services. The bill currently provides for certain circumstances in which Scottish Water might cease to provide water services, but for obvious public health reasons there is no general provision to allow the discontinuation of sewerage services. However, there is clearly a distinction between trade effluent and other types of sewage. The amendments relate to trade effluent. As I say, the exclusion of sewerage services is due to public health considerations.
Amendments 54 and 60 make provision for trade effluent services to be treated in the same way as water services. In other words, they can be discontinued under certain circumstances. However, whatever the circumstances, any such discontinuation is conditional on there being no risk to public health. That remains firmly the case in the provisions that are proposed in the amendments and the provision of other sewerage services to those premises or any other premises must not be affected.
Amendment 60 also makes it clear that the provision is without prejudice to the main statutory provisions in the Sewerage (Scotland) Act 1968, which govern trade effluent consents and agreements.
The other amendments in the group are consequential amendments or drafting refinements that support amendments 54 and 60.
I move amendment 54.
Amendment 54 agreed to.
Section 14, as amended, agreed to.
Section 15—Continuation of provision of services
Amendments 55 to 57 moved—[Lewis Macdonald]—and agreed to.
Section 15, as amended, agreed to.
Section 16—Discontinuation of supply of water
Amendments 58 and 59 moved—[Lewis Macdonald]—and agreed to.
Section 16, as amended, agreed to.
Section 17—Disconnections code
Amendment 19 moved—[Lewis Macdonald]—and agreed to.
Group 4 is on consultation on the disconnections code. Amendment 20, in the name of the minister, is in the group on its own.
Amendment 20 will add the drinking water quality regulator for Scotland to the list of statutory consultees that the water industry commission will consult on the disconnections code under section 17.
I move amendment 20.
Amendment 20 agreed to.
Section 17, as amended, agreed to.
After section 17
Amendment 60 moved—[Lewis Macdonald]—and agreed to.
Section 18—Scottish Water's charges for water and sewerage services
Amendment 21 moved—[Lewis Macdonald]—and agreed to.
Group 5 is on charges. Amendment 22, in the name of the minister, is grouped with amendments 61 to 64.
The amendments will make small changes to the charge determination procedures and respond to several issues that Scottish Water has raised with us. They will ensure that, in calculating Scottish Water's income for the purposes of producing a charge determination, the water industry commission takes into account only resources that are reasonably available to Scottish Water.
Amendments 62 and 63 provide for departures from charges schemes for higher or lower charges than those that are specified in the relevant scheme. They will give the commission scope to consent to a higher charge when a customer requires water that is treated to an enhanced standard, which increases the cost to Scottish Water. The amendments will ensure that the bill does not prevent Scottish Water from working in partnership with customers to meet requirements that are beyond even the high standards that apply across the board.
Amendment 22 will make a drafting refinement to section 18.
I move amendment 22.
Amendment 61 contains the term "reasonably". How will that be interpreted? Why is reasonableness an issue?
The intention is that the determination of charges should be based on the resources that are actually available for the purpose. We do not want to run a risk, although we regard it as remote, so it is appropriate to provide a legal safeguard. Without a test of reasonableness, in theory, a customer might challenge Scottish Water on the basis that it owned property that it ought to sell and lease back, because that way it would have a bit more money from another source and could therefore keep its charges down. We recognise that there are things that it is reasonable for Scottish Water to do on a long-term basis and we would expect the interpretation of "reasonableness" to reflect that.
Thank you for that.
Amendment 22 agreed to.
Amendments 61, 23, 24, 62, 63 and 64 moved—[Lewis Macdonald]—and agreed to.
Section 18, as amended, agreed to.
Schedule 3
Certain pre-existing agreements as to charges
Group 6 is on charges and pre-existing agreements. Amendment 65, in the name of the minister, is grouped with amendment 66.
Amendments 65 and 66 refer to pre-existing agreements or "relevant agreements", as they are described in the bill—special arrangements between Scottish Water and a number of generally large commercial customers, which reflect their use of water and exist prior to the bill coming into force. The amendments intend to make it clear that the provision that allows those agreements to run their course should apply not only to agreements entered into by Scottish Water per se but to agreements entered into by predecessor bodies, whether the water authorities that existed immediately before the creation of Scottish Water or other water providers in the past that have made agreements with customers. We wanted to ensure that there was clarity that all the existing agreements were protected in the same way, regardless of which authority had entered into them. That is the essence of the amendments.
I move amendment 65.
Amendment 65 agreed to.
Amendment 66 moved—[Lewis Macdonald]—and agreed to.
Schedule 3, as amended, agreed to.
Section 19—Scottish Water's functions: powers of the Scottish Ministers
Amendments 25 and 26 moved—[Lewis Macdonald]—and agreed to.
