AN COMHCHOISTE UM CHOMHSHAOL, IOMPAR, CULTÚR AGUS GAELTACHT
31Ú DÁIL ÉIREANN / 24Ú SEANAD ÉIREANN
TUARASCÁIL AR SHOLÁTHAR UISCE
MEITHEAMH 2012
JOINT COMMITTEE ON ENVIRONMENT, TRANSPORT, CULTURE AND THE GAELTACHT
31ST DÁIL ÉIREANN / 24TH SEANAD ÉIREANN
REPORT ON WATER PROVISION
JUNE 2012
1 2 INDEX
1. PREVIEW AND RECOMMENDATIONS...... 7 1.1 Status of New Irish Water Utility ...... 8 1.2 The Principle of Metering ...... 9 1.3 Metering: Mechanisms, Etc ...... 9 1.4 Charges and Tariffs ...... 10 1.5 Upgrade of Infrastructure – Key Performance Indicators, Mandatory Leakage Rates, Capital Works, etc...... 10 1.6 Water Conservation and Planning Regulations...... 10 1.7 Poverty Proofing ...... 11 1.8 Outstanding Water Rates ...... 11 1.9 North / South Basis for River Basin Management ...... 11 1.10 Regulation...... 11 1.11 Consumer Representation...... 12 1.12 Waivers ...... 12 1.13 Optimising Opportunities for the Small and Medium Enterprise Sector ...... 12 1.14 Emergency Planning and Flooding...... 12 1.15 Transparency and Accountability...... 13 1.16 Branding of New Irish Water Utility ...... 13 1.17 Audit of Water and Wastewater Services ...... 13 1.18 Water Storage...... 13 1.19 Public Private Partnerships...... 14 1.20 Raising of Funds by new Irish Water Utility ...... 14
2. INTRODUCTION ...... 15
3. EXECUTIVE SUMMARY...... 19 3.1 Background to Establishment of new Irish Water Utility...... 20 3.1.1 Decisions to Establish a New Irish Water Utility ...... 20 3.1.2 Structure of New Irish Water Utility...... 21 3.2 Conclusions Based on Joint Committee Meetings and Available Research ...... 22 3.2.1 Establishing New Irish Water Utility ...... 22 3.2.2 Communications, Health and Safety, and Emergency Response Systems for New Irish Water Utility...... 23 3.2.3 Corporate Governance...... 24 3.2.4 Metering...... 24 3.2.5 Costs, Tariffs and Waivers ...... 25 3.2.6 Procurement Models and Value for Money...... 26
3 4. PROVISION OF DRINKING WATER...... 28 4.1 Introduction ...... 28 4.2 Water Quality ...... 28 4.3 Water Usage Volumes ...... 30
5. WASTEWATER SERVICES ...... 32 5.1 Introduction ...... 32 5.2 Collection and Treatment...... 32
6. ESTABLISHMENT OF NEW IRISHWATER UTLITY...... 35 6.1 Background to Establishment of New Irish Water Utility ...... 35 6.2 Decision to Establish New Irish Water Utility...... 35 6.3 Structure of New Irish Water Utility...... 36 6.4 Current Cost of Water Provision ...... 38 6.4.1 Future Funding of New Irish Water Utility ...... 39 6.5 Transition Strategy...... 40 6.6 Transfer of Assets and Liabilities from Local Authorities to New Irish Water Utility...... 41
7. COMMUNICATIONS, HEALTH AND SAFETY AND EMERGENCY RESPONSE SYSTEMS TO BE PUT IN PLACE IN THE NEW IRISH WATER UTILITY ...... 42 7.1 Communications ...... 42 7.2 Health and Safety ...... 43 7.3 Emergency Response System ...... 46 7.4 Specific Regional Initiatives ...... 47 7.5 Models of Best Practice ...... 48
8. NEW IRISH WATER UTILITY – CORPORATE GOVERNANCE AND REGULATION ....50 8.1 Background – What does Corporate Governance Entail in the Public Sector? ...... 50 8.1.1 Significant Documents...... 51 8.2 Accountability and Corporate Governance...... 52 8.2.1 Relevance to New Irish Water Utility...... 52 8.2.2 Revised Code of Practice for State Bodies...... 53 8.3 Future Corporate Governance of New Irish Water Utility ...... 56 8.3.1 Background to Public Sector Governance ...... 56 8.3.2 State-Owned Enterprises ...... 57 8.3.3 Background to Corporate Governance and Regulation of Water Services...... 59 8.3.4 Economic Regulation ...... 60 8.3.5 Environmental Regulation ...... 61 8.4 Proposed Corporate Governance Structure and Regulatory Model for New Irish Water Utility...... 63 8.4.1 Representing Consumers...... 67
4 8.4.2 Internal Structure of New Irish Water Utility and Reporting Requirements ...... 68 8.4.3 Relationship with Regulators...... 70
9. METERING...... 73 9.1 Defining Water Metering ...... 73 9.2 International Organisations Views on Water Metering ...... 76 9.2.1 Organisation for Economic Cooperation and Development.....76 9.2.2 Defining Water Metering...... 77 9.2.3 European Union ...... 77 9.2.4 United Kingdom – Environment Agency ...... 78 9.3 Effects of Metering ...... 78 9.4 Examples of Countries Using SMART Meters...... 79 9.5 Ireland’s Experience of Meters to Date...... 82 9.6 Issues and Concerns Regarding Metering ...... 82 9.6.1 Universal Metering ...... 83 9.6.2 Cost of Installation...... 86 9.6.3 Location of Meters...... 88 9.6.4 Technological Issues...... 89 9.6.5 False Readings ...... 90
10. COSTS, TARRIFFS AND WAIVERS ...... 91 10.1 Introduction ...... 91 10.2 Effects of Water Pricing (Price Elasticity of Demand)...... 91 10.3 Tariff Systems ...... 93 10.4 National or River Basin District Area Tariff Structure ...... 95 10.5 Focus on the United Kingdom – the Walker Report (2009)...... 95 10.6 Alternatives to Metering and Volumetric Charges ...... 97 10.7 Affordability and Supports for Lower-Income Groups...... 99 10.8 Factors Affecting Water Consumption...... 100
11. GRANT SCHEMES ...... 102
12. WATER SCHEMES – PROCUREMENT MODELS AND VALUE FOR MONEY...... 104 12.1 Background...... 104 12.1.1Use and Monitoring of Public Private Partnership Projects ...104 12.1.2Role of National Development Finance Agency...... 104 12.1.3Defining Design Build Operate Schemes...... 105 12.1.4Is Public Private Partnership more Beneficial than Traditional Procurement? ...... 105 12.1.5Institutional Structure Supporting Public Sector Use of Public Private Partnership ...... 108 12.1.6Views Relating to Design Build Operate Model ...... 108 12.2 Value for Money – Staffing Issues ...... 115
5 13. ALTERNATIVE SOURCES OF WATER FOR LEINSTER REGION INCLUDING GREATER DUBLIN AREA...... 118 13.1 Shannon Abstraction Option...... 118 13.2 Alternative Sources of Water for Leinster Region including Greater Dublin Area ...... 119
14. EUROPEAN WATER SAVING POTENTIAL ...... 120 14.1 River Shannon Abstraction Option ...... 120
15. TERMS OF REFERENCE OF COMMITTEE...... 122
16. MEMBERS OF JOINT COMMITTEE ...... 126
17. REFERENCES...... 128
APPENDIX 1 – REPORT OF DELEGATION TO GARRYHINCH AND LOUGH BOORA..131
APPENDIX 2 – REPORT OF DELEGATION TO LOCH DEARG WATER EXTRACTION POINT ON RIVER SHANNON ...... 137
6 1. PREVIEW AND RECOMMENDATIONS
The Joint Committee on Environment, Transport, Culture and the Gaeltacht (the Joint Committee) has worked extremely hard on putting this Report on Water Provision together. Accordingly, I want to begin my comments my thanking each and every member of the Joint Committee who has contributed to this process.
Since we commenced our consideration of Water Provision in Ireland, we have met a large number of stakeholders who have offered their experience, opinions and recommendations to us. This has contributed greatly to our deliberations and ultimately to the recommendations which the Joint Committee is putting forward in this Report.
I thank each and every organisation and individual who met with the Joint Committee or who made a written submission to it. I want to thank all the people who met with and assisted our Delegations to the site of the proposed reservoir in Garryhinch in Counties Laois and Offaly and to the site of the proposed extraction point on Loch Dearg on the river Shannon. I also want to thank the members of the Committee for the Environment in the Northern Ireland Assembly and the officials of Northern Ireland Water who met with our Delegation to Belfast. The Reports of the first two of these Delegations are attached in the Appendices to this Report. The Report of the third Delegation to the Northern Ireland Assembly and to Northern Ireland Water has already been laid before the Houses of the Oireachtas.
I wish to thank the staff of the Houses of the Oireachtas Commission who have worked with the Joint Committee and provided us with administrative back-up and research facilities. I particularly want to thank Niall Ó Cléirigh, Aoife Halligan and Maggie Semple from the Oireachtas Library and Research Service and Eugene Ó Cruadhlaoich, the Clerk to the Joint Committee and his staff, Leonora Curley, Nuala O’Hanlon, Caitríona Dunne and Colm Duffy.
Water Provision in Ireland is at a critical stage. It is subject to so many different vagaries. We must deal with the environmental, societal, developmental and financial consequences of whatever actions we take in this regard. Ireland needs a long-term sustainable supply of water for domestic use, for healthy living, for developmental use and for recreational use. The resource is limited and the costs are high and any action we take can, if we are not careful, can have dreadful environmental consequences. This is the reality we have to deal with and it is in this context that the Joint Committee presents this Report.
I want to acknowledge that each of the different political parties and groups represented on the Joint Committee have their own valid approach and beliefs as to how water should be provided in Ireland and that while there are many similarities of views among us, there are many divergences. Given this, I believe it is a great tribute to the members of the Joint Committee that we have been able to work through the issues in a systematic way, agreeing to differ on certain issues, but at the same time endeavouring to find consensus and work towards an agreed approach.
The result of our efforts is this Report and the recommendations it contains. These are the recommendations of the Joint Committee as an Oireachtas Committee and I fully acknowledge that not all members, or political parties or groups, agree with all the
7 recommendations listed. But I believe that this Report is an honest attempt to address a very difficult issue in a non-partisan way
The Joint Committee agreed, at its meeting on 23 May 2012, to adopt this Report and to lay it before both Houses of the Oireachtas and, accordingly, I would urge the Members of Dáil Éireann and Seanad Éireann and the members of the Government to study the Report carefully and use it as a basis for moving forward.
The recommendations of the Joint Committee for Water Provision in Ireland are as follows:-
1.1 Status of New Irish Water Utility
1.1.1 While acknowledging the Government’s decision to establish a new Irish water utility as a State utility, this vital resource must remain in public ownership.
1.1.2 The Government should ensure that the strengths inherent in the current local authority water management system are not lost in the transfer to the new Irish water utility; i.e. the operators being close to their customer base, being locally accountable, and having the ability to quickly mobilise local resources during crises.
1.1.3 The introduction of a new Irish water utility and its phased assumption of current local authorities’ responsibilities may be prone to the risk of ‘democratic deficit’ and it is therefore important to clarify, at the outset, the accountability of this new utility to the people, through Oireachtas Éireann.
1.1.4 The name of the new Irish water utility should be ‘Uisce Éireann’1. When Uisce Éireann is engaged in commercial activities outside of Ireland, the Joint Committee recognises that a bilingual title may, in certain situations, be necessary2.
1.1.5 While the new Irish water utility must be cognisant and responsive to infrastructural deficits and initiatives as set out in local authority Development Plans3, an overall co-ordination / arbitration role should be retained at a central Government level. A National Water Sector Framework Team should be established within the Department of Environment, Community and Local Government or the Department of Communications, Energy and Natural
1 This recommendation is in keeping with the policy position regarding the naming of new public bodies as set out by the Minister for Communications, Energy and Natural Resources in reply to a Parliamentary Question on 29 November 2011. 2 In this context, the Joint Committee notes that there is an exemption under the Official Languages Act Regulations for public bodies insofar as they conduct commercial activities outside the State. Answers to questions regarding the Official Languages Act & the Regulations under the Official Languages Act (p.12), An Comisinéir Teanga, accessed online at: http://ocla.ucc.ie/OfficialLanguages/en/frequentlyaskedquestions.pdf 3 Development Plans Guidelines (Department of the Environment, Heritage and Local Government, 2007). Accessed online at:- http://www.environ.ie/en/Publications/DevelopmentandHousing/Planning/FileDownLoad,14468,en.pdf 8 Resources as appropriate. This Team’s primary role will be the exercise of such a function; i.e. to ensure that the new Irish water utility is responsive to the Development Plans.
1.2 The Principle of Metering
1.2.1 In the interest of water conservation, the new Irish water utility should operate one charge which will be inclusive of all service costs; i.e. freshwater and wastewater services.
1.2.2 The Register of Electors, combined with Personal Public Service numbers, should be used in the collection of data for the purpose of collecting water charges. This will provide an accurate database which will facilitate a fair billing system.
1.2.3 The ownership and maintenance of water meters should rest with the new Irish water utility.
1.2.4 Planning and building regulations should be revised to incorporate provisions relating to the installation of water meters for all new and unfinished houses.
1.3 Metering: Mechanisms, Etc.
1.3.1 In relation to the location of water meters a thorough cost-benefit analysis should be carried out which would consider all factors (including technological and geographical) when determining which location is best4.
1.3.2 It is important, in the context that the public will be metered for water usage, that the Government play its part in reducing ‘unaccounted for water’. Mandatory leakage rates should be set, by river basin and Key Performance Indicators should be set for the new Irish water utility in order to achieve a better performance within our water infrastructure.
1.3.3 Meters should be ‘future proofed’ and have the facility to link in with SMART meters, remote access and other applications, etc. To facilitate this objective, supporting legislation should be introduced to regulate any necessary data transfer.
1.3.4 Consideration should be given to integrating energy SMART meters with water meters. Meters should be placed in an accessible location outside the premises but it is preferable that Automatic Meter Reading or SMART Meters be installed which do not require physical access.
4 The Joint Committee is aware that the Government have decided that ‘meters and boundary boxes will be located outside the curtilage of the property in the public footpath or in the grass verge at the roadside’. Establishment of Irish Water under BGÉ, Department of the Environment, Community and Local Government Questions and Answers available online at: http://www.environ.ie/en/Environment/Water/WaterSectorReform/News/MainBody,29944,en.htm 9 1.4 Charges and Tariffs
1.4.1 There should be one national tariff for water, as is the case with other utilities, applying across the entire country, rather than a tariff system based on river basins.
1.4.2 Given the Government’s commitment to charging for domestic water consumption, the balance of views and available research suggests that a waiver system should be put in place to protect low-income households.
1.4.3 It is necessary to have a clear customer information programme explaining whatever system is introduced. Bills for water charges should clearly explain what consumers are paying for.
1.5 Upgrade of Infrastructure – Key Performance Indicators, Mandatory Leakage Rates, Capital Works, etc.
1.5.1 Profits from the new Irish water utility should be ring-fenced and reinvested to generate a sustainable water and waste infrastructure that is highly regulated to guarantee excellent quality for the consumer.
1.5.2 To ensure continued growth in the economy, the new Irish water utility must ensure that there is sufficient excess capacity and flexibility of supply. It must be able to respond to the needs of water intensive industries that will be developed indigenously and attracted those to locate and invest here in Ireland.
1.5.3 Notwithstanding the current economic crisis, sustainable development must include the rehabilitation of water mains as part of an emergency programme of necessary public works.
1.5.4 The use of ultra-violet light treatment in tertiary wastewater treatment should be explored.
1.6 Water Conservation and Planning Regulations
1.5.1 A grant scheme should be established to incentivise water conservation by encouraging householders to repair the pipes they are responsible for, to buy water conservation devices such as low-flow showers and to install rainwater harvesting systems and water purification systems. Companies and contractors employed under such schemes must be tax compliant and regulated.
1.5.2 Planning and building regulations should, in future, make provision for water conservation.
1.5.3 Conservation actions should be accompanied by awareness raising campaigns and education programmes. 10 1.7 Poverty Proofing
1.7.1 Following the current consultation process, the Government’s detailed plans on Water Provision should be poverty proofed by an independent agency. Its findings should be made public.
1.8 Outstanding Water Rates
1.8.1 The Government should take action on outstanding water rates owed to the State by the commercial sector.
1.9 North / South Basis for River Basin Management
1.9.1 Recognising that out of eight River Basin District Areas there are three cross- border River Basin District Areas5, an All-Ireland strategy on Water Provision should be developed.
1.10 Regulation
1.10.1 The Joint Committee agrees with the regulatory framework set out in the Department of Environment, Community and Local Government (Department of Environment) Position Paper (2012); i.e. that the new Irish water utility be regulated by the Environmental Protection Agency from an environmental perspective and by the Commission for Energy Regulation from an economic perspective.
1.10.2 The Joint Committee support the proposal set out in the PricewaterhouseCoopers (PwC) assessment (2011) that, in addition to the Environmental Protection Agency, local authorities should have an on-going role in environmental and water quality monitoring. This should be supported financially by allowing them to charge for large scale water volume abstraction.
1.10.3 The environmental regulations relating to wastewater treatment plants should be continually reviewed in relation to discharges, odours and noise.
1.10.4 The current Commission for Energy Regulation should be strengthened to take on the regulation of the new Irish water utility.
1.10.5 In order to ensure complete transparency in the process, the Regulatory Authority must provide full details of the model it uses in setting the standard charge it implements. Clarity is needed on the point at which it sets a new price for water to reflect changed costs and incentivise greater efficiencies and at what intervals it reviews these prices.