Section 19, as amended, agreed to.
After section 19
Group 7 is on qualification of Scottish Water's duties to provide services. Amendment 67, in the name of the minister, is in the group on its own.
Amendment 67 clarifies the relationship between Scottish Water's duties under existing legislation and the duties placed on it under the bill. One of the strengths of the bill is that it clarifies the roles and responsibilities of key players in the industry. It provides for ministers to set down a clear policy framework detailing what we expect from Scottish Water when it is carrying out its core functions and how we wish different customer groups to contribute to the cost of that through charges. It gives the water industry commission the task of making the calculations required to translate that into a scheme of charges. That is set out in section 18, which amends and inserts new provisions into the Water Industry (Scotland) Act 2002.
Amendment 67 is designed to support that framework by ensuring that the strategic direction set by ministers is reflected in Scottish Water's key statutory duties. It therefore ensures that the duties under the Sewerage (Scotland) Act 1968 and the Water (Scotland) Act 1980—to provide water and sewerage and to make connections to the public network—are to be exercised without prejudice to compliance with ministers' policy requirements.
As members will know, Scottish Water faces competing demands for its services and amendment 67 makes it clear that the strategic direction for its activities should be set by ministers according to the framework that is laid out in the bill, not by Scottish Water or customers. Of course, the framework is intended not to be inflexible but to establish a system that ensures that ministers accountable to Parliament set the priorities and that financial priorities should reflect their strategic direction.
I move amendment 67.
Amendment 67 agreed to.
Group 8 is on sewerage nuisance. Amendment 68, in the name of the minister, is grouped with amendments 69 and 73.
This group of amendments responds to points that committee members and other MSPs have raised. The amendments insert provisions enabling us to issue codes of practice on sewerage nuisance that local authorities will be required to enforce.
I know that the committee has discussed odour from sewage treatment works and other parts of the public sewerage system and that it has discussed two petitions on the matter and the draft code of practice that the Executive has published. The amendments seek to address the concern that the code of practice should be placed on a statutory footing.
Amendment 68 gives ministers the power to make an order containing a code of practice on sewerage nuisance, which will set out the best practicable means of assessing, controlling and minimising such nuisance and the circumstances in which compliance or non-compliance with the code would be assessed. Although the headline issue is odour from sewage treatment works, other sources of nuisance, such as insects, might arise from time to time. As a result, we have framed the powers and the definition of "sewerage nuisance" more widely to ensure that they cover more than odour. That said, the issue of odour is at the heart of the policy.
Once issued, a sewerage code would apply to Scottish Water in the exercise of its core functions with regard to sewerage and to any person acting on its behalf or under its authority, such as the operator of a sewage treatment works used by Scottish Water as the public sewerage provider. There is an express requirement on all those persons, including other operators, to comply with the code. Ministers will also be required to consult on the code and will, along with local authorities, be required to publicise it.
It might seem technical, but I should explain that subsection (9) of the new section that amendment 68 seeks to insert exempts from the requirements of a code the parts of the public sewerage system that are regulated by the Scottish Environment Protection Agency through the permit regime under the Pollution Prevention and Control (Scotland) Regulations 2000 (SSI 2000/323). I should point out that that provision refers only to a single, very large sewage works that is currently regulated under the PPC regime. The fact that those works will still be covered by that regime is an exception to the wider picture. Ministers will retain their existing statutory powers to direct SEPA to apply the sewerage code to the parts of the public sewerage system that it regulates. In other words, we will leave in place the PPC regime that will govern those particular works, but will have the power to direct SEPA to implement the code.
Amendment 69 sets out the monitoring and enforcement provisions for sewerage codes. It is important that any code that is put on a statutory footing has force and power. Local authorities will be required to monitor compliance, to investigate complaints of sewerage nuisance and to serve an enforcement notice if they are satisfied that there is or is likely to be material non-compliance with the code. That enforcement notice can set out the steps that must be taken to secure compliance with the code and the timescales for taking those steps. Contravention of an enforcement notice will be an offence and councils will be given powers to pursue that, as well as powers to undertake work to secure compliance with an enforcement notice. If a council undertakes such work, it will be able to recover its costs, if required.
Finally, the amendments provide for parliamentary scrutiny of the code by requiring it to be made through an order that is subject to the negative procedure.
The package offers a coherent basis for constructive and considered action. We will work in partnership with Scottish Water and local councils to resolve issues when they arise. I urge members to support the amendments.
I move amendment 68.
More than half the committee members want to say something on the group, which is not surprising, given that sewerage nuisance was one of the big issues at stage 1 and that we have received a lot of petitions on the issue from members of the public.
Amendments 68 and 69 are probably a significant step forward on an issue that the committee has been pursuing. I have a couple of practical questions. Subsection (4) of the new section that is proposed in amendment 68 states that the term "practicable" refers to, among other matters, "financial implications". What does that mean? I assume that Scottish Water will not be allowed to use such implications as an excuse for not carrying out necessary works.
Subsection (4)(b) of that proposed new section states that the term "means" refers to
"the design, installation, maintenance and manner and periods of operation of plant and machinery".
The minister will be aware that Scottish Water plans a number of new developments. I assume that Scottish Water will be expected to ensure that, when it builds new sewage works, it takes account as far as possible of smell nuisance.
Finally, what practical difference will amendments 68 and 69 make to the people who have petitioned us on the subject?
I think that "practicable"—
Hang on, minister. I will let you back in when the other members who wish to speak have done so. I imagine that you will want to respond to all the questions and comments.
The next speaker will be Susan Deacon, who is not a committee member but has been with us on numerous occasions to give her constituents' views on the issue.
When I arrived at the committee this morning, one of my colleagues greeted me with the comment, "If it's Susan, it must be sewage." I hope that the Executive's amendments 68 and 69 on the subject will allow me to move on. I am pleased that the amendments have been produced in response to the committee's concerns, as well as mine and those of other MSPs. However, I would like to clarify a number of aspects.
Subsection (1) of the new section that is proposed in amendment 68 uses the term "may". The amendment will give ministers the power to introduce a code, but will the minister give a commitment that he intends to produce a code, subject, obviously, to the completion of the consultation process that is under way?
Subsection (3) of that proposed new section also uses the word "may" in relation to the provisions in the code. Will the minister clarify the use of the term "may", because it seems that, given the rather broad nature of the provisions that are laid out in subsection (3), they would almost certainly be contained in any code, irrespective of the outcome of the consultation?
Subsections (3) and (5) of the proposed new section lay out to whom the code will apply. Will the minister confirm that the phrase "any other person" will include those whom Scottish Water contracts or subcontracts to operate waste water treatment works on its behalf, including those who are contracted under the terms of a private finance initiative contract?
Karen Gillon has asked the question that I had about financial provisions. In relation to subsection (9) of the new section, will the minister clarify which large sewage works he was referring to in the context of exemption?
I have a couple of questions about amendment 69. Should I ask them now?
Yes, because amendment 69 is in the same group as amendment 68.
On local authority monitoring and enforcement, can the minister clarify how the provisions that amendment 69 contains will alter the existing powers and practices of local authorities as set out in the Environmental Protection Act 1990? For example, how will the enforcement procedure for issuing abatement notices be affected? How does he envisage that the Executive will work with local authorities to ensure that monitoring and enforcement are effective? I accept that that goes beyond the scope of amendment 69.
I am sure that many communities—not least the community in Aberdeen, which is the minister's home city, where there is an on-going dispute about the Nigg plant at Torry—will welcome the minister's amendments, especially amendment 68, which will ensure that the code is embedded in statute.
I have three quick questions. The Nigg plant experience has taught me that PFI arrangements mean that it is highly complex to identify exactly who is responsible for preventing sewerage nuisance. Amendment 68 says that the code will apply to Scottish Water and other appropriate persons. How easy will it be to identify who is responsible? I have sat around a table with the three organisations involved in running the Nigg plant and it has not been that easy to identify where responsibility lies.
Amendment 69 says that a contravention of the code will lead
"to a fine not exceeding £40,000."
Where did that figure come from? Why has a figure of £40,000 been used rather than one of £100,000 or whatever? Has the minister considered placing an obligation on plants that contravene the code to pay compensation to the local communities that have suffered for a long time as a result of their failures?
I welcome the minister's approach to sewerage nuisance, which is an issue that has concerned many members and communities for a long time. If the minister had not inserted a code of practice in the bill, we might have had to wait a long time for another legislative vehicle to come along that would allow us to implement a statutory code.
I do not have much to add to that. I had some requests for clarifications that were similar to those that Karen Gillon made. I would like to hear what the minister has to say about them.
I will follow up Karen Gillon's remarks. Subsection (4)(a)(ii) of the new section that amendment 68 seeks to insert refers to
"the current state of technical knowledge".
Can the minister assure us that there will be active research into what is available so that we do not just rely on what has always been used? Not just in Scotland, but in other countries quite a lot of work is probably being done on dealing with odour from sewage works and other places. I am a great listener to the radio as I drive up the road and I have become a dustbin of useless information. I heard a discussion about the use of chemical sprays for piggeries; I thought that the same technique could easily be transferred to sewage works. I seek assurances that every avenue of technical knowledge will be investigated.
Have you finished?
That is it.
I will be even briefer. I just want to put on record how welcome it is that odour nuisance is being seriously tackled.