5 These are the North Western, Neagh Bann and the Shannon. 11 1.11 Consumer Representation
1.11.1 There must be a strong customer voice, funded by the new Irish water utility, along the lines of the Scottish model; i.e. whereby the new Irish water utility and its regulators would be obliged to consult, co-operate with and take account of the views of a statutory consumer-focused body, on water issues.
1.11.2 The composition of the Board of the new Irish water utility should make provision for a strong consumer representation.
1.12 Waivers
1.12.1 The Government must be cognisant of the needs of low income households. This must be reflected in the provision of a just and fair waiver system.
1.12.2 The waiver system should be similar to the existing ‘Fuel Allowance / Households Benefit Package’ system.
1.12.3 As water consumption may vary due to certain factors, a fair and just waiver scheme must take the following circumstances into account: household composition (age profile of residents), household size (combined household income) and medical conditions and disabilities which result in increased water usage.
1.12.4 Waivers may be either fully or partially granted as relevant to an individual household’s needs.
1.12.5 The waiver scheme must be structured to incentivise availing households to monitor their usage. It should reward households which manage their water consumption in an efficient manner by enabling them to retain the financial balance of their allowance.
1.13 Optimising Opportunities for the Small and Medium Enterprise Sector
1.13.1 The roll out of water meters across the State should reflect the need to employ apprentices struggling to find the opportunity to complete their training and people on the JobBridge programme.
1.14 Emergency Planning and Flooding
1.14.1 The status of the new Irish water utility vis-à-vis the Office of Public Works and the role of that Office as the lead agency in flood management situations should be clarified. A case exists for the retention by the Office of Public Works of its existing responsibilities.
12 1.14.2 Emergency Response Plans must be prepared by the new Irish water utility in conjunction with local authorities, the Environmental Protection Agency and the Health Services Executive. These Plans should be approved by the Regulator. It is important that the response time in emergency situations, such as freezing and flooding conditions, is managed to ensure that customer communications are facilitated and accessible, preferably in conjunction with local authority input.
1.14.3 The establishment of a single, centralised water utility should make it easier to manage water supply between regions and carry out effective flood planning. Cohesive management of water is needed and as part of this, the new Irish water utility should develop an effective interface with Northern Ireland Water.
1.15 Transparency and Accountability
1.15.1 The new Irish water utility, while recognising certain commercial sensitivities, must be open and transparent to consumers and must be covered by Freedom of Information legislation and be required to appear and report to the relevant Oireachtas Committee.
1.16 Branding of New Irish Water Utility6
1.16.1 Rather than embarking on an expensive branding exercise, the branding should be the quality of service it delivers. Any costs of branding the new Irish water utility must be kept to a minimum.
1.17 Audit of Water and Wastewater Services
1.17.1 An audit of all water and wastewater services within local authorities must take place, to ensure a full transfer of assets.
1.18 Water Storage
1.18.1 The proposed Shannon water supply project for Leinster and the Greater Dublin Area is essential if the strategic aim of a guaranteed and sustainable water supply for this area is to be secured.
6 Recommendation No.1.1.4 also refers, i.e. renaming Irish Water as Uisce Éireann. As the utility has not yet been established this renaming proposal is cost-neutral. 13 1.19 Public Private Partnerships
1.19.1 The Comptroller and Auditor General should carry out a Value for Money Review of the two main models of water infrastructure works; i.e. Design Build Operate or ‘traditional’ procurement before the new Irish water utility is committed to either.
1.20 Raising of Funds by new Irish Water Utility
1.20.1 The new Irish water utility should have the power to raise market funding and manage its debt as appropriate to its corporate governance structure.
______Ciarán Lynch TD Cathaoirleach
07 June 2012
14 2. INTRODUCTION
The Joint Committee outlined on 29 September 2011 the importance it placed on examining the issue of Water Provision in Ireland7:-
“Water supply is a priority issue in this country. There is no doubt that there is a pending problem with water supply in some areas, while nationwide we have experienced disruption to water supplies during winter cold snaps or shortages during the summer. On top of this, there is also the situation where vast quantities of water are lost through leakages in the system.
Everyone knows that there are limits and high costs involved in the provision of treated water to our growing population. We must provide water in highly populated areas such as Cork City and Dublin City and in rural low-population areas also. We must adhere to EU [European Union] Regulations and Directives and we must be conscious of the economic costs and environmental impacts of our decisions.”
The Joint Committee agreed, during 2011 and early 2012, to carry out a comprehensive and wide-ranging examination of the issues involved in providing water to households and businesses in Ireland in as efficient, cost-effective and equitable a way as possible.
The Joint Committee examined all aspects of these challenges including the alternative sources of supply, storage and disposal, the infrastructure needed and the costs involved. Between September 2011 and January 2012, it met with representatives from the business, construction, environmental, local government, State and voluntary sectors. As this is a very important issue for the people of Ireland, the Joint Committee was determined to consider all the relevant facts before making its recommendations.
In considering this topic, the Joint Committee met with officials from the following organisations:-
(1) Association of County and City Councils,
(2) Bord na Móna,
(3) Campaign against Household and Water Charges;
(4) Chambers Ireland;
(5) Cork City Council;
(6) Consumers Association of Ireland;
(7) County and City Managers’ Association;
(8) Donegal County Council;
7 Joint Committee press release available online at:- http://www.oireachtas.ie/parliament/mediazone/pressreleases/title-2609-en.html 15 (9) Dublin City Council;
(10) Economic and Social Research Institute;
(11) Engineers Ireland;
(12) Environmental Management Services;
(13) Environmental Protection Agency;
(14) Environment, Community and Local Government (Department of);
(15) Galway County Council;
(16) Irish Business and Employers’ Confederation;
(17) Leitrim County Council;
(18) National Consumer Agency;
(19) National University of Ireland, Dublin;
(20) Roscommon County Council;
(21) Services, Industrial, Professional and Technical Union;
(22) Shannon Protection Alliance;
(23) Social Justice Ireland;
(24) Trinity College Dublin;
(25) University of Limerick.
Please note that the above organisations are listed alphabetically and not in any other order. The submissions made to the Joint Committee in Public Session can be accessed on the Oireachtas website.
The Joint Committee also discussed this topic with Mr Fergus O’Dowd TD, Minister of State with responsibility for the NewERA Programme in the Department of Communications, Energy and Natural Resources.
This policy area is very broad and complex and this Report therefore focuses on a number of themes which the Joint Committee considers to be of strategic importance.
In addition to briefly setting out background information on water services from the water source to the treatment and supply of drinking water to the collection, treatment and final disposal of wastewater, this Report provides background information on the proposed new Irish water utility.
16 The Report, where possible, gives conclusions, based on the available data, regarding inter alia:-
(1) Communications, health and safety and emergency response systems to be put in place in the new Irish water utility;
(2) Costs, tariffs and waivers, or other ways to accommodate low income households;
(3) Metering (inside or outside the home, SMART or drive-by meter (including definitions of same);
(4) Possibility of grant schemes for conservation measures or subsidising the repair of leaks on private property etc;
(5) Accountability and proper governance safeguards for the new Irish water utility;
(6) Design Build Operate Water schemes (how they compare with ‘traditional’ procurement from the point of view of achieving the best value for money.
Where appropriate, the Joint Committee also considered background information regarding the situation in Northern Ireland Water and / or Scottish Water. Scottish Water has been highlighted as a successful model in managing its water services.
This Report and the examination of this topic must also be placed in the context of the Government’s policy to reform the water sector in Ireland, as set out in the Programme for Government, and the European Union / International Monetary Fund / European Central Bank Programme of financial support for Ireland.
Accordingly, recourse has been had as a matter of course to the following documents:-
(1) Reform of the Water Sector in Ireland, Position Paper (January 2012) prepared by the Department of Environment, Community and Local Government (Department of Environment);
(2) Irish Water: Phase 1 Report (2011) – an assessment prepared on the instructions of the Department of Environment by the consultancy firm PwC;
(3) Establishment of Irish Water under BGÉ [Bord Gáis Éireann], Questions and Answers (April 2012) prepared by the Department of Environment, Community and Local Government.
The first two documents listed above are the most substantive and are the ones which were published during the period when the Joint Committee met stakeholders and when the greater part of this Report was prepared.
17 Text Box 1 – New Irish Water Utility: Phase 1 Report (Purpose of Study)
To undertake an independent assessment of the transfer of responsibility for water services provision from the local authorities to a water utility and to recommend the most effective assignment of functions and structural arrangements for delivering high quality competitively priced water services to customers (domestic and non-domestic) and for infrastructure provision. In particular to examine two principal forms of potential company structure (or variants of those forms) for a new Irish water utility:-
(1) A water company which would be a self-funding water utility in a regulated environment, responsible for operation, maintenance and investment in all water services infrastructure, customer billing, charging;
(2) A company charged mainly with investment in the sector (strategic planning, delivery of projects of a regional/national priority, national metering programme) with local authorities operating as agents of the company, retaining their operational responsibilities and for delivery of smaller scale investment.
Source: Irish Water: Phase 1 (PwC, November 2011, p.5)
The Joint Committee is conscious that final decisions have yet to be made with regard to the functioning of the new Irish water utility and accordingly, it wishes to make its recommendations known before these decisions are taken.
18 3. EXECUTIVE SUMMARY
The Joint Committee is very aware of the importance of water as a national resource and of the necessity to preserve and protect this resource while utilising it to the benefit of the Irish people. The Joint Committee has enhanced its understanding of the issues involved through research and by meeting with a wide range of stakeholders, both at meetings in the Houses of the Oireachtas and also by sending Delegations to the site of the proposed reservoir in Garryhinch in Counties Laois and Offaly, to the proposed extraction point on Loch Dearg on the river Shannon from which it is proposed to feed this reservoir and to meet with the members of the Committee for the Environment in the Northern Ireland Assembly and officials of Northern Ireland Water. The Reports of these Delegations are attached to in the Appendices to this Report.
The Joint Committee recognises that, in addition to the primary objective of water policy which is to ensure compliance with statutory quality standards, the Government has identified four ‘key drivers’ which underpin the case for increased investment in water and waste water services8:-
(1) Enterprise – the 2008 Forfás report on the Assessment of Water and Waste Water Services for Enterprise sets out inter alia that there will continue to be a very significant demand for water services from the pharmaceuticals, chemicals and food production / processing sectors – growth to be achieved in some of these areas is, for example, set out in the Harvest 2020 report.
(2) Climate change – some climate change models suggest that Ireland may experience weather conditions in future that could jeopardise security of supplies;
(3) Increases in population – The Central Statistics Office estimates that Ireland’s population could, in the highest scenario, rise by nearly 1.5 million between 2006 and 2021;
(4) Water Framework Directive – The Water Framework Directive requires that European Union Member States introduce a river basin approach for the management of water and the achievement of a good ecological status by 2015, or, subject to conditions, over two subsequent planning cycles out to 2021 or 2027.
In addition, the Joint Committee acknowledges that very significant financial resources have been (over €5 billion spent on infrastructure between 2000 and 2010), and will be expended on water infrastructure.
The Department of Environment Position Paper (2012), for example, estimated (p.15) that a recurrent investment of €600 million annually would be necessary in addition to addressing current deficiencies in infrastructure9. Equally, the Joint Committee notes that
8 Reform of the Water Sector in Ireland, Department of the Environment, Community and Local Government (January 2012) Position Paper. 9 The Environmental Protection Agency’s Urban Waste Water Discharges report, published 16 February 2012, is a case in point. It states that nearly half Ireland’s wastewater treatment plants serving urban centres are failing to achieve national and EU standards. Its press release is available online at:- http://www.epa.ie/news/pr/2012/name,31932,en.html 19 the State’s capacity to fund future capital investment requirements from the Exchequer is constrained. This is demonstrated by the fact that the Government’s plan for Infrastructure and Capital Investment 2012 – 2016 indicates that there will be a decline in exchequer capital investment from €435 million in 2011 to €371 million in 2012 and €296 million by 2014.
The Joint Committee wishes to balance the growing economic importance and the level of investment of scarce resources with the need to ensure that proper governance is implemented in the new Irish water utility. It recognises the impact this re-organisation might have on communities from the point of view of costs, environmental, and health and safety concerns. It is in this context that the Joint Committee acknowledges the establishment of the new Irish water utility as a State utility but it is convinced that this vital entity should remain in public ownership.
While the Joint Committee recognises that the discussion on Water Provision at Joint Committee meetings was conducted on a cross-party basis, it also acknowledges that individual members and parties represented on the Joint Committee have different perspectives regarding Water Provision. While the Joint Committee, from the start of its consideration of this topic, has recognised that the establishment of a new Irish water utility is Government policy, its own objective as a Joint Committee is to give all stakeholders a forum to air their views with regard to how this utility will be established, what its functions and powers will be, what services it will deliver to the public and how it will deliver them, and how its operations will be financed. The Joint Committee has, in its considerations, striven to find common ground and to identify and put forward realistic and important recommendations aimed at achieving an optimal outcome to the benefit of all. There has been cooperation and compromise on all sides and while the Joint Committee accepts that not all of its members support all of the recommendations within this Report, it believes, nonetheless, that the Report will contribute to public debate and the Government’s decision-making process.
3.1 Background to Establishment of new Irish Water Utility
Under the current model for provision of water services in Ireland, five city councils and 29 county councils are designated as Water Service Authorities under the Water Services Act 2007 to provide water and wastewater services within their functional areas (Department of Environment, 2012).
The Government is, however, committed to establishing a new Irish water utility to take over responsibility for the delivery of water services from local authorities as one of a number of major proposed structural changes to the water sector in Ireland. This reflects the Government’s intention to take a national approach to water whilst pursuing a number of broad policy objectives including significantly improving the quality of service.
3.1.1Decisions to Establish a New Irish Water Utility
The decision to reorganise the delivery and funding of the Irish water sector, including through the establishment of a new Irish water utility, can be traced to a number of key policy documents. The Programme of Financial Support for 20 Ireland with the European Union / International Monetary Fund / European Central Bank includes a commitment to undertake an independent assessment of the transfer of responsibility for water services provision from local authorities to a water utility, and prepare proposals for implementation, as appropriate with a view to starting to charge for water in 2012 / 2013.
The current Programme for Government contains two commitments relating to a new water network, the first of which is the proposed establishment of a new Irish water utility to take over responsibility for Ireland’s water infrastructure and the water investment maintenance programmes of the 34 existing local authorities. The Programme for Government also envisages the introduction of water metering and charging following on from the establishment of the new Irish water utility.
3.1.2Structure of New Irish Water Utility
The Department of Environment Position Paper (2012) outlines the groundwork prepared by the Government for these fundamental changes over recent months.
The first phase was the independent assessment provided for in the European Union / International Monetary Fund / European Central Bank (European Union / International Monetary Fund / European Central Bank) agreement (this action was completed by the Programme deadline of the end of the fourth quarter of 2011). PwC was selected by the Department of Environment to undertake this assessment, which has now been considered by the Government.
In terms of company structure, it recommended the establishment of a public water utility in its report having also considered the option of an agency model (or variants of those forms).10 A privatised water utility was outside the scope for consideration. The Joint Committee notes with concern, however, the suggestion contained within the PwC assessment for the Department of Environment that the concept of a competitive market for water be borne in mind for the future and not only that but that this consideration should influence the structure of Irish Water when established11:-
“PwC suggest that once Irish Water is well established as a self- funding utility the Government and Regulators may wish to assess international experience of the introduction of competition in water and sewerage services to identify whether Ireland could benefit from competitive markets in the water sector at a later date. With this in mind, PwC recommend that, when undertaking the detailed design of the new organisational structure for Irish Water, the possibility of future retail competition should be taken into account.”
The second phase of work involves the development of a detailed implementation plan for the transition of water services functions from the city
10 PwC reviewed relevant models for water services in a number of countries. It stated that its research demonstrated that most of the models identified are based on the Public Utility Model. 11 PwC assessment (2011) for the Department of Environment, p.119. See also p.110. 21 and county councils to the public water utility, Irish Water (Department of Environment, 2012). The Government has also decided to embark on the rollout of a universal water metering programme, which will facilitate moving to a charging system for domestic water users that is based on use above a free allowance as provided for in the Programme for Government (Department of Environment, 2012).
The Joint Committee is cognisant of the comments that work is on-going on the structure for Irish Water and that the exact nature of this structure has yet to be decided on by the Government. Subsequent sections of this Discussion Paper address issues relevant to the structure of Irish Water and the Joint Committee’s views on that.
3.2 Conclusions Based on Joint Committee Meetings and Available Research
3.2.1Establishing New Irish Water Utility
The Joint Committee recognises that the Government is committed to establishing a new Irish water utility, to take over responsibility for the delivery of water services from local authorities. The assessment of this transfer of responsibility by PwC, having considered other options, recommends the establishment of a public water utility. The Joint Committee considers that the next phase of work involving the development of a detailed implementation plan for the transition of water services functions from the local authorities to the new Irish water utility will be critical in that it will be very important that this transfer work well and that the new utility get off to the best possible start. The Joint Committee notes the Government’s announcement of 17 April 2012 that the new Irish water utility will be an independent State owned subsidiary of Bord Gáis Éireann.
The Joint Committee recognises that the Government is committed to the introduction of water metering and charging and that this commitment is in the context of the large gap between the revenue generated from local authority charges and the cost of Water Provision.
The Joint Committee is concerned that the new Irish water utility should remain in public ownership and agree that considerations of opening the water sector to future competition, which was suggested by PwC, should not influence its operating structure when it is established.
The Joint Committee recognises that the establishment of the new Irish water utility and its phased assumption of current local authorities’ responsibilities may be prone to the risk of ‘democratic deficit’. Accordingly, the new utility should be accountable to the Irish people, through Oireachtas Éireann. This accountability should be clarified from the start.
The Joint Committee has concerns as to the information available with regard to the assets and liabilities which will be transferred to new Irish water utility; i.e. the last valuation of assets was carried out in 2003 and the PwC assessment 22 suggests that there is no estimate available with regard to liabilities. However, the Joint Committee recognises the position of the Department of Environment that the debt to asset value ratio is expected to be low and that a full due diligence will be required of loans associated with water sector assets before transfer to the new utility. The identification and quantification of these financial liabilities will be one of the key tasks to be rolled out as part of the implementation plan for the new utility.
The Joint Committee notes that, to date, the new Irish water utility has been referred to as ‘Irish Water’. In regard to this, the Joint Committee recommends, as a matter of principle and in accordance with Irish being the first official language of Ireland, that the new utility should be known as Uisce Éireann. In this context, the Joint Committee notes the Minister for Communications, Energy and Natural Resources agreed with this practice in a reply to a parliamentary question on 29 November 2011:12
“If, however, there are good reasons to establish a new State agency or commercial entity, I am happy to agree with the Deputy that we should select a suitable name as Gaeilge which would be the brand under which the new company would trade.”
3.2.2Communications, Health and Safety, and Emergency Response Systems for New Irish Water Utility
Although all local authorities have their own general strategies for branding, marketing and communications, they do not appear to have separate branding and communications strategies for the water services they provide.
The PwC report recommends that the new Irish water utility should have a strong brand presence. Its brand should raise customer awareness of the need to pay for water services and should contribute to developing communications strategies. Communications strategies should not be for promotional purposes only but should also facilitate communications in times of emergency when customers are in likely to urgently require information in an accessible format.
At present, local authorities are responsible for maintaining the public mains systems and ensuring the quality of the water they distribute, including notifying the public in cases of any potential dangers. Water Services Authorities must have action plans and other systems in place to deal with serious breaches.
Water of the highest quality is important from a number of perspectives including public health. How the new Irish water utility maintains a high quality of water is of critical importance.
Several severe floods have occurred across Ireland in the last decade. These have caused much devastation. The impact of flooding can be very severe and accordingly, it is essential that the appropriate policy approaches and responses are in place.
12 http://debates.oireachtas.ie/dail/2011/11/29/00012.asp 23 The Office of Public Works is currently responsible for flood planning and management and it is a key issue in relation to the future of water services is whether it should retain this responsibility or whether the new Irish water utility should assume it. The PwC report recommends that the Office of Public Works should be responsible for river and sea flooding protection in the new institutional framework. The Joint Committee has carefully considered this issue in the context of reforming water services and, taking account of a range of factors including which bodies have existing structures and operational expertise, it supports the retention of this responsibility by the Office of Public Works with a role for the new Irish water utility, as with other agencies, in support of this role.
3.2.3Corporate Governance
The Joint Committee considered, among other issues, whether consideration should be given to the Scottish model with regard to regulation; i.e. that a separate regulator be given responsibility for public safety in the context of the quality of drinking water. However, the Joint Committee considers that this role can be adequately dealt with by the Environmental Protection Agency and the local authorities. A strong voice for the consumer is absolutely necessary and the Scottish model would serve well in delivering this.
3.2.4Metering
There are a number of different opinions regarding the introduction of water metering and many of these were expressed to the Joint Committee during its hearings on Water Provision.
At one end of the scale was a recommendation that the new Irish water utility meter water use, charging on the basis of volume of consumption with the charge including sanitary services. At the other end there was outright opposition to domestic water metering on the grounds that the benefits will not outweigh the costs when compared to the benefits and costs of tackling ‘unaccounted for water’. In the context of this debate, the Department of Environment, Community and Local Government in its recently published Questions and Answers (April 2012, p.9) states that:-
“…our cost estimates indicate that the savings in consumption and customer side leakage arising from investment in water metering, with consumption based charges, would reduce water demand by 2 to 3 times the level which would arise from a similar level of investment in the public water mains replacement.”
A number of factors are important when it comes to introducing universal metering and charging consumers for water supply. These include the need for the supply system to be efficient and safe. Regional, geological and competition issues arise in a competitive context; i.e. whether charges should be based on a national or a regional basis.
24 There are varying estimates regarding the cost of installing domestic water meters. These costs will depend on a number of factors including the key issue of whether they are located internally or externally and what details they gather and process.
The rationale for the current proposals is based on the installation of water meters being a long-term investment aimed at best managing, funding and conserving water resources.
This has important implications in terms of costs and benefits.
While noting that the Government has now announced that meters are to be placed on the roadside, grass verge, etc., on public rather than private property, it would seem prudent that a thorough cost-benefit analysis consider all factors, including technological and geographical, when determining which location is best. This is in the context of the evidence which the Joint Committee heard which stressed the complexity of the issue.
The evidence given in this Report indicates that charging for water through the use of metering does incentivise more efficient use of water and thereby reduces consumption. However, it should be noted that metering is not the only method of reducing usage, as identified in the Aurora case study (see section 10.8).
However, the recommendations from various international organisations and reports indicate that metering is the fairest way to charge for water. The Joint Committee believes that as the Government has decided to introduce a charge for water, it must also play its part in reducing leakage by, for example, setting a mandatory maximum leakage rate for the new Irish water utility and holding it accountable for achieving and maintaining it.
Finally, the benefits of metering should outweigh the cost of installing meters and the funds generated from metering should be used to maintain and improve the administration of an efficient and high quality water service.
3.2.5Costs, Tariffs and Waivers
The Joint Committee considered whether the provision of a free allocation of water to all households was a suitable approach.
In its submission to the Joint Committee, the Irish Business and Employer’s Confederation suggested that, rather than giving a free water allowance, consideration be given to offering financial support to those who need it through a social welfare payment.
The National Consumer Agency suggested making low-income households and those in the Mortgage Arrears Resolution Process exempt from water charges.
Given the introduction of domestic water charges, available research seems to indicate that metering is the fairest and most equitable way to charge for water.
25 It also seems to indicate that a waiver system should be in place to protect low- income households from slipping further into poverty.
The Joint Committee believes that any charge introduced should be a single charge for water and wastewater, rather than a separate charge for water alone. It is important to note, as Cork City Council submitted to the Joint Committee, that the collection and treatment of wastewater costs more than the treatment and distribution of water.
The Joint Committee considered whether public money should be allocated to other initiatives such as retrofitting homes to encourage, for example, the use of grey water and modernising / repairing service pipes from the household to the mains along which there may be considerable leakage. The Joint Committee noted that this would also generate employment (Association of County and City Councils submission) and considered whether this could be an add-on to the Better Energy Homes scheme.
The Joint Committee considered the case for integrating energy SMART meters with water meters (Consumer Association of Ireland submission) and believes that the Minister should investigate the long term potential benefits of this technology.
The new Irish Water utility could facilitate management of water resources on the basis of River Basin District Areas in compliance with the Water Framework Directive (Engineers Ireland submission). What happens upstream affects what happens downstream. A river basin or catchment approach, where all the interdependencies can be managed, is crucial for both fairness and efficiency. Choices downstream should not be seriously compromised by what happens upstream unless the benefits of doing so are substantial and a systems approach will reduce the overall cost of water supply and wastewater treatment (National University of Ireland, Dublin submission).
As three of the River Basin District Areas within Ireland span both jurisdictions on the island, consideration should be given to managing these on a North / South basis.
3.2.6Procurement Models and Value for Money
The PwC assessment (2011, page105) recommends that the statutory powers of the Board of the new Irish water utility should have all the characteristics of a commercial body. It should have the power to borrow, to enter into Public Private Partnerships and joint ventures and to set up subsidiaries. As a comparison, Electric Ireland (formerly Electricity Supply Board), an existing utility company that has the power to borrow13:-
“The Group’s debt management strategy targets a debt portfolio profile with a diverse mix of counterparties, funding sources and maturities. Structured non-recourse and limited recourse financing is used where appropriate, taking into account the compatibility
13 Source: Electricity Supply Board Annual Report (2010, page18) 26 between funding costs and risk mitigation. All borrowing facilities are in compliance with the Electricity Acts and relevant regulatory requirements and Group Treasury maintains diversity in ESB’s [Electricity Supply Board] lender base in order to achieve a strategic spread of risk.”
This Report notes that the Questions and Answers (April 2012, page 1) states:-
“Establishing the new organisation under the umbrella of a mature semi-State…has a number of advantages including the existing expertise and experience to manage the set up with lesser risks than a Greenfield set-up.”
The Joint Committee believes that clarification should be provided in relation to the new Irish water utility’s borrowing capacity, etc., in the context that it will now be established within the Bord Gáis Éireann Group14:-
“When fully operational, Irish Water will have the capacity to raise funds on financial markets for capital investment in the same way as other Semi States such as the ESB [Electricity Supply Board] and BGÉ [Bord Gáis Éireann]”.
The Joint Committee also requests the Comptroller and Auditor General to carry out a Value for Money Review of the two main models of water infrastructure works; i.e. Public Private Partnership or ‘traditional’ procurement in order that no one system becomes embedded in the working culture of the new Irish water utility without all the necessary data and guidance being available first.
14 Reforming Water Services to meet Ireland’s Future Economic and Environmental Needs – Department of Environment press release dated 17 April 2012 available online at:- http://www.environ.ie/en/Environment/Water/WaterSectorReform/News/MainBody,29944,en.htm 27 4. PROVISION OF DRINKING WATER
4.1 Introduction
In Ireland, 81.9% of drinking water originates from rivers and lakes (surface waters), 10.3% from groundwater and 7.8% from springs (Environmental Protection Agency, 2011). Water reaches our taps through a distribution system of public water supplies (majority of households), public group water schemes, private group water schemes, small private supplies and ‘exempted supplies’ (predominantly private wells). Urban areas tend to have few supplies serving large populations (for example, Ballymore Eustace, the largest treatment plant in the Greater Dublin Area serves a population of over 500,000) with the converse being the case in rural areas (Department of Environment, 2012). The table below provides details of the water facilities serving these households, as per data from the 2006 census (Central Statistics Office) (Department of Environment, 2012).
Table 1: Water Supply Facilities Serving Irish Households
Number of Households Connected To
1,093,189 Public Mains 77%
126,609 Group Water Schemes connected to Public Supplies 9%
46,458 Private Group Water Schemes 3%
145,341 Other Private Sources 10%
2,908 Not connected to any facility
Source: Adapted from Department of Environment Position Paper (2012, p.5)
Under the Water Services Act, 2007, 34 local authorities (5 city and 29 county councils) are designated as Water Service Authorities and are directly responsible for the provision of water and wastewater services for the 952 separate public water supplies. They are also responsible for the associated infrastructure such as treatment plants and pumping stations, as well as about 25,000 kilometres of water supply networks (Department of Environment, 2012). They supply about 1.6 billion litres of water on a daily basis. There are approximately one million domestic and 160,000 non-domestic water consumer connections in Ireland (County and City Managers’ Association submission to Joint Committee, October 2011).
4.2 Water Quality
Surface and ground water resources are not always protected and many are at risk from pollution. As such, they must be treated before being fit for human consumption. In general, surface water requires more treatment than ground water, but some private water supplies, the majority of which are reliant on groundwater and springs, have inadequate treatment, or, in many cases, no treatment at all. A
28 number of public water supplies which originate from surface water are treated only with disinfectant, which is insufficient.
Drinking water quality is governed by European Union Regulations. The supply is deemed to be safe if it meets the chemical and microbiological quality standards set out in the regulations. The most important microbial parameter for human health is E. coli [Escherichia coli], an indicator of recent faecal contamination and one of the standards set out in the regulations. Using E. coli as an indicator, public supplies are safer than private group water schemes. The Environmental Protection Agency’s latest report on ’The Provision and Quality of Drinking Water in Ireland – A report for the year 2010’ published in November 2011 (Environmental Protection Agency, 2011), noted that the positive downward trend in E. coli occurrences in drinking water samples in recent years continued in 2010. For the first time, large public drinking water supplies in Ireland show similar compliance levels for E. coli to similar supplies in England and Wales, and the Netherlands. These large supplies provide drinking water to almost three million people in Ireland. Public water supply compliance with chemical standards was 99.2% in both 2009 and 2010 (Environmental Protection Agency, 2011).
The Water Framework Directive15
The Water Framework Directive requires a catchment or river-basin approach for the management of water and obliges all European Union Member States to protect and improve their waters with a view to achieving good ecological status by 2015 or, subject to specific conditions, over two subsequent planning cycles out to 2021 or 2027.
As required by the Water Framework Directive, River Basin Management Plans for each of the River Basin District Areas in the State16 were adopted last year by the local authorities in each district area.
In common with other European Union Member States, our plans recognise that it will not be possible to meet the 2015 deadline in all cases. The plans aim to increase the proportion of rivers and canals at good or high status from just over 50% to 68% by 2015. They describe the current status of our waters and set out water quality objectives for them. They also specify the measures to be taken to protect and improve our waters. Responsibility for implementing the measures rests with the local authorities, various Government departments and agencies, and other sectors such as agriculture and industry.
Three of the key measures in the plans are directed at municipal and agricultural sources which are the two main pressure areas on water quality in Ireland. These measures are:-
(1) The Water Services Investment Programme;
15 This section, The Water Framework Directive is taken from Department of Environment (2012, pages 9 and 10) Reform of the water sector in Ireland (refer to References section for full details). 16 Of eight River Basin Districts Areas on Ireland, three are cross-border River Basin District Areas – the North Western, the Neagh Bann and the Shannon. There has been a high level of coordination between the authorities in both jurisdictions in developing the plans for these. 29 (2) The licensing of discharges from waste water treatment plants;
(3) The Good Agricultural Practice, commonly known as the ‘Nitrates’, Regulations.
The ecological status of Irish surface waters compares favourably with that of other European countries. The latest Environmental Protection Agency Water Quality Report (Environmental Protection Agency, 2011) indicates 52% of rivers and 47% of lakes at ‘good’ or better ecological status. The report notes that while there is evidence of an overall improvement in water quality in Ireland, further and continued enhancement is essential if we are to achieve the water quality targets as required by the Water Framework Directive (Department of Environment, 2012, p.7).
4.3 Water Usage Volumes
Unaccounted for water is a measure of water loss in a distribution system. The provision of a continuous supply of water to households is under pressure because, in part, of high levels of unaccounted for water (primarily leakage). Water investment programmes previously focused on water and sewage treatment schemes to ensure compliance with European Directives and consequently, water mains renewal was neglected. As such, the water mains system in many parts of Ireland is leaky, inefficient and in need of significant investment. Recent figures for unaccounted for water for the majority of local authorities show losses ranging from 16.8% in Limerick County Council to 58.6% in Roscommon County Council (Department of Environment, Health and Local Government, 2010). According to the Department of Environment submission to the Joint Committee, unaccounted for water averages 41% nationally. There is also considerable customer-side leakage; for example, Dublin City Council informed the Joint Committee that a recent study identified leaks on private property in three houses being equal to the entire consumption of 160 houses. Neighbourhood / block metering which helps local authorities identify customer-side leakage and excessive usage should be used across all local authority areas.
Dublin City Council estimates that the Greater Dublin Region loses up to 28% of treated drinking water per annum to leakage. This is down from 43% in 1998. Significant portions of the 19th Century network need to be replaced to further reduce leakage but over recent years only 10% of the defective mains have been replaced. Water loss is a common feature of water distribution networks around the world, with typical losses of 25 to 40% and even the best modern systems struggling to get below 20%. However, when compared with other major cities, (see Figure 1, Losses from leaky pipes %), it is clear that improvements could be made in Ireland. To this end, €321 million was allocated nationally in 2010 for the replacement or rehabilitation of defective or leaking water mains (Department of Environment, Heritage and Local Government, 2010a).
30 Figure 1: Losses from Leaky Pipes, % Losses from leaky pipes %
0 -5 -10 -15 -20 -25 -30 -35 -40 -45 Economist Intelligence Unit/ Siemens -50
Source: Economist Intelligence Unit / Siemens
The following table sets out water supply zones in 2010 and the proportion of the population served17 (Department of Environment, 2012).
Table 2: Water Supply Zones and the Proportion of the Population Served No. of Water % of Total Type of Supply Supply Zones Population Served Public water supply 945 84.8
Group water scheme connected to public supply 671 2.6
Group water scheme with private source 457 5.2
Small private supply 1,284 0.7
Exempted supplies N/A 6.7
Source: Environmental Protection Agency (2011) (cited in Department of Environment, 2012)
17 Water Supply Zone is a geographically defined area within which drinking water comes from one or more sources and water quality is uniform. Exempted supplies are supplies that are provided from either an individual supply providing less than ten cubic metres a day on average or serving fewer than 50 persons and do not supply water as part of a public or commercial activity, or are from a supply which the local authority are satisfied would have no impact on the health of consumers, e.g. industrial cooling water. 31 5. WASTEWATER SERVICES
5.1 Introduction
Water Service Authorities are directly responsible for 482 agglomerations for the treatment of wastewater with a population greater or equal to 500 population equivalent18, as well as the appropriate management of a substantial number of waste water discharges in smaller agglomerations (Department of Environment, 2012).
As a result, Water Service Authorities are responsible for infrastructure such as wastewater treatment plants and pumping stations and extensive collection networks for wastewater. The table below provides details of the wastewater facilities serving these households, as per data from the 2006 census (CSO).
Table 3: Wastewater Facilities Serving Irish Households
Wastewater Facilities
956,239 households served by public schemes 67.5%
418,033 households served by septic tanks 29.5%
29,685 households served by ? treatment systems 2.0%
6,979 households served by other sources 0.5%
4,179 households have no sewerage facilities
Source: Department of Environment, 2012
The Urban Waste Water Treatment Regulations 2001 – 2010 and the Urban Waste Water Treatment Directive (1991) set requirements on the provision of wastewater collection systems and treatment plants, provide for the monitoring of wastewater discharges and specify limits for certain parameters in the discharges (Environmental Protection Agency, 2012). The nature of the required provisions is dependent on the size of the agglomeration and the nature of the receiving waters.
5.2 Collection and Treatment
Sewage can be treated close to where it is created (generally in septic tanks in Ireland) or can be collected via a network of pipes and pump stations to a municipal wastewater treatment plant. Industrial sources of wastewater often require specialised treatment processes.
18 Population equivalent is a measure of organic biodegradable load. A population equivalent of 1 is defined in the Urban Waste Water Treatment Directive as the organic biodegradable load having a five-day biochemical oxygen demand (BOD5) of 60g of oxygen per day. 32 As identified by the Environmental Protection Agency (2012), in 2009, 6% of wastewater collected in urban areas received no treatment or preliminary treatment only prior to discharge into the aquatic environment. This is not recommended practice.
Sewage treatment generally involves three stages, called primary, secondary and tertiary treatment:-
(1) Primary treatment consists of temporarily holding the sewage in a quiescent basin where heavy solids can settle to the bottom while oil, grease and lighter solids float to the surface. The settled and floating materials are removed and the remaining liquid may be discharged or subjected to secondary treatment.
(2) Secondary treatment removes dissolved and suspended biological matter. It is typically performed by indigenous water-borne micro-organisms in a managed habitat. Nutrients may also be removed as a part of secondary treatment. It may require a separation process to remove the micro- organisms from the treated water prior to discharge or tertiary treatment.
(3) Tertiary treatment is sometimes defined as anything more than primary and secondary treatment in order to allow discharge into sensitive freshwater, estuarine or coastal water. Treated water is sometimes disinfected chemically or physically (for example, by lagoons and microfiltration) prior to discharge into a receiving watercourse.
The sewage sludge produced from the treatment system is thickened and dewatered. Approximately 106,000 tonnes of sewage sludge were produced at urban waste water treatment plants in 2009. Most of the sludge produced is re-used in agriculture (62%). The disposal of sludge to landfill was reduced to 0.1% in 2009, whereas disposal by other uses such as composting and land remediation at mine sites has increased to 38% (Environmental Protection Agency, 2012).
A report, Focus on Urban Wastewater Discharges in Ireland (2012), published in February 2012 by the Environmental Protection Agency updates data on the performance of urban wastewater treatment plants across Ireland including the level of treatment provided and compliance with Irish and European legislation. The main findings in the report, regarding the implementation of secondary treatment and plant performance for 2009, included:-
(1) 93% of urban wastewater discharges in Ireland receive secondary treatment or higher.
(2) 17 agglomerations do not have the level of treatment required in the Urban Waste Water Treatment Directive (reduced to 11 in 2011). In two cases provision of treatment is now over ten years late.
(3) Eight agglomerations did not have nutrient reduction provided by the specified date in the Urban Waste Water Treatment Directive (no improvement by the end of 2011).
33 (4) Compliance with Urban Waste Water Treatment Directive standards is 57% for larger plants and drops to 42% when you include all smaller plants (500 – 2000 person equivalent).
(5) Failures due to lack of sampling reduced by two-thirds since 2007.
34 6. ESTABLISHMENT OF NEW IRISH WATER UTLITY
6.1 Background to Establishment of New Irish Water Utility
The Government is committed to establishing a new Irish water utility to take over responsibility for the delivery of water services from local authorities. This is one of three major proposed structural changes to the water sector in Ireland at present19.
As previously outlined, under the current model, 34 local authorities (five city councils and 29 county councils) are currently designated as Water Service Authorities under the Water Services Act 200720. They are charged with providing water and wastewater services within their functional areas (Department of Environment, 2012). However, the Government now intends to take a national approach to water whilst pursuing a number of broad policy objectives. These objectives include improvements to the quality of service, increasing the cost efficiency associated with Water Provision and conserving this resource (Department of Environment, 2012).
6.2 Decision to Establish New Irish Water Utility
The decision to reorganise the delivery and funding of the water sector, including through the establishment of a new Irish water utility, can be traced to a number of key policy documents. The Programme of Financial Support for Ireland with European Union / International Monetary Fund / European Central Bank funding includes a commitment to undertake an independent assessment of the transfer of responsibility for water services provision from local authorities to a water utility, and prepare proposals for implementation, as appropriate with a view to start charging in 2012/201321.
The Programme for Government contains two commitments relating to a new water network. The establishment of a new Irish water utility is the first of these:-
“The new Government will create Irish Water, a new State company that will take over the water investment maintenance programmes of the 34
19 Other proposed reforms are the introduction of water charges based on metered usage and the introduction of independent economic regulation of the water sector by the Commission for Energy Regulation. 20 The Water Services Act, 2007 consolidates legislation relating to water and waste-water services. This Act sets out the governing functions, standards, obligations, and practices in relation to planning, management and delivery of water services. Key statutory provisions in the Act and in related regulations create supervisory and enforcement roles for the local authorities and the EPA with regard to the protection of drinking water and the supervision of waste water treatment and discharge. English-language version available at: http://www.irishstatutebook.ie/pdf/2007/en.act.2007.0030.pdf Leagan Gaeilge ar fáil ag: http://www.acts.ie/ga.act.2007.0030.1.html 21 See Memorandum of Understanding, December 2010. Available at:- http://www.finance.gov.ie/documents/publications/reports/2011/euimfrevised.pdf The most recent update of the Memorandum of Understanding commits Ireland to updating its programme partners on the establishment of a regulated water utility and plans for the roll-out of a domestic water metering programme in light of the results of the pubic consultation process which is due to close on 24 February 2012. 35 existing local authorities. It will supervise and accelerate the planned investments needed to upgrade the State’s inefficient and leaking water network [which] so has proved so unreliable during the recent harsh water conditions” (Fine Gael and Labour, 2010, page 14).
The Programme for Government also envisages the introduction of water metering and charging following on from the establishment of the new Irish water utility:-
“To achieve better quality water and environment we will introduce a fair funding model to deliver clean and reliable water. We will first establish a new State owned water utility company to take over responsibility from the separate local authorities for Ireland’s water infrastructure and to drive new investment. The objective is to install water meters in every household in Ireland and move to a charging system that is based on use above the free allowance”. (Fine Gael and Labour, 2010, page 16)
Whilst the current policy direction is strongly influenced by the current Programme for Government and the European Union / International Monetary Fund / European Central Bank agreement, the proposed introduction of water charging predates the general election of 2010 and the troika agreement. The renewed Programme for Government issued by the previous Government on 10 October 2009 committed that administration to introducing charging for treated water use, based on a system where households would be allocated a free basic allowance, with charging only for water use in excess of this allowance22. It was envisaged that local authorities would have set their own rates for water use under that system.
6.3 Structure of New Irish Water Utility
The Department of Environment (2012) outlines the groundwork prepared by the Government for these fundamental changes over recent months.
The first phase was the independent assessment provided for in the European Union / International Monetary Fund / European Central Bank agreement. This was completed by the programme deadline of the end of the fourth Quarter of 2011. The Department of Environment selected PwC to undertake this assessment, which has now been considered by the Government23. In terms of company structure, it recommended the establishment of a public water utility in its report, having also considered the option of an agency model or variants of those forms24. A privatised water utility was outside the scope for consideration.
PwC set out the benefits it saw to this model over the other models considered and over the status quo, and its assessment is provided in table 4 below.
22 See:- http://www.taoiseach.ie/eng/Publications/Publications_2009/Renewed_Programme_for_Government,_ October_2009.pdf 23 The PwC report is available on the website of the Department of Environment at:- http://www.environ.ie/en/Environment/Water/WaterSectorReform/ 24 PwC reviewed relevant models for water services in a number of countries. It stated that its research demonstrated that most of the models identified are based on the Public Utility Model. 36 Table 4: Benefits Provided by the Public Utility Model for the New Irish Water Utility
(1) Provides an opportunity to build a fit for purpose operating model to deliver water services in the most efficient and effective manner.
(2) Irish Water controls all assets, revenues, costs – better economies of scale – optimised borrowing capacity.
(3) Better able to ensure security and quality of supply. Efficiency and (4) Consistent and transparent service quality; more rapidly deploy Effectiveness resources through a national customer service centre with a regional and local presence.
(5) More efficient cost base; lower unit cost of delivery.
(6) Single entity for regulators to regulate, as opposed to complexity of 34 separate local authorities.
(7) Critical mass to attract key talent.
(1) Borrowing capacity higher than other models; can become self-funding sooner. Funding (2) Reduces the burden on the exchequer – positive impact on GDP / debt ratio.
(1) Better able to implement national strategies; not curtailed by local authority boundaries or non-water related activities. Strategic planning and (2) One decision making authority as opposed to 34; more accountability coherent and integrated organisation structure.
(3) Clear lines of accountability, authority and responsibility.
Source: Department of Environment Position Paper ( 2012) page 14
The Joint Committee notes that, rather than establishing a stand-alone utility, the Government has decided to establish the new Irish water utility within the Bord Gáis Éireann Group.
The second phase of work involves the development of a detailed implementation plan for the transition of water services functions from the local authorities to the new Irish water utility (Department of Environment, 2012).
The Government has also decided to embark on the rollout of a universal water metering programme, which will facilitate moving to a charging system for domestic water users that is based on use above a free allowance as provided for in the Programme for Government (Department of Environment, 2012).
37 In its presentation to the Joint Committee on 25 October 2011, the Department of Environment outlined the situation in relation to the new Irish water utility, the ‘drivers’ behind its establishment and the PwC report:-
“As public servants, one of the principal mandates of Oireachtas Members is to ensure they implement what the Government has included in its Programme for Government. That Programme is crystal clear on the issue of Irish water. It states that a national water company will be established to take over the functions of the 34 existing local authorities. The principal driver for this, as is clear in the Programme for Government, is accelerated planned investments to upgrade the State’s inefficient and leaking water network. The EU – IMF [European Union – International Monetary Fund] agreement, which predates the Programme for Government, requires the undertaking of an independent assessment on the transfer of responsibility for water service provision from local authorities to a water utility. The move in that direction is a done deal but how it looks is far from a done deal and work is being undertaken by PricewaterhouseCoopers. This is an independent assessment and is not binding on the Government. The Government will make its own judgment in regard to how it wants to structure and restructure the water sector. It will be informed by the independent assessment. No decision has been taken at this time by the Government as to how the structure might look”.
The Joint Committee is cognisant that the working structure of the new Irish water utility is still being developed and that its exact nature has yet to be decided on by the Government. Subsequent sections of this Report address issues relevant to the structure of the new utility and the Joint Committee’s views regarding it. This is based on the understanding that the new utility will be publically owned as has been clearly stated by the Government.
6.4 Current Cost of Water Provision
There is currently a large gap between the revenue generated from local authority charges and the cost of Water Provision. For example, water services cost over €1.2 billion to run in 2010. €715 million of this were operational costs and over €500 million were capital costs. Revenue from non-domestic charges was just over €200 million (Department of Environment, 2012). The balance of around €1 billion is largely State funded, through a combination of Exchequer grants and local authority resources, including the Local Government Fund (Department of Environment, 2012).
Department of Environment (2012, page 14) acknowledges the problems presented in relation to Exchequer funding of water services. It states ‘our capacity to fund the future capital investment requirements from the Exchequer is severally constrained’. It further concludes that ‘meeting the investment needs and rising operational costs within the current funding model is unsustainable’ (Department of Environment, 2012, page 14). It is therefore envisaged that there will be a new funding model and that this will be influenced by the following factors as outlined by the Department of Environment (2012, pages 14 and 15):-
38 (1) Capital requirement – The independent assessment recognises that, in common with other international norms, there will need to be a ‘steady state’ of investment in water services, estimated at €600 million annually. This is together with provision for the backlog of investment required mainly to meet statutory obligations. The overall level of capital investment for the sector will be determined and approved by the Regulator on the basis of an investment plan to be developed by the new Irish water utility.
(2) Operational requirements – Operational costs, which largely comprise labour, energy use and chemicals for treatment processes, have been rising as new and more complex infrastructure has been built over the past decade.
(3) Efficiency gains – The increased operational costs can be offset to an extent by efficiency gains arising from moving to the new organisational form. Scottish Water, for example, which transitioned from local to regional to national organisation of water services, achieved operational savings of 40% over a five year period.
(4) Government funding – As indicated earlier, the Government’s capacity to fund the future water / waste water investment requirements from the Exchequer is severally constrained with capital funding for water services under the Government’s Plan for Infrastructure and Capital Investment 2012 – 2016 showing a reduction of almost 32% between 2011 and 2014.
(5) Ability to access markets – The independent assessment also makes assumptions in terms of the regulated capital value of the new Irish water utility and its ability to raise debt on the financial markets.
6.4.1Future Funding of New Irish Water Utility
The PwC assessment points out (2011, page 30) that the water sector in Ireland has a high level of dependency on Government funding for both operating costs and capital expenditure. It states that the existing funding arrangements are unlikely to be sustainable in the longer term and that the constraints on Government finances ‘provide a backdrop for the establishment of an Irish water utility which will raise charges for the supply of fresh and waste water services to both the commercial and residential sectors, and that has the ability to raise debt finance on foot of its net revenue streams and tangible asset base’.
An associated issue discussed by PwC is whether a proportion of the Local Government Grant should, in future, be paid to the new Irish water utility. At a later stage of the PwC assessment (page 116) three key findings in relation to funding are outlined as it perceives them to be:-
(1) Depending upon how the funding requirements of the new Irish water utility are met, there will be significant variations in any resulting charges for customers.
39 (2) The financial analysis undertaken also indicates that under certain scenarios, and subject to certain assumptions, the new Irish water utility could become a self-financing utility as early as 2018.
(3) One of the primary tests for determining whether or not the new Irish water utility would be treated as on or off the General Government Balance Sheet is whether the sales generated by it, excluding any Government grant income or subsidies, would be more than 50% of the operating costs including depreciation and interest.
The Joint Committee notes that another State utility, Electric Ireland, has its own powers to borrow. In January 2011, it acquired its own credit rating when three ratings agencies classed its debts as investment grade, giving it access to more lenders the next time it is seeking to raise money. In the context that an announcement has been made by Government that the new Irish water utility is being established within the Bord Gáis Éireann Group, clarity as to the implications this might have for achieving a credit rating such as Electric Ireland’s would seem advisable.
6.5 Transition Strategy
An initial transition strategy was proposed for the new Irish water utility which envisaged a staged approach beginning in the first quarter of 2012 and that the transfer of responsibilities for water services from the local authorities to the new Irish water utility would be completed by the end of 2017 (see figure 2).
Figure 2: Phased Transition Strategy
2012 2013 2014 2015 2016 2017
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Task Phase Name
PMO – 1. planning and preparation
Set up and launch of new 2. Irish water utility
Interim 3. agency arrangements
Phased transfer of 4. staff and operations
Utility model 5. fully operational
Source: PwC (2011) page 18
40 6.6 Transfer of Assets and Liabilities from Local Authorities to New Irish Water Utility
The Joint Committee did consider whether it had any concerns as to the information available with regard to the assets and liabilities which will be transferred to the new Irish water utility. This is in the context of the last valuation of assets having been carried out in 2003 and of the PwC assessment suggesting that there is no estimate available with regard to liabilities (see Text Box 2).
However, in this context the Department of Environment has pointed out that Phase II of the assessment involves the development of an implementation plan which will address transformation planning in more detail. As the Department of Environment acknowledges, only certain data was available from local authority financial accounts on balances on water services capital accounts and otherwise, to the consultants in preparing Phase I of the report, and a full due diligence will be required of loans associated with water sector assets before transfer to the new Irish water utility. The identification and quantification of these financial liabilities will be one of the key tasks to be rolled out as part of the implementation plan for the new Irish water utility. The Department of Environment maintains, however, that over the past decade, the Exchequer has funded on average 75% of the cost of water sector capital projects, so the debt to asset value ratio is expected to be low.
Text Box 2: Extract of PwC Report on Assets and Liabilities
Assets and Liabilities
Assets:
The last valuation of water infrastructure assets was in 2003, and thereafter the assets have been depreciated on a straight line basis. PwC understand that a further revaluation of assets was meant to have been undertaken in 2008, but this was subsequently postponed. If these assets are however (depending upon the model chosen) to be transferred to Irish Water, then a further revaluation of these assets will be required.
From Note 1 to the 2010 unaudited AFS the NPV of the water infrastructure assets as at 31/12/2010 amounted to €11.5bn, and broke down as follows:
Gross Fixed Assets: €19.4bn as at 31/12/10 Accumulated Depreciation: €7.9bn Net Book Value: €11.5bn (€11.4bn in 2009)
Liabilities:
Prior to any transfer of liabilities to a new water company, detailed verification work would need to be undertaken with the respective local authorities to validate the value of any water and wastewater related loans which they may want to see transferred to Irish Water. In addition, and subject to a determination being made by the CSO / Eurostat on whether Irish Water would be off the GBB, there may be an additional benefit to the Government where such a transfer takes place and debts are moved from the Local Authorities to Irish Water.
41 7. COMMUNICATIONS, HEALTH AND SAFETY AND EMERGENCY RESPONSE SYSTEMS TO BE PUT IN PLACE IN THE NEW IRISH WATER UTILITY
This section looks at a number of the vital systems to be put in place at the new Irish water utility, namely communications, health and safety, and emergency response.
7.1 Communications
The current model for provision of water services is based on provision by the 34 existing local authorities. Each of these local authorities has its own strategy for branding, marketing and communications which reflects the full range of services it provides (PwC, 2011). As such, there is currently no clear national strategy for marketing and communications for water services in Ireland. PwC (2011, page 50) notes that local authorities do not appear to have separate branding and communications strategies for their water services:-
“For water services, particularly for interruptions to service, communications are issued in the mass media. However, the study did not find evidence of a national or regional branding, consumer information, consumer awareness (other than for water saving) or communication plan in relation to water and wastewater services”.
To date, communications with customers has been somewhat limited even in the case of non-domestic customers who may have publicity material included with bills, although local authorities have sought to make use of their websites and mass media including during times of urgent need:-
“Communications with non-domestic customers are more developed given the opportunity for including material with bills. However, this is to a limited audience and would be included in the wider remit of services and charges to businesses. There has been considerable work by local authorities to activate their websites for water services issues. For instance it is common that key forms and procedures can be downloaded directly by customers and there is often a FAQ [Frequently Asked Questions] page for water and wastewater issues. They have also been active at times of urgent need such as in recent cold spells in communicating through the mass media and their websites and contact phone numbers to their customers” (PwC, 2011, pages 50 and 51).
It would appear important that communications systems are not merely a promotional system but also facilitate communications at times of emergency when customers are likely to urgently require information in an accessible format.
The establishment of the new Irish water utility will likely have some consequences in relation to the communications strategy for water services given that it will take over responsibility for the delivery of water services from local authorities. It will, therefore,
42 need to develop its own communications strategy. The PwC report recommends that the new water utility have a strong brand presence and play a role in raising customer awareness of various issues including the need for payment of water services, in addition to developing communications strategies for emergencies and insufficient supply:-
“Irish Water should have a strong brand presence similar to the retail arms of gas, electricity and telecoms utilities in Ireland. As part of marketing and communications Irish Water will have a requirement to ensure customer awareness of: Water conservation; Need for payment for water services; and Cooperation with the metering programme.
In addition the organisation will want to develop communications strategies for response to emergency situations or issues of water demand exceeding supply in any area” (PwC, 2011, pages 117 and 118).
7.2 Health and Safety
The PwC report addresses a number of operational systems to be put in place in the new Irish water utility such as staffing. Health and safety does not, however, appear to feature in the report in detail. This issue was raised during the Joint Committee’s meetings.
Local authorities, together with other agencies and bodies, play a key role in monitoring water quality. At present, local authorities are responsible for maintaining the public mains systems and ensuring the quality of the water they distribute. This water must comply with the Drinking Water Regulations. Where a supply is found to be in breach of the regulations they must:-
“Notify the EPA [Environmental Protection Agency] of the exceedance and take whatever action is necessary to inform and protect the health of consumers if the exceedance could result in a public health risk. In determining whether there is a risk to public health Water Services Authorities are obliged under the Drinking Water Regulations to consult with the HSE [Health Service Executive] and are required to take appropriate action “in consultation with” and “subject to agreement with the HSE”” (Health Service Executive, 2008, page 14).
In fulfilling their duties, Water Services Authorities must ensure that the water supplies that come under the regulations are monitored at a frequency as set out in the Drinking Water Regulations (Health Service Executive, 2008). This monitoring service may be provided through the Environmental Health Service and the Health Service Executive laboratories, directly by the Water Services Authorities using their own or private laboratories or by a combination of monitoring procedures.
Water Services Authorities are responsible for restricting the water supply and informing the public in cases where water quality is compromised:-
“If a water supply constitutes a danger to human health, the local authority must make sure that the use of that water supply is restricted and that the 43 public are made aware of the dangers as soon as possible. It will often issue a Boil Water notice, warning people that their water supply is not safe for human consumption. This includes drinking, food preparation, making ice, drinks made with water and brushing teeth”.25
Water Services Authorities must have action plans and other systems in place to deal with serious breaches:-
“Water Services Authorities are obliged to comply with directions from the EPA [Environmental Protection Agency] and must develop “action plans” for ensuring a remedy to exceedance of the regulations. Water Services Authorities must also ensure that a Major Emergency Management System is in place to deal with serious breaches of the regulations. Clearly the HSE [Health Service Executive] must be an integral part of this response through the Water Liaison Committees / Incident Response Teams that should be established in each area for the management of serious water incidents.” (Health Service Executive, 2008, pages 14 and 15).
A number of witnesses who appeared before the Joint Committee highlighted the need for high quality (drinking) water. In its presentation, the Environmental Protection Agency noted:-
“Clean drinking water is vital to sustain our health and well-being and is relied upon by those involved in the services and manufacturing and tourism industries. There is a need for sustained investment in infrastructure to continue the improvements reported in recent years in the quality of drinking water. Sustained investment in environmental infrastructure to deliver clean drinking water during these tough economic times will provide the platform for sustainable development into the future”.
The Economic and Social Research Institute also explained the reasons why there should be the highest quality drinking water:-
“Before deciding on the optimal approach to providing water services in Ireland (drinking water supply and wastewater treatment), it is useful to consider the objectives that should be met. Drinking water should be of the highest quality in order to safeguard public health and also to ensure that key production sectors can operate in Ireland, for example, the food and drinks sector. Related to this is the need to protect the environment and to achieve a high ecological status which supports the tourism sector. Apart from impacting on public health and industry, maintaining high environmental standards, particularly in regard to wastewater treatment, reduces the cost of drinking water treatment”.
Galway County Council highlighted the importance of water quality and its connection with public health:-
“The status of our water quality has a direct bearing on public health since the majority of drinking water supplies is derived from either groundwater
25 See http://www.citizensinformation.ie/en/environment/water_services/water_quality.html 44 or surface water sources. Deterioration in the quality of water sources gives rise to the increased risk of drinking contaminated water, as well as costly water treatment processes. While the quality of water in general is good in many areas, it will improve over time through the implementation of the river basin district management plans. It is essential that adequate water treatment systems are in place to ensure the drinking water supplies delivered to customers are safe and secure.
[…]
What would help us to do our job better is to streamline the process for the delivery of water services infrastructure to promote public health, improve environmental quality and facilitate economic development. We need to revise the funding mechanism for capital investment to ensure affordability of water services projects. We need to focus on compliance, conservation and economic development potential to ensure priorities are met, and we need an appropriate funding stream to meet the increasing cost of water services provision by local authorities”.
The Consumers Association of Ireland pointed out the need for proper management of water resources before the introduction of charging and a decision on who bears the costs of an inefficient system that can lead to health risks:-
“Efficient resource management must precede any charges being imposed. If consumers must pay for their water supply, they must not pay for the costs associated with an inefficient system or for one which has in the past led to public health issues with unsafe drinking water. It must also be borne in mind that many consumers already spend significant sums of money on water filtering systems because of a lack of confidence in their water supply. These systems are expensive to maintain on an annual basis. A metered system of supply must be efficient before it is rolled out, with infrastructure investment to reduce water loss from leakage to a minimum. The only effect of wastage in the system would be to increase the cost of water charges to the consumer. Over time, the cost should reduce as the system becomes more efficient. The technology for water meters can have the capacity to detect leaks. Perhaps in the long term this could contribute to a more efficient water supply if such meters are put in place.”
In addition to the public health perspective of drinking water, water is essential for industry as noted by Environmental Management Services Limited:-
“It seems there is a very strong need, which this Committee could address, to look at water policy. When we come to look at water policy, what does it involve? There are many issues. We need potable water supplies to households, and not only good drinking water but healthy drinking water as well. It is very important for everyone. We need water for industry, which is extremely important, water for agriculture and irrigation and water for recreation and aesthetic uses. We need water quality in streams, rivers, lakes, estuaries, the sea, coastal waters and so on.”
45 By way of comparison with other countries, water supplies are monitored by the Drinking Water Inspectorate within the Northern Ireland Environment Agency and the Drinking Water Quality Regulator in Scotland. Both Northern Ireland and Scotland have specific water utilities which are responsible for Water Provision services.
7.3 Emergency Response System
Numerous severe floods have occurred throughout Ireland in the last decade. They are usually caused by a combination of events including overflowing river banks, coastal storms or blocked or overloaded drainage ditches26. The impact of flooding can be very severe, making it important that appropriate policy approaches and responses are in place to deal with such events.
The Office of Public Works is currently responsible for flood planning and management in Ireland. This situation was clarified in September 2004 when the Government ‘confirmed the Office of Public Works as the State's lead agency in flooding, to be tasked with delivering an integrated multifaceted programme aimed at mitigating future flood risk and impact’27. Having considered five organisation models, the Report of the Flood Policy Review Group28 decided the Office of Public Works as the lead agency provided the most cost-effective option to implement future policy given its existing structures and operational expertise in the area of flood management. Such factors are important when considering which body should have responsibility for flood management.
Under the present system, local authorities can redeploy staff to deal with emergencies or other periods of extreme need and this feature is considered to be important for any future design of structures for water services:-
“In times of pressing need or emergency, local authorities do have the ability to deploy staff from one service to another. It has been reported for instance that during periods of extreme cold weather, local authorities were able to deploy staff from the roads and other services to support urgent work for water services. This is an important facility to consider when designing any future structures for the provision of water services” (PwC, 2011, page 35).
A key issue in relation to the future of water services in Ireland is whether the Office of Public Works should continue to have responsibility for flood planning and management in Ireland or if the mew Irish water utility should assume this responsibility. The PwC report recommends that the Office of Public Works would be responsible for river and sea flooding protection in the new institutional framework. Local Authorities would be responsible for storm water management, along with the National Roads Authority (PwC, 2011).
The Joint Committee, as part of its Delegation to the Northern Ireland Assembly and to Northern Ireland Water, was interested to note that while Northern Ireland Water is
26 See http://www.flooding.ie/en/ 27 See http://www.flooding.ie/en/ 28 This report is the outcome of a review of national flood policy undertaken in 2003-2004 by Inter- Departmental Review Group. 46 a Government-owned water company, which delivers water and wastewater services, it is not the lead agency during flood risk emergencies, but is rather part of a team and has no blue light (i.e. emergency) service. Flood risk management is the responsibility of the Rivers Agency, which is an executive agency of the Department of Agriculture and Rural Development. It is the statutory drainage and flood defence authority for Northern Ireland.
Table 5: Allocations of Responsibility for Emergency Response in Northern Ireland The Rivers Agency Provides the The Rivers Agency is NOT Following Services Responsible for Assistance to individuals in protecting property Providing assistance in the event of flooding through the provision of temporary flood caused by blocked road gullies or cleaning up alleviation measures including sandbags and thereafter– this is the function of the Department pumps in the event of flooding from rivers or of Regional Development Road Service. the sea.
Assistance to other public organisations in Providing assistance in the event of out of sewer dealing with flood events through the provision flooding caused by a blockage in a foul or storm of engineering expertise, manpower and sewer or cleaning up thereafter – this is the materials in the event of serious or extreme function of Northern Ireland Water. flooding.
The Agency contributes to the development of Dealing with overland flows of water arising from and takes part in Major Incident Exercises. storms.
Will assist in the management, and in some The rescue of people, their property, pets or circumstances, the repair of private river and livestock in the event of flooding. sea flood defences in emergency situations. Paying compensation for loss or damage caused by flooding due to accidental overflowing or overtopping of designated defences.
Source: Northern Ireland Assembly (2011) pages 5 and 6
7.4 Specific Regional Initiatives
Dublin has experienced flooding from a variety of sources over the last few years, including as a result of river and coastal flooding. The Joint Committee was informed that the following five strategic action lines are being undertaken by Dublin City Council to address various storm water and flooding issues:-
(1) Greater Dublin Strategic Drainage Project;
(2) Dublin Coastal Flood Protection Project;
(3) Catchment, Flood, Risk Assessment and Management Studies;
(4) Emergency Planning;
(5) Asset maintenance.
47 The Dublin Flooding Initiative 2002 – 2050, created after the 2002 floods, is the framework within which flood protection for Dublin City is being provided. It manages risk from the main flood risks including:-
(1) Rainwater flooding – Urban flooding caused by extreme high intensity storms in a local area, typically in summer time, influenced by the drainage system and receiving river and stream infrastructure.
(2) River flooding – Caused by longer duration extreme rainfall events giving rise to flood conditions in rivers exceeding the capacity of channels and leading to inundation of properties. Notable examples have been the river Dodder in 1986 and the river Tolka in 2000 and 2002.
(3) Tidal flooding – Caused by a combination of factors including high spring tides, low barometric pressure and onshore south-easterly winds. Resulting in extreme high tides for a period of hours in the Dublin Region and causing inundation of low-lying coastal areas as for example in Dublin City and Fingal County on 1 February, 2002.
(4) Inter-tidal flooding – Where the combination of tide levels and flood flow levels in rivers result in flood risk to low-lying properties in the vicinity of the river / tidal confluence (Dublin City Council, 2011, page 13).
7.5 Models of Best Practice
The Report of the Flood Policy Review Group looked at models of best practice. It identified the following conclusions and recommendations regarding sustainable flood prevention, protection and mitigation included in the most recent best practices paper at that time as:-
(1) The focus in dealing with floods should be on management of the risk and living with floods rather than on defensive action against the hazard.
(2) Flood strategy should cover the entire river basin area and promote the coordinated development, management and conservation of actions regarding water, land and related resources.
(3) A river basin flood risk management plan should be based on an integrated approach covering all relevant aspects of water management, physical planning, land use, agriculture, transport and urban development and nature conservation, at local, regional and national levels.
(4) This holistic approach to flood risk management requires interdisciplinary cooperation regarding all phases of risk management; i.e. risk assessment, mitigation planning and implementation of measures.
(5) Human use of floodplains should be adapted to the existing hazards.
48 (6) Mitigation and non-structural measures tend to be potentially more efficient and sustainable in the long-term and should be enhanced, in particular to reduce the vulnerability of human beings and goods exposed to flood risk.
(7) Structural measures including flood defence structures will remain important elements and should primarily focus on the protection of human health and safety, and valuable goods and property.
(8) Efforts for avoiding flood problems should be focused on urban areas, where the major concentration of population and goods are located.
(9) Everyone who may suffer from the consequences of flood events should take, if possible, their own precautions. To this end, appropriate information and timely and reliable flood warning and forecasting systems should be established by the competent authority.
(10) A specific preparedness to alert, rescue and safety measures should be planned, implemented and maintained at all levels.
(11) In flood-prone areas, preventive measures should be taken to reduce possible adverse effects of floods on aquatic and terrestrial ecosystems, such as water and soil pollution (Office of Public Works, 2004, pages 84 and 85).
According to the Review Group, ‘this integrated, holistic, river basin based approach to flood risk management complements the Water Framework Directive’.
49 8. NEW IRISH WATER UTILITY – CORPORATE GOVERNANCE AND REGULATION
8.1 Background – What does Corporate Governance Entail in the Public Sector?
The concept of ‘corporate governance’ has become part of the accepted framework of the public sector, something which should come as no surprise in the context of the latest modernisation of that sector in the period since the early 1990s.
Fundamentally, this concept refers to how organisations are managed and governed. It encompasses:-
(1) How an organisation is managed;
(2) Its structure;
(3) Its policies and strategies;
(4) The ways in which it deals with stakeholders.
Naturally, there are differences between corporate governance within the private sector and within the public sector. However, the principles of good corporate governance are similar regardless of the sector. The underlying current economic difficulties mean that corporate governance is even more important in ensuring that resources are used efficiently and effectively.
An article published by Chartered Accountants Ireland underlines the importance of this area29:-
“Any policymaker who has reflected on the lessons emerging from the banking crisis for corporate governance in the private sector should also have a concern about the implications for public sector governance. The banks have revealed how, even in a sector which appeared to conform to best practice in governance, determined managements could vitiate the structures which were intended to safeguard the integrity and long-term health of their organisations.
Public bodies are not, of course, subject to the intense pressures to maximise short-term profits which were characteristic of the financial institutions.
However, the public sector has its own vulnerabilities – to political short- termism, to bureaucratic empire building, to conflicts of interest and misuse of public funds. These can be extremely damaging to the public interest and, when judged in the harsh light of public accountability, can jeopardise the continued existence of the organisation concerned. It will be important, therefore, that any lessons for reinforcing the essential
29 http://www.charteredaccountants.ie/Members/Technical1/Corporate-Governance/Corporate-Governance- Articles/The-Quiet-Revolution---Corporate-Governance-in-the-Public-Sector--Gary-Martin-and-John-Dowdall/ 50 principles of corporate governance and rebuilding public confidence are also read across to the public sector.
The Audit Commission in the United Kigdom presciently pointed to some of these broader aspects of corporate governance, and their importance, as far back as 2003 when it remarked that corporate governance ‘combines the ‘hard’ factors – robust systems and processes – with the ‘softer’ characteristics of effective leadership and high standards of behaviour’.”
8.1.1Significant Documents
With respect to the Irish public sector the most relevant documents are:-
(1) The Department of Finance Revised Code of Practice for the governance of State Bodies (this has a major influence on the governance of State agencies);
(2) The Report of the Working Group on the Accountability of Secretaries General and Accounting Officers (The Mullarkey Report).
The Revised Code has had a major influence on the governance of State agencies and both it and the Mullarkey Report have had governance implications for Government departments.
Apart from, but following on from, governance codes, there has been an increased emphasis on risk management and internal controls. These are, correctly, seen as a critical element of the good governance arrangements which should be in place in all public service organisations.
The public sector has seen renewed modernisation initiatives since the Strategic Management Initiative in 1994. One of the latest initiatives was the Organisation for Economic Cooperation and Development’s comparative study of the Irish Public Service entitled Towards an Integrated Public Service30. The then Government’s response to that study involved the establishment of a task force which published its own report, Transforming Public Services31, and a statement, Government Statement on Transforming Public Services32:-
What is particularly noteworthy about that Statement (2009, page 9) is the commitments given that:-
(1) The Government will require all public agencies (in addition to departments) to produce output statements relating resources to planned achievements;
30 http://per.gov.ie/wp-content/uploads/Ireland_-_Towards_an_Integrated_Public_Service.pdf 31 http://per.gov.ie/wp-content/uploads/Transforming_Public_Services_Report.pdf 32 http://per.gov.ie/wp-content/uploads/Government_Statement_on_TPS.pdf 51 (2) All public bodies will produce an integrated annual report (covering both input usage and output delivery) as a basis for a comprehensive Oireachtas scrutiny.
These then are the tools by which the Houses of the Oireachtas should be in a better position to judge how all Government departments and agencies are performing.
However, these tools could not be effectively, reliably or accurately used were it not for the progress and refinements made to the corporate governance framework of the public sector. That is to say that only an organisation which is being well managed and is well structured would be able to produce output statements and integrated annual reports of sufficient quality to make them accessible and useful.
8.2 Accountability and Corporate Governance
8.2.1Relevance to New Irish Water Utility
The Joint Committee recognises that the introduction of the new Irish water utility and its phased assumption of current local authorities’ responsibilities may be prone to the risk of ‘democratic deficit’ and that it is therefore important that the accountability of this utility to the people, through Oireachtas Éireann, be clarified33:-
“Accountability ensures actions and decisions taken by public officials are subject to oversight so as to guarantee that Government initiatives meet their stated objectives and respond to the needs of the community they are meant to be benefiting…”
This is, of course, in the context of the proposed centralisation of water services by the creation of a new Irish water utility and the transfer thereto of the provision of existing water and wastewater services from the 34 local authorities designated as Water Service Authorities under the Water Services Act 2007.
The World Bank, for example, has set out two distinct stages with regard to the concept of accountability34:-
(1) Answerability – Defined as the onus placed on Government and its agencies to provide information about decisions and actions and to justify them to the public and to the institutions (for example regulators and parliaments) tasked with providing oversight.
(2) Enforcement – Which suggests that sanctions aimed at remedying behaviour which the public and / or the institutions find undesirable can be imposed.
33 http://siteresources.worldbank.org/PUBLICSECTORANDGOVERNANCE/Resources/AccountabilityGo vernance.pdf 34 Ibid 52 8.2.2Revised Code of Practice for State Bodies
The revised Code of Practice for State bodies applies to every State body, directly or indirectly within the public sector, irrespective of its scale, its legal form and the sector in which it is operating and whether or not it is a commercial body. This includes Government departments, statutory agencies, local authorities, State-owned commercial enterprises and subsidiaries of any State body. However, certain provisions of the Code apply differently to commercial and non-commercial State bodies.
The revised Code replaces the previous Code which was published in 200135, and supplements but does not override the existing statutory requirements applying to any particular State body. It sets out a range of corporate governance requirements but allows for flexibility in their application; i.e. the relevant department may agree with a body that the revised Code will apply in a modified form.
Equally, State-owned commercial enterprises that also observe relevant principles of private sector corporate governance may also modify those principles in order to reflect their public sector status (see Text Box 3 below). However, the expectation is that a State body will comply fully with the Code and to this end, the Chairperson of every relevant body must confirm such compliance to the parent department on an annual basis.
Text Box 3 – How Electric Ireland Reconciles its Public Sector Status when Applying Private Sector Corporate Governance Principles
Electric Ireland is a statutory corporation established under the Electricity (Supply) Act 1927 and as a result some of the provisions of the Combined Code are not applicable to it. However, it supports the principles and provisions of the Combined Code and complies with its requirements, except:-
(1) Electric Ireland is accountable to the Minister for Communications, Energy and Natural Resources and [by virtue of being a corporation] has no share capital. Accordingly, Code provisions relating to shareholder relations and conduct of Annual General Meetings are not applicable.
(2) Board appointments are a matter for Government and accordingly Electric Ireland does not have a nomination committee. Its policies in relation to remuneration of executive board members (Chief Executive) are in accordance with ‘Arrangements for determining the remuneration of Chief Executives of Commercial State Bodies under the aegis of the Department of Public Enterprise’, issued in July 1999.
Source: Electric Ireland website
Revisions to the 2001 Code address such matters as:-
(1) Guidelines on the pay of Chief Executive Officers of commercial State bodies;
(2) New tax clearance procedures for public sector contracts;
35 http://www.finance.gov.ie/documents/publications/other/codeofpractice.pdf 53 (3) Amendments to the Ethics and Standards in Public Office legislation.
However, the publication of other reports in the period from 2001 also led to the revision of the Code. These documents include:-
(1) The ‘Mullarkey Report’;
(2) Updates of the (private sector) Combined Code on Corporate Governance36;
(3) The OECD [Organisation for Economic Cooperation and Development] Principles of Corporate Governance.
As will be noted from the above list, and illustrated in Text Box 3, corporate governance is not strictly delineated between public and private sector spheres. It is accepted that there are many commonalities and linkages and that lessons can be drawn from one sector that may be applicable to another37:-
“In order to carry out its ownership functions, the Government should refer to private and public sector governance standards, notably the OECD Principles of Corporate Governance, which are also applicable to SOEs [State Owned Enterprises].”
This is especially true in the context of the public sector as there have been, up to now, four broad categories of bodies which cover the spectrum from central Government control to a commercial environment:-
(1) Government departments such as Finance and Public Expenditure and Reform;
(2) Non-commercial local and regional bodies such as local authorities, LEADER groups, etc;
(3) State agencies such as the Health Service Executive;
(4) Commercial State-owned enterprises such as Bord Gáis Éireann and Bord na Móna38.
The variations in these categories and their relationship with central Government are illustrated in the following table.
36 http://www.charteredaccountants.ie/Members/Technical1/Corporate-Governance/Corporate- Governance-Articles/The-ongoing-review-of-the-Combined-Code-on-Corporate-Governance---Karen- Flannery/ 37 OECD Guidelines on Corporate Governance of State-owned Enterprises (2005, p.24) 38 The ‘ownership’ of Irish commercial enterprises is spread across a number of departments, with the Department of Finance / Public Expenditure and Reform playing a central coordinating role. In most cases, shareholding ownership of individual enterprises is shared between the Department of Finance / Public Expenditure and Reform and a ‘sectoral’ department (source: adapted from CPMR Research report no.9). 54 Table 6: The State’s Organisational ‘Zoo’
Source: National University of Ireland, Dublin Geary Institute Discussion Paper Series. Managing state-owned enterprises in an age of crisis, September 2010
One commentator has suggested that the revised Code may be of relevance beyond the public sector and that it may be of use to non-State organisations in terms of best practice for governance structures and some of the template policies that are included with it.
The central structure of the revised Code is as follows39:-
(1) Board and governance – This sets out matters that should be reserved to the board including obligations regarding accounts, reporting and audit, setting strategy and alignment of expenditure with strategy, separation of certain roles, composition of board and support for its members, and disclosure of interests by board members;
(2) Remuneration of Directors and senior management – This sets out restrictions on and considerations in setting remuneration levels in a State body, including the fees of a board member;
39 http://www.mccannfitzgerald.ie/McfgFiles/knowledge/3683- Governance_of_State_Bodies_Revised_Code_of_Practice_1.pdf 55 (3) Risk management, accountability, internal control and internal audit - This requires a State body to develop and implement a risk management policy (generally) and for the effective conduct of accounting and audit functions in particular (including the operation of the internal audit function and the possible formation of an audit committee);
(4) Relations with Oireachtas Éireann and with the ‘sponsoring’ Minister – This requires the development of a performance framework to structure the relationship between a State body and its ‘parent’ Government department and prescribes obligations in respect of the preparation of the body’s annual report and accounts.
8.3 Future Corporate Governance of New Irish Water Utility
8.3.1Background to Public Sector Governance
As has been set out in the preceding sections, the area of public sector governance is a complex one which is attaining ever greater importance. This importance is likely to grow in the current economic environment and in the context of the creation of a new public Irish water utility.
Traditionally, the Department of Finance has taken the lead role in refining public sector governance arrangements. However, this role would now appear to lie with the newly-established Department of Public Expenditure and Reform40:-
“The performance and governance of public bodies is a key issue, and the potential to enhance corporate governance arrangements across the Public Service will be assessed in the context of the relevant commitments in the Programme for Government.
The overall reform programme, including institutional reform, will of course have regard to the needs of service users and a range of other factors. The overall objective of the reform programme is to ensure that the Public Service does better for less and delivers quality services to citizens and businesses with the resources available. The ambitious programme of reform will be overseen by the recently established Cabinet Committee on Public Service Reform, which is chaired by the Taoiseach and which I convene. In addition, it is my intention to establish a dedicated office within my Department [Public Expenditure and Reform] to facilitate, drive and support the reform programme. This office will work closely with organisations across the public service, enabling them to drive the delivery of reform at a local level, as well as leading on cross-cutting reform initiatives.”
40 Minister Howlin providing an answer to Parliamentary Questions on 14 July 2011. Available at:- http://www.kildarestreet.com/wrans/?id=2011-07-14.691.0 56 Common standards have previously been set for all classes of public sector bodies and there are also many common areas between the public and private sector.
Naturally, there are significant differences even within public sector categories from the point of view of the actual corporate governance framework; i.e. Government departments are structured very differently to agencies and State- owned enterprises. Agencies have Chief Executive Officers, permanent staff and identified stakeholders. They have boards and Chairpersons typically nominated by the relevant Minister, although the method of appointment varies greatly. State-owned enterprises resemble large publicly traded companies but as set out in Text Box 3 they also encompass clearly defined public sector framework characteristics.
8.3.2 State-Owned Enterprises
In the context of the following statement the Joint Committee considered whether the current corporate governance arrangements are proving financially expensive41:-
“While this is not a matter specific to Ireland, concerns during 2009 and 2010 about the ability of the Irish Government to tackle a rapidly growing budgetary deficit resulted in an increased premium for the Irish Government to borrow on international markets. Irish SOE’s [State Owned Enterprise’s] have also felt this increased cost in accessing funds for development, (though the relationship between the Government’s standing in international markets and that of individual SOEs is not clear).”
This is a matter which was explored by PwC in its study for the Department of Environment when it posited that42:-
“A key factor in evaluating the merits of the new operating model is the possibility that the borrowings of Irish Water could be outside the General Government Balance [GGB]. In the scenarios explored, and subject to confirmation by the CSO [Central Statistics Office] / Eurostat, it would appear that a determination could be made that Irish Water’s borrowings would be deemed to be outside the GGB.”
In addition, it is not clear yet what the precise relationship between NewERA and the new Irish water utility will be43:-
“The legislation would provide for setting up of a private or public limited company incorporated under the Companies Act, the shares of which would be held by, or on behalf of, one or more Ministers of Government and / or an agency such as NewERA”.
41 University College Dublin Geary Institute Discussion Paper Series. Managing state-owned enterprises in an age of crisis, September 2010, p.26 42 PwC, Phase 1 Report (2011, p.17) 43 Ibid (p.128) 57 However, by way of comparison with an existing utility, the following text box sets out some contextual corporate governance responsibilities in respect of NewERA and Electric Ireland.
Text Box 4 – NewERA and the Strategic Investment Fund
The Minister for Finance, Michael Noonan TD, the Minister for Public Expenditure and Reform, Brendan Howlin TD and the Minister of State for NewERA, Fergus O'Dowd TD, today announced the establishment of NewERA and the Strategic Investment Fund under the National Treasury Management Agency.
NewERA is a commitment in the Programme for Government and is central to the Government's plans for job creation and investment and for reforming how the Government manages its semi-State companies. Minister Noonan said:-
"The Government has taken the decision to establish NewERA to reform the manner in which Government manages its shareholding in the semi-State companies.
NewERA will carry out the corporate governance function, from a shareholder perspective, of ESB [Electricity Supply Board], Bord Gáis, EirGrid, Bord na Móna, and Coillte, reporting to the relevant Ministers. Its operation will be overseen by the Cabinet Committee on Economic Infrastructure. In this capacity, NewERA will have responsibility for reviewing capital investment plans of these commercial semi state companies from a shareholder perspective and will identify possible synergies between investment programmes of different State companies. Where requested by Government, it will also advise on, and if appropriate oversee, any restructuring of State companies and it will work with the Minister for Public Expenditure and Reform on the disposal of State assets.
NewERA will initially be established on a non-statutory basis as a Shareholder Executive within the NTMA [National Treasury Management Agency]. It will bring forward proposals for consideration by Government on options for moving towards a full holding company status which could own the shares in commercial semi-State
Minister O'Dowd said:-
"This announcement of NewERA is another example of this Government doing everything it can to create jobs and improve Irish infrastructure. Using proceeds from the sale of State assets and existing NPRF [National Pensions Reserve Fund] resources, subject to the agreement of the external partners, NewERA will work with line departments and the private sector to develop and implement proposals for commercial investment in line with Programme for Government commitments in Energy, Water and Broadband. It will also examine other commercial investments and build upon existing work by the NPRF by developing a Strategic Investment Fund.
Ireland needs to continue to improve key infrastructure in the areas of energy, water and broadband to maintain Ireland's attractiveness as a place to do business and to create jobs. In these times of scarce resources, NewERA will offer a new means of facilitating investment in our economy."
It should be noted, of course, that the Minister for Public Expenditure and Reform announced on 22 February 2012 that the Government has decided to sell off Bord Gáis Éireann's retail division and some of Electric Ireland’s non-strategic power generation.
Source:- http://www.taoiseach.gov.ie/eng/Government_Press_Office/Government_Press_Releases_20111/NewERA_and_th e_Strategic_Investment_Fund_Establishment_and_Appointment.html
58 8.3.3 Background to Corporate Governance and Regulation of Water Services
There is some debate as to whether regulation is a substitute or complement for governance. However, we will assume here that the latter is the case44.
The Department of Environment’s Position Paper sets out the research carried out which informed the proposal that the new Irish water utility should be established as a public utility. This included in addition to ‘stakeholder soundings’, a SWOT analysis, an analysis of the strengths weaknesses opportunities and threats of the existing institutional arrangements and an international comparison including England, France, Germany, the Netherlands, Northern Ireland, Scotland, Wales, etc. In the context of international trends the Position Paper states (page 13) that ‘Creation of larger bodies for the provision of water services, often outside of municipal control, is a key trend in the industry over the past 20 years’.
One of the benefits which the Position Paper claims stands in favour of this model is (page 14) that it would mean that there would be only one entity for regulators to regulate, as opposed to 34 separate local authorities.
Other issues identified in the Position Paper in relation to wider governance aspects for the delivery of the Water Framework Directive which are to be addressed during the ‘transformation planning’ phase (2012 to 2017) of the new Irish water utility include:-
(1) The interaction of the new Irish water utility with other key players in the water environment such as local authorities, Electric Ireland, the Office of Public Works, etc.);
(2) Agriculture, industry, transport and other policies linked to water policy and referred to in the river basin management plans.
The regulation arrangements proposed in the Department of Environment Position Paper are:-
(1) By the Environmental Protection Agency from an environmental perspective;
(2) By the Commission for Energy Regulation from an economic perspective.
The PwC assessment elaborates on this45:-
“PwC have recommended that the Environmental Protection Agency would be the environmental and technical regulator for Irish Water, and that it would also become the regulator for Group Water Schemes, a role currently played by the local authorities.
It is recommended that the role of the Commission for Energy Regulation be expanded to include water regulation, as this role would fit well with its existing
44 Some of the issues involved in that debate can be examined in the paper entitled, Does regulation substitute or complement governance?(2008) which is available online at:- http://fic.wharton.upenn.edu/fic/papers/08/0816.pdf 45 PwC Phase 1 (2011, p.16) 59 responsibilities for regulating energy utilities. In this role the Commission for Energy Regulation, in cooperation with the National Consumer Agency would be responsible for protecting the interests of the consumer.”
Mr Fergus O’Dowd TD, Minister of State with responsibility for the NewERA Programme in the Department of Communications, Energy and Natural Resources drew the attention of the Joint Committee to the fact that an analogous system is already in place elsewhere on the island of Ireland46:-
“This is similar to the approach adopted in Northern Ireland where both energy and water are regulated under one economic regulator.”
Specifically, there is no separate economic regulator for water services in Northern Ireland. Water and sewerage has been regulated by the Northern Ireland Authority for Utility Regulation 'Utility Regulator – electricity, gas, water' (previously Ofreg) since April 2007. This is the same body that has regulated energy in Northern Ireland for many years. Environmental and drinking water quality regulation is dealt with by two other bodies.
The Water Commissioner for Scotland regulates Scottish water supplies, whilst the environmental side is the responsibility of the Scottish Environmental Protection Agency. The Scottish Executive regulates drinking water quality. As such, similar models are used in both Northern Ireland and Scotland.
8.3.4 Economic Regulation
As the PwC assessment points out, the provision of water and wastewater services can be regarded as a natural monopoly situation. This is because the available options for most consumers are practically very limited. This situation underlines how indispensable water is to the citizen and the importance therefore of effective regulation.
There are no direct charges for the (on-going) provision of water and wastewater services to domestic customers which is unusual by Organisations for Economic and Cooperation Development standards47:-
“In most countries, abstraction charges are designed with the objective of providing funding for water resources management or for watershed protection activities. Despite this … abstraction charges tend to be relatively low, and value ranges are quite broad.”
However, connection charges apply to all categories of new customers.
46 Submission by Mr Fergus O’Dowd TD, Minister of State responsible for the NewERA Programme in the Department of Communications, Energy and Natural Resources to Joint Committee on 24 January 2012 (pp.11-12) 47 Pricing Water Resources and Water and Sanitation Services, (Organisation for Economic Cooperation and Development, 2010, p.36) 60 Commercial customers do already pay water charges on the basis of metered consumption according to prices set by their local authority. The methodology and regulatory aspects of this system are set out by PwC:-
“This is usually a combination of a flat standing charge and a metered charge based on actual volumes used. There is an established methodology for the assessment of what represents full cost recovery of non-domestic water charges. This involves assumptions about how the cost is spread between non-Irish Water domestic customers and other users of the services and on rates of unaccounted for water and how this is handled. There is an obligation on local authorities that they should have full cost recovery on non-domestic customers but there is no separate entity which directly monitors or enforces this obligation. In that sense, local authorities are self-regulating for prices for non-domestic water service. Feedback from our stakeholder meetings indicated that some local authorities may be failing to impose charges resulting in full cost recovery according to the applied methodology. There is a wide variation in the levels of charges across the country; (e.g. 2010 and 2011 – Kildare = €1.75 per cubic metre, Wicklow = €3.04 per cubic metre) and there are substantial arrears for non-domestic customers (52% collection rate).
Connection charges…are generally applied on a cost recovery basis and vary from case to case depending on the local authority and the expense incurred in executing the connection. The policies as regards connection charges are set by each local authority”.
Group Water Schemes regulate their own pricing structures.
Finally, the PwC assessment (2011, page 114) recommends that the quality of customer services delivered by the new Irish water utility should be regulated by the Commission for Energy Regulation.
8.3.5 Environmental Regulation
The role of the Environmental Protection Agency is, through its regulatory licensing and monitoring regimes, to protect the consumer in terms of quality of drinking water.
In relation to water and wastewater the main functions of the Environmental Protection Agency are:-
(1) Licensing and permitting, particularly of wastewater discharges;
(2) Monitoring;
(3) Inspection;
(4) Enforcement;
61 (5) Environmental planning;
(6) Strategic environmental assessment;
(7) Waste management with particular attention to wastewater sludge.
In the case of Group Water Schemes, the role of regulator is delegated by the Water Services Act 2007 to the local authorities, who also provide a number of other roles for the Schemes including Rural Water Liaison Officers and on-going day-to-day technical support.
The Joint Committee notes that the PwC assessment (page 108) foresees an on-going role related to environmental / health protection for the local authorities, for example responsibility for environmental and water quality monitoring and reflecting the principles of the Water Framework Directive. The Joint Committee supports the proposal set out in the PwC assessment that arrangements to support these on-going activities will need to be put in place in order to achieve the goal of financial sustainability. It further suggests that the Department of Environment give consideration to the option set out by PwC which is the introduction of an abstraction charge in respect of larger volume abstractions.
The PwC assessment (page 32) identifies the following problems with the existing economic regulatory framework:-
(1) No developed arrangements to protect the consumer, whether domestic or nondomestic, as in other sectors and in line with Organisation for Economic Cooperation and Development and European Union policies on ‘Better Regulation’;
(2) Local authorities are responsible for determining the level of non- domestic charges, based on guidelines from the Department of Environment;
(3) Across the local authorities, there is no developed system of redress for the consumer or consumer charter of rights;
(4) There are no statutory rights of appeal or independent appeals mechanisms;
(5) No independent economic regulation of the sector with the consumer interest at heart;
(6) No effective representation of the consumer voice.
62 8.4 Proposed Corporate Governance Structure and Regulatory Model for New Irish Water Utility
The PwC assessment (page 105) clarifies some of the proposed governance and regulatory framework. A fundamental question is answered if the Government agrees with the statement that the new Irish water utility will be a [commercial] State body set up under statute. This was an issue which was identified by Chambers Ireland in its submission to the Joint Committee as being of crucial importance:-
“In terms of its structure, a critical decision is whether Irish Water will be an agency such as the National Roads Authority (NRA) or a commercial State-owned body. The key features of agencies such as the NRA [National Roads Authority] is that they are funded by way of annual votes from the Exchequer in respect of both capital and current expenditure.
Given the need for multi-annual funding programmes, Irish Water’s capital funding and borrowing needs should be met by the application of a Regulated Asset Base [RAB] model of funding – as is used by the Commission for Energy Regulation [CER] to support multi-billion euro investments by commercial State companies such as Bord Gáis Éireann [BGÉ] and ESB [Electricity Supply Board] Networks.
This model of funding cannot be used under the ‘agency model’ approach such as is currently used by the NRA [National Road Authority].
An RAB model would also require that Irish Water be able to raise revenue from its customers in a manner similar to BGÉ and the ESB [Electricity Supply Board]. This would ensure adequate funding, protect the independence of Irish Water and also ensure that the true level of social welfare expenditure by the State is not disguised via ‘free’ water delivery. This is because costs for servicing social welfare recipients or others than society deems unable to pay for the service would be covered using the same strategies that currently apply for electricity supply or the TV [television] licence.”
Other relevant proposals include:-
(1) That it will operate in conformity with the Code of Practice for the governance of State bodies and Organisation for Economic Cooperation and Development principles on good corporate governance;
(2) That the Minister for the Environment, Community and Local Government will appoint the Board.
63 Figure 3: Proposed Overall Structure for New Irish Water Utility (PwC diagram)
Table 7 – Roles and Responsibilities of Main Participants in the Water Sector
Participant Responsibilities
EU (1) Setting policies that impact water services at a pan-European level. (1) Setting national water policy having regard to other national policies (Programme for Government, NewERA, etc;
(2) Setting water pricing framework; Department of (3) Playing a national role in determining the legal and regulatory framework Environment for the sector, in line with our European Union obligations;
(4) Looking after legislation and policy in relation to the management of the abstraction licensing process.
(1) Environmental regulation of new Irish water utility;
(2) River basin management planning; Environmental Protection (3) Abstraction management; Agency (4) Testing and monitoring (new Irish water utility and Group Water Schemes).
Commission (1) Economic regulation (price reviews, tariff design, assess efficiency of new for Energy Irish water utility, etc); Regulation
64 (2) Ensuring that new Irish water utility provides customers with a good quality service at a fair and efficient price; (3) Regulating domestic and non-domestic tariffs;
(4) Protecting the interests of consumers by keeping charges as low as possible;
(5) Enabling the sector to develop in line with overall national economic and social needs;
(6) Enabling service providers to develop in a sustainable and financially viable manner;
(7) Setting challenging efficiency and performance targets for water service providers and monitoring their performance in that regard and taking action, including enforcement, to ensure overall statutory objectives for the sector are met;
(8) Making sure the water service providers deliver the best for customers, the economy and the environment in the long term.
(1) To develop a representative view of what water sector customers would expect of the water service in Ireland;
National (2) To provide the water services they are expected to provide by their Consumer members / customers; Agency (Planned to (3) To comply with environmental regulations as determined by the merge with Environmental Protection Agency; Competition Authority) (4) To interact with the new Irish water utility to receive bulk water supplies Group Water where these are currently sourced from local authorities; Schemes (5) To retain opportunity to convert to or merge in with the new Irish water utility if required.
(1) To provide finance to the water sector in Ireland on terms as determined Lenders by market conditions.
(1) To receive water services subject to economic, environmental and quality of service regulation from the new Irish water utility;
(2) To pay water charges in line with the new Irish water utility’s payment policies.
(1) Licensed water company, subject to economic quality of service and environmental regulation;
(2) Provider of water and waste water services to household, commercial and industrial water customers in Ireland which are not served by group water schemes;
(3) Localised catchment management focused on source protection; New Irish water utility (4) Abstraction;
(5) Water treatment;
(6) Water conservation;
(7) Waste water treatment;
65 (8) Water and sewerage network operation;
(9) Management / operation of combined sewer overflows;
(10) Sludge disposal;
(11) Asset operation and maintenance;
(12) Investment planning and delivery;
(13) Asset management;
(14) Billing and collection;
(15) Customer relationship management;
(16) Respond to requests for new connections;
(17) Execution of abstraction management plans;
(18) Water resource planning;
(19) Human resources,
(20) Management Information System;
(21) Obligation to supply water and wastewater services where reasonable and economic to do so.
Source: Adapted from PwC report (2011, pages 106 to 108)
The assessment also notes that there will have to be discussions with other bodies such as the Office of Public Works (river and sea flooding protection), Electric Ireland, bodies responsible for inland waterways, Department of Agriculture, Food and Fisheries and the local authorities.
With regard to local authorities in particular, the assessment states that (page 108):-
“Where some roles remain for the local authorities, (for example responsibility for environmental and water quality monitoring and reflecting the principles of the Water Framework Directive), arrangements to support their on-going activities will need to be put in place in order to achieve the goal of financial sustainability. One option which could be considered would be to introduce an abstraction charge (particularly for larger volume abstractions) which could generate funds to support the local authorities in fulfilling these roles. This would have to be explored in more detail in the implementation phase.”
PwC makes clear its choice of regulators was steered by the Government’s commitment to avoid creating new agencies.
Clearly, in the context of the Government decision to establish a new Irish water utility within the Bord Gáis Éireann Group, its proposed overall structure will differ from that in Figure 3 (above) and will now need clarification.
66 8.4.1Representing Consumers
PwC does recommend that a body such as the National Consumer Agency should take on responsibility for representing the views of water and waste water customers and ensuring that customer complaints are responded to quickly and effectively.
In this context it should be noted that the National Consumer Agency was among the stakeholders the Joint Committee met with. The Agency broadly supported this approach and drew attention to what is regarded as a successful example in another country, Scotland48:-
“It is also vital that a transparent and independent complaints process be set up as early as possible.
From a consumer protection perspective, we believe that consumer representation in the regulatory process needs to be strong, credible and visible. We believe that this would be best facilitated by having these functions separate from the economic regulation of a water utility. Such a decision would be consistent with the findings of the 2005 Consumer Strategy Group Report, which documented that whilst the existing economic regulators are themselves charged with consumer protection, their main source of consumer input is through the process of public consultation, in which submissions are neither consistent nor comprehensive. In that report, the Regulators themselves highlighted the need for a strong consumer voice.
This was further underscored by the then Government in its October 2009 Statement on Economic Regulation, in which it confirmed its intention to ask the regulators to place an increased emphasis on the protection of consumer interests … We consider that a formal role in this area should be funded by the water utility.
As an example of this approach, we can cite the regime which has been recently introduced in Scotland whereby the Scottish Government, the Water Industry Commission for Scotland, Scottish Water, the Scottish Environment Protection Agency and the Drinking Water Quality Regulator for Scotland are now required to consult, co- operate with, and take account of the views of Consumer Focus Scotland, a statutory body, on water issues.”
The Consumers Association of Ireland also expressed its support for the strengthening of consumers’ rights through the use of a specific representational body.
48 National Consumer Agency submission to Joint Committee in advance of meeting of 6 December 2011 (pp.3-4) 67 Regarding the future, the National Consumer Agency’s vision included49:-
(1) That the structure of the new Irish water utility and its regulatory regime should facilitate competition, if not in the very short term then at least in the foreseeable future (this on the basis that monopolies are not an efficient means of getting the best from a resource);
(2) That a clear route should be announced at an early stage which will facilitate the future introduction of a competitive market (at least in the wholesale market);
(3) A recognition that the Regulator will, in the interim, have to act as a substitute for competition;
(4) That any profits generated should be ring-fenced and reinvested with the aim of building a sustainable, affordable, high quality water infrastructure.
8.4.2Internal Structure of New Irish Water Utility and Reporting Requirements
PwC set down some guidelines regarding the internal structure of the new Irish water utility which seem to be based on its experience of how such companies are structured internationally:-
(1) A Board composed of executive and non-executive members in order to provide appropriate governance. PwC also recommend the creation of a Board advisory panel in particular during the early years of the creation of the new Irish water utility to allow representation of the views of key stakeholders – this could include for example customer representatives or local authorities.
(2) While acknowledging that the structure of the management team will be a matter for the Board and Chief Executive, PwC would expect the executive structure to be established based on the roles identified in the organisation chart shown below (roles typically undertaken by the leadership of a water and sewerage company).
(3) In the case of the new Irish water utility, PwC suggest the roles of support functions such as Finance, Human Resources, etc. remain separated, given the volumes of work to be expected.
(4) There may be benefits in splitting asset management and the capital programme responsibilities. However PwC notes that a number of water companies have these roles combined to support lifecycle asset care policies.
(5) A specific function of monitoring and evaluation which would be the primary contact point for both the economic and technical / environmental regulators.
49 Ibid (p.3) 68 (6) The potential for future retail competition may need to be borne in mind when structuring the new Irish water utility.
In its assessment of the public utility model for the new Irish water utility, PwC recommended the retention of some regional focus to supervise and support the local customer interface but also to support river basin management. It also acknowledged that the theme of a regional structure for some of the operations of the new utility had been a consistent part of their discussions with stakeholders.
PwC believes that by reflecting River Basin Management Planning District Areas in the new Irish water utility’s future operational organisation model, monitoring and enforcement, data collection and target setting can be reflected from the River Basin Management Planning Districts to the operating region. If PwC are correct in this, this would allow greater transparency in reporting and in assessing whether targets are achieved. This will be important in the context of setting Key Performance Indicators in order to optimise efficiency, effectiveness and transparency.
An associated issue raised by PwC is that of the new Irish water utility’s capital programme and asset management. It recommends that the devising of strategy and investment planning should be retained within the new utility while other aspects of delivery should be outsourced or provided on a mixed model.
While not commenting directly on the organisational structure of the new Irish water utility, the National Consumer Association informed the Joint Committee that it also felt that the development of a clear set of Key Performance Indicators would be critical in achieving transparency and accountability50. It also highlighted the example of Scottish Water which it described as having a hierarchy of guiding principles set by the Government of Scotland and a detailed set of Key Performance Indicators covering:-
(1) Customer service;
(2) Investment, costs;
(3) Leakage rates.
The National Consumer Agency believes that similar targets should be introduced in Ireland and should be set by a process which includes meaningful public consultation. In order to be useful and effective, the Key Performance Indicators should be reviewed by a panel of stakeholders and published regularly.
50 National Consumer Association submission to Joint Committee prior to meeting of 6 December 2011 69 Figure 4: River Basin District Areas of Ireland
8.4.3Relationship with Regulators
The vital importance of regulation and the very real cost implications of any poor decisions made in this sphere at the crucial stage of the establishment of the new Irish water utility were set out for the Joint Committee by the Economic and Social Research Institute:-
“The cost of water and waste water services into the future will depend crucially on the regulatory approach and investment needs. Detailed calculations are not possible as key data is not available publicly. However, the difference in terms of price to the household of different scenarios could easily be in the order of 10%. It is therefore important to carefully establish the regulatory framework for water service”.
70 The potential risk of conflicting objectives in the context of two regulators was mentioned by both the Economic and Social Research Institute and by University College Dublin.
The Economic and Social Research Institute stressed to the Joint Committee on 24 January 2012 that the relationship between the economic regulator, the Commission for Energy Regulation, and the environmental regulator, the Environmental Protection Agency, should be set out explicitly and appropriate measures should be incorporated in legislation. This is on the basis that conflicts may arise; for example where environmental regulations imply significant additional investment needs that would increase prices significantly.
This point was illustrated in the presentation by the County and City Managers’ Association to the Joint Committee on 11 October 2011. It stated that the increasing of compliance is one of the financial difficulties currently faced by local authorities. An example of this is that new wastewater licences issued by the Environmental Protection Agency involve, on average, an additional associated cost of €17,290 per licence.
In a similar context, the National University of Ireland, Dublin drew the attention of the Joint Committee to the case of the previous regulatory roles of the Central Bank of Ireland and the Financial Regulator51:-
“The key role of the Regulator is to unambiguously represent the public interest. It is a feature of the Irish policy system that the particular interest will trump the public interest unless the latter is given unambiguous primacy. Clarity of mission is especially crucial:-
In his analysis of the causes of the banking crisis, Honohan (2010) makes the point:-
‘The Financial Regulator and the Central Bank were mandated by legislation (emphasis added) to pursue two goals – financial stability and promotion of the financial sector – which may well have been in conflict. The Financial Regulator was in a difficult position as the possible adverse effects on discouraging inward investment in the Irish Financial Services Centre were more immediate and real than what were perceived as more distant concerns about financial stability (emphasis added). While the stability goal was given explicit priority, the potential conflict between the two goals complicated policy choice”. He goes on to note that “intrusive demands from line staff could be and were set aside after direct representations were made to senior regulators.’ The Irish Water regulator needs to make it easy for whistle blowers to be heard, and to be protected.”
51 Presentation to Joint Committee on 6 November 2011. 71 It should be noted however that, in the case of Scotland, a total of three Regulators are involved (economic; environmental and health) but that this model (see Figure 5) has generally been regarded as a successful one52:-
“Given that the Scottish retail market, apart from the market in England and Wales, is the only urban water retail market in the world of which the Commission is aware, the Scottish retail market could be a model on which other places could draw. However, the market is still relatively new and so it might be too early to draw strong conclusions about its success, and its potential to be replicated in other places.
The market appears to be functioning well. As a result, the governance, regulatory and administrative arrangements could provide a useful precedent for other jurisdictions. Using these arrangements as a starting point in other jurisdictions could reduce set-up costs.”
Figure 5: How the Scottish Water Industry Operates
Source: Scottish Water Annual Report and Accounts 2010 / 2011
Note: The Public Services Reform (Scotland) Act 2010 transferred the complaints handling function of Waterwatch Scotland to the Scottish Public Services Ombudsman and the customer representation function of Waterwatch Scotland to Consumer Focus Scotland.
52 Australia’s Urban Water Sector, Government of Australia (2011, Appendix C, p.36) 72 9. METERING
This section of the Report looks at various aspects of domestic water metering including whether meters should be located inside or outside the home and the use of SMART and drive-by meters, including the definition of these meters.
There is no economic regulation of the water sector in Ireland at present. Currently, water charges for non-domestic use are set by the 34 individual local authorities with the rates charged varying significantly between them; from €1.75 per metre3 in Kildare to €3.04 per metre3 in Wicklow (Department of Environment, 2012). Water services cost over €1.2 billion to run in 2010, leaving a resulting funding gap of around €1 billion after revenues from non-domestic charges had been taken into account. At the same time, Ireland is unusual among members of the Organisation for Economic Cooperation and Development in not charging households directly for the water they consume.
It is in this context, that the Government plans to introduce water charges and water metering in Ireland53. Charging by volume of water used is generally considered to be one of the fairest approaches to charging54. This, however, requires the installation of water meters. The introduction of water metering will, thus, be an important feature of the reform of water services in Ireland as it will provide the means by which water consumption can be measured and subsequently charged for.
9.1 Defining Water Metering
Water meters have long been used to measure the volume of water usage. There are a number of drawbacks associated with traditional meters. These include being stand-alone devices which are unable to facilitate communications and the lack of consumption logs. Technology for meters has, however, advanced over the years and developments such as SMART Metering has received much attention from policy-makers in recent years in light of the potential benefits it offers. This section of the Discussion Paper looks at definitions for water metering and the associated technologies.
Moving beyond traditional metering, Automatic Meter Reading is a system installed to read a utility meter remotely and collect data required for billing purposes. It works by translating the movement of the mechanical dials on a meter into a digital signal, and does not require physical access or visual inspection. Though it, a meter can be read remotely using a fixed network, hand-held / walk-by and drive-by.
Mobile or ‘drive-by’ meter reading is where a reading device is installed in a vehicle and the reading device automatically collects the meter readings as the car is driven around an area. This mitigates many of the problems associated with manual
53 While the Programme for Government envisages a universal metering programme, the Department of Environment (2012) highlights that a number of other approaches were considered including a fixed charge or the installation of meters on a request basis (an opt in approach). 54 Department of Environment (2012, page15) states that ‘ultimately the setting of the water charge, both domestic and non-domestic, will be a matter for the regulator within an overall policy and pricing framework which will be developed by the Government’. 73 collection of meter reads, which can include being time consuming, costly, inefficient and prone to human error. In 2005, the four local authorities in Dublin55 started a project to install water meters for water supplied to the non-domestic sector in the Dublin region. This resulted in the installation of 30,000 meters which ‘can be read four times annually by two ‘drive-by’ meter readers, a fraction of the man-power required to read an equivalent non-Automatic Meter Reading network’56.
Picture 1: Drive-By Meter Reading
Source: Meter Technology Ireland (MTI) website available at http://www.metertechirl.com/casestudiesDWater.htm
Picture 2: Consumption Analysis
Source: Meter Technology Ireland (MTI) website available at http://www.metertechirl.com/casestudiesDWater.htm
Unlike traditional Automatic Meter Reading, Advanced Metering Infrastructure enables two-way communications with the meter57. SMART Metering is often referred to as Automatic meter reading or in the case of real-time, two-way communications, as Advanced Metering Infrastructure (van Gerwen, Jaarsma and Wilhite, 2006).
55 Dublin City Council, Dún Laoghaire Rathdown County Council, Fingal County Council and South Dublin County Council 56 See http://www.metertechirl.com/casestudiesDWater.htm 57 Advanced Metering Infrastructures are advanced systems that measure, collect and analyse energy usage and communicate with metering devices such as electricity, gas, heat and water meters, either on request or on a schedule. 74 In addition to the traditional metering functionality, measuring and registering the amount of energy which passes through it, SMART meters are capable of two-way communication allowing them to transmit meter reads and receive data remotely (United Kingdom - Ofgem / Department of Energy and Climate Change, 2010). SMART meters provide consumption and power quality data, and they can communicate to a central system. Some of the benefits of SMART Metering include that it allows remote meter reading and ready access to data by consumers and suppliers or their agents. SMART meters can be used to meter electricity, gas, water and heat in both domestic and commercial properties.
According to a report prepared by Marchment Hill Consulting for the Department of Sustainability and Environment in the State of Victoria in Australia:-
“Driven by electricity investment, metering has evolved from interval meters with simple communications, to advanced or SMART Metering with an increased range of metering functionality.
SMART Metering for the water industry will also extend beyond the capability of ‘Automated Meter Reading’ (AMR)” (Marchment Hill Consulting, 2010, page 15).
As noted above some of the terminology for types of metering is used interchangeably. In addition, not all industry participants use the same classifications as evidenced by the text box below which highlights differences in how Automatic Meter Reading and Advanced Metering Infrastructure can be defined.
Text box 4: Differences in Automatic Meter Reading, Advanced Metering Infrastructure and SMART Metering
Automatic Meter Reading: Any form of remote meter reading, including mobile systems, fixed systems, one-way and two-way systems, Advanced Metering Infrastructure and SMART Metering. Some industry participants consider Automatic Meter Reading to be any technology preceding Advanced Metering Infrastructure, but The Scott Report1 groups them all together because they all address the same marketplace.
Advance Metering Infrastructure: An advanced form of Automatic Meter Reading that has a robust Meter Data Management that can store vast amounts of data, often in terabytes, and is supported by SMART tools that can extract useful information from the Meter Data Management data. This information can be presented to the utility or the customer, in a few pre-defined forms, such as load profile. Many Advance Metering Infrastructure systems also support some advanced services such as Demand Response, which permits the customer to let the utility disable service in extreme circumstances.
Smart Metering: This terminology is often used interchangeably with Advanced Metering Infrastructure, especially for electric utilities. Most SMART Metering also include advanced functionality in the meter such as (1) net metering (the ability to measure energy used by the customer as well as measure energy delivered by the customer back to the utility), (2) remote disconnect (the ability to remotely shut off and re-establish service), (3) two-way communications (the ability to both read the meter and send information to the meter, including programming updates), (4) microprocessor control (a meter-based microprocessor controls the operation of the meter and its communication), (5) time stamp of usage (associating the meter read with the actual time when it was read) and (6) the ability to collect meter readings in multiple categories; e.g. supporting Time-of-Use applications.
Sources: Cogynst Advisors (2009)
1 The Scott Report is a complete study of Automatic Meter Reading deployments in North America.
75 Whilst acknowledging that the distinctions between various levels of metering are in some cases grey, Marchment Hill Consulting (2010) offers the following metering definitions as reproduced in figure 6.
Figure 6: Metering Definitions
Source: MHC (2010) page 15
9.2 International Organisations Views on Water Metering
Several international organisations have commented on the issue of water metering and a selection of their views is outlined below.
9.2.1 Organisation for Economic Cooperation and Development
The Organisation for Economic Cooperation and Development (2010) conducted an environmental performance review of Ireland. Part of that review included an assessment of the water services industry. The report states that ‘the OECD experience with water management unequivocally underlines the environmental and economic merits of water charges’ (Organisation for Economic Cooperation and Development, 2010). It further states:-
76 “Individual household metering leads to more rational use of water in home and garden (and thus less waste), more interest in low-water use appliances, and more interest in the substitution of rainwater for piped supplies. Such interest feeds its way through to appliance manufacture and design, while the effects on household demands eventually feed their way through to the volume-related cost elements of sewerage transportation and sewage treatment. Even in individual apartment metering, water savings in the range 15% to 45% are reported” (Organisation for Economic Cooperation and Development, 2003, page 12)
9.2.2Defining Water Metering
According to the Environmental Protection Agency of the United States of America metering is an important tool in detecting leaks and encouraging water conservation:-
“very important for all aspects of the water audit process. [Meters] record usage and therefore make billing fair for all customers. They make it possible to charge customers for the water they use. They can encourage conservation by making customers aware of their usage. They help detect leaks and establish accountability. Meters allow a PWS [Public Water Supplier] to monitor treated water output and demand. Meter records provide historic demand and customer use data that is used for planning purposes to determine future needs. In short, metering data makes accurate water auditing possible” (Environmental Protection Agency, United States of America, 2009, page 3 – 1).
9.2.3European Union
The Water Framework Directive (2000/60/EC) advocates that the users of water services should be charged a price that fully reflects the cost of providing the service. Under the Directive the recovery of costs refers to several elements. The Directive indicates that the prices users pay for water should cover the operational and maintenance costs of its supply and treatment and the costs invested in infrastructure. The Directive goes further and requires that prices paid by users also cover environmental and resource costs. A potential environmental cost of abstracting water58 would be a reduction in water levels in rivers and lakes and subsequent harm to the aquatic ecosystems the water body supports.
58 Water abstractions refer to freshwater taken from ground or surface water sources, either permanently or temporarily, and conveyed to the place of use. If the water is returned to a surface water source, abstraction of the same water by the downstream user is counted again in compiling total abstractions. Mine water and drainage water are included. Water used for hydroelectricity generation is an in situ use and is excluded. Definition available from: http://www.oecd.org/dataoecd/42/27/34416097.pdf 77 The Directive also states that water pricing should create incentives for the efficient use of water resources. If users pay the real costs of the water they use they will certainly waste less of it. This brings economic efficiency and reduces the financial burden on public authorities while improving the environment. In 2007, the European Commission called for common action to address the challenge of water scarcity and droughts in the European Union. It highlighted the fact that ineffective water pricing policies have contributed to the mismanagement of water resources in many areas59.
Thus, the Water Framework Directive is clear that charging for water and incorporating the infrastructural and environmental costs is an important mechanism for reducing demand and thereby helping to cope with drought and water stress.
9.2.4United Kingdom – Environment Agency
The United Kingdom Environment Agency (2009) sets out their policy on water metering:-
“We believe that water metering and innovative tariffs are important, particularly in water stressed areas, as they play a crucial role in increasing water efficiency. With SMART meter technology, and the right charges, there can be a real incentive to reduce demand and opportunities to address affordability concerns”.
9.3 Effects of Metering
The United Kingdom Environment Agency (2009a) shows that metering has the effect of reducing demand for two reasons. Firstly, metering in and of itself reduces demand in two ways:-
(1) Households are now conscious that they are paying by use and reduce their demand;
(2) As meters are usually placed at the property boundary householders are more likely to fix leaking pipes quicker if they are metered than if they are unmetered. The Environment Agency (2009a) estimated that this effect would reduce demand for water by 10%. Secondly, the price of water has an effect on demand. UKWIR [United Kingdom Water Industry Research] (2003) estimated that for the UK [United Kingdom], the price elasticity of demand (i.e. the amount demand will fall if the price rises by 1%) was 0.14%60. Thus, a combination of metering and pricing leads to falling demand.
According to the ENDS report, metering trials across the United Kingdom have shown how it can work to reduce consumption. National metering trials completed in
59 This section is mostly taken almost verbatim from European Commission (2008). 60 Water is a necessity and thus would be expected to have a low price elasticity of demand i.e. it would take a large change in price to have a large effect on demand. 78 1993 found that charging by meter reduced average domestic demand by 11%. Peak demand in the summer was cut by 30%. In the 1990’s, the Southern Water Company for instance, found that widespread metering cut demand by 21% (ENDS Report 1995).
Table 8 below shows the average water consumption per person per day for three periods. Metered households used approximately 8.1% less water per person than unmetered households in 1998 / 1999 and 10.8% less in 2003 / 2004. It was 15.3% less in 2008 / 2009.
Table 8: United Kingdom Consumption of Water Litres / Person / Day, 1998 / 1999 – 2008 / 2009 1998 / 2003 / 2008 / 1999 2004 2009 Unmeasured household consumption estimates 148 158 152.7
Measured household consumption 136 141 129.4
Measured Household consumption as % of non-measured Households 91.9% 89.2% 84.7%
Source: Ofwat (2007) and Ofwat (2009)
A United Kingdom Environment Agency (2009a) study showed that while some households would have higher bills if they were metered, most would have lower bills. If 90% of households were metered by 2014 / 2015, 75% would have lower bills.
Ueda and Moffatt (2011) estimate that the demand effect of metering is on average 13.2%; i.e. having a metre reduces consumption by 13.2%. This was calculated based on the water consumed in an area in England where households could have fixed or metered charges. Ueda and Moffatt also concluded that the demand effect of metering will vary across households and some households will reduce water consumption more than others if metered especially when consideration of the current alternative method of charging for water is accounted for; i.e. it is based on the rateable value of the house. It is important to note that this is the effect of just having the meter and is not a price effect which has separate effects.
9.4 Examples of Countries Using SMART Meters
At present, SMART meters are used in a number of countries across the world including:-
(1) Australia;
(2) Canada;
(3) Denmark;
(4) Italy (electricity);
(5) Japan; 79 (6) Netherlands;
(7) New Zealand;
(8) Spain;
(9) Sweden;
(10) United Kingdom;
(11) United States of America.
Sweden was the first country to (indirectly) mandate a full rollout of SMART meters (Renner et al, 2011) with the authorities requiring that all utility meters must be able to be read automatically on a monthly basis by 2009 (European SMART Metering Alliance, 2008). Denmark also uses Automatic Meter Reading for water, electricity and heat metering. A number of domestic SMART meters have already been installed in the United Kingdom where the Government has committed itself to the rollout of electricity and gas SMART meters to all homes by 2019.
Implementation is imminent in a number of counties including:-
(1) France;
(2) Italy (gas);
(3) Malta.
Renner et al (2011, pages 1 and 2) has categorised European Union Member States and Norway into five groups in relation to SMART Metering:-
(1) The ‘dynamic movers’ are characterised by a clear path towards a full rollout of SMART Metering. Either the mandatory rollout is already decided, or there are major pilot projects that are paving the way for a subsequent decision. Denmark, Finland, France, Ireland, Italy, Malta, The Netherlands, Norway, Spain, Sweden and the United Kingdom are part of this group.
(2) The ‘market drivers’ are countries where there are no legal requirements for a rollout. Some Distribution System Operators or legally responsible metering companies nevertheless go ahead with the installation of electronic meters either because of internal synergetic effects or because of customer demands. We classified the Czech Republic, Estonia, Germany, Slovenia and Romania in this group.
(3) Austria, Belgium and Portugal, ‘ambiguous movers’, represent a situation where a legal and / or regulatory framework has been established to some extent and the issue is high on the agenda of the relevant stakeholders. However, due to lack of clarity within the framework, at this point only some Distribution System Operators have decided to install SMART meters. 80 (4) The ‘waverers’ show some interest in SMART Metering from regulators, the utilities or the ministries. However, corresponding initiatives have either just started, are still in progress or have not yet resulted in a regulatory push towards SMART Metering implementation. We rank Bulgaria, Cyprus, Greece, Hungary and Poland in this group.
(5) Finally, ‘laggards’ are countries where SMART Metering is not yet an issue. This group consists of Latvia, Lithuania, Luxembourg and the Slovak Republic. However, since transposition of Directive 2009/72EC is on-going, it is possible that the ‘laggards’ may suddenly gain momentum.
Figure 7 provides a graphical overview of the legal and regulatory situation vis-à-vis the process of implementation of SMART Metering enabling technologies and services with the goal of achieving energy savings and / or peak load shifting.
Figure 7: Overview of the Legal and Regulatory Situation
Source: Renner et al 2011) page 2
Ireland is in the ‘dynamic movers’ category for a number of reasons, including:-
(1) A National SMART Metering Plan is in place;
(2) The Commission for Energy Regulation, the economic regulator, started a consultation process on a roll-out strategy and functional requirements for electricity and gas.
81 9.5 Ireland’s Experience of Meters to Date
Ireland has some experience of metering given that non-domestic consumption is already metered across the county.
In its presentation to the Joint Committee, Dublin City County Council outlined its experience of the use of SMART meters and the role it played in reducing the level of unaccounted for water:-
“The issue of unaccounted for water is topical. In the water mains rehabilitation projects in which we were involved, we regularly replaced perhaps 50% of the network in a district meter area and the level of unaccounted for water was 18%. We sometimes replaced 70% of the network in an area and the level of unaccounted for water remained at 18%. We sometimes replaced 90% of the network in an area and the level of unaccounted for water was still 19%. This made no sense. Therefore, I decided to replace the entire network in one small area near the Merrion Road gates. However, the level of unaccounted for water remained at 18%. In order to address this conundrum, we placed a SMART meter in every property, using automatic meter reading technology. The results – we will share the full report with the [Joint] Committee – show that the leakage rate on the private side was enormous. Members will note from the slide that three houses alone used the volume of water that would be used by 160 houses. Invariably, the leaks generally were to be found under the front garden or the driveway. The three major leaks mentioned have been fixed. We worked with the customers concerned in dealing with them. This shows, in line with our experience that in approximately 6% of any district meter area there is what would be regarded as exceptional use. We are working with customers to reduce this rate because it gives a good economic rate of return on investment”.
9.6 Issues and Concerns Regarding Metering
During the course of the Joint Committee’s examination of Water Provision, a number of issues and concerns arose in relation to water metering, which included the following listed below.
(1) Universal metering;
(2) Costs of installation;
(3) Location of meters;
(4) Type of meters;
(5) False readings.
82 9.6.1Universal Metering
In a briefing note prepared for the Joint Committee, the National University of Ireland, Dublin recommended that the new Irish water utility meter water use, charging on the basis of volume of consumption with the charge including sanitary services. Highlighting evidence which shows that pricing does work61, it gave a number of reasons for this recommendation including:-
(1) It stimulates efficiency by both water users and suppliers;
(2) It allows the deferral of expensive capital projects;
(3) It encourages innovation and water based enterprise, in that consumers would likely buy a technology that saves on their water bill if the cost is less than the price of water;
(4) It enhances ability to deal with droughts and extreme weather events.
According to the National University of Ireland, Dublin, the extent to which people react to pricing depends on “(a) consumers having timely and credible information on consumption, (b) on the price, and whether it has a flat or increasing block, (c) how easy it is to adjust behaviour to the price signal”.
The Economic and Social Research Institute noted that ‘the demand response due to charging comprises two elements, namely