The whole committee shares that sentiment. The reason why we have flown through our consideration of the amendments today is that, in effect, the minister has done what we wanted him to do.
Members have asked several technical questions and requested clarification on a number of points. I invite the minister to work his way through them. Members might have brief supplementaries.
I will take the questions broadly in order, although one or two were similar, so I might jump back and forth.
Karen Gillon asked about the term "practicable". In a sense, there is a parallel with the discussion that we had a few minutes ago about reasonable charge setting. Practicable means are what can actually be done. No matter how much power is devolved to the Scottish Parliament, we cannot stop sewage producing an odour. The question is how we manage and control the system in the best possible way.
We will ensure that we have explored every technical avenue, as Maureen Macmillan asked. The word "practicable" is meant to reflect that we will use every means that can be deployed to manage the problem. Clearly, we also want to learn lessons from elsewhere about how to do that.
Karen Gillon also asked about means. Again, we expect new plant to be built in the light of the introduction of the code. The design of the plant and machinery should reflect the requirements of the code. The code will also apply to existing plant. We expect local authorities to work with Scottish Water and others to ensure that existing plant is brought up to the standards set in the code as quickly as practicable.
Susan Deacon, who has campaigned on the issue for some time, asked a pertinent question about whether we will introduce a code. The answer is yes. We intend that the code should be in force by April 2006, which will allow time for the consultation process to take place. However, if the committee agrees to the amendments, Scottish Water and others will be aware as of today that the code is coming into force and we will expect them to take that into account in any of their decisions.
The code will apply to subcontractors and other contractors whether they are at Nigg bay in Aberdeen or elsewhere. I do not think that the local authorities will have any difficulty in establishing on whom to serve a notice should that be required. The legal position will be very clear. Scottish Water has an overall responsibility and other operators will be acting on its behalf.
Daldowie is the plant that currently operates under the PPC regime. That will continue. Daldowie is largely a sludge treatment plant, which is why it is regulated slightly differently.
The amendments will extend the powers of local authority enforcement officers to cover sewerage nuisance. Those powers do not exist at the moment, but, as subsection (8) of the new section proposed by amendment 69 makes clear, the new powers will operate
"without prejudice to section 82 of the Environmental Protection Act 1990."
In other words, the powers of local authorities to deal with nuisance continue, but they are reinforced and extended.
The fine levels are not arbitrary; they are consistent with the existing statutory nuisance regime. They are therefore parallel to other such fines.
I repeat that the new sections will operate without prejudice to section 82 of the Environmental Protection Act 1990. Subsection (7) of the new section proposed by amendment 69 disapplies certain provisions and replaces them with the new enforcement powers. My official, Barry McCaffrey, drew that to my attention in case I misled the committee.
I think that that answers all the technical questions. On community compensation, the power to seek compensation currently exists and will not be changed. Of course, the aim is to minimise nuisance. As I said at the outset, there is nothing that any Government can do to stop sewage producing an odour, but the aim is to create a regulatory regime that minimises the effects as far as is practically possible.
Amendment 68 agreed to.
Amendment 69 moved—[Lewis Macdonald]—and agreed to.
Section 20—Meaning of "eligible premises"
Amendments 27 and 28 moved—[Lewis Macdonald]—and agreed to.
Section 20, as amended, agreed to.
Sections 21 to 23 agreed to.
Schedule 4 agreed to.
Sections 24 and 25 agreed to.
Schedule 5
Amendments to enactments
Amendments 29 to 33, 70, 34 and 35 moved—[Lewis Macdonald]—and agreed to.
Schedule 5, as amended, agreed to.
Section 26 agreed to.
Section 27—Orders and regulations
Amendments 71 to 73 and 36 moved—[Lewis Macdonald]—and agreed to.
Section 27, as amended, agreed to.
Sections 28 to 30 agreed to.
Long title agreed to.
I am delighted—as I am sure members are—that that completes stage 2 consideration of the bill, which will now be reprinted as amended. The new version should be available tomorrow—which is impressively swift—from the document supply centre. If any member wishes to lodge a stage 3 amendment, they may do so with the committee clerks. There will be a notice to that effect in tomorrow's Business Bulletin. The deadline for lodging amendments will be announced as soon as the exact timetable for stage 3 is known.
I thank the minister and all his officials for helping the committee through today's proceedings and for their previous help. I also thank colleagues. A lot of detailed scrutiny took place before stage 2—people who read the Official Report should know that a lot of work was done before today, which let us fly through the agenda item. I hope that those who have submitted petitions will read the Official Report of today's meeting and will be happy with the position that we have reached.
There will be a short suspension to allow the minister and his officials to leave.
Meeting suspended.
On resuming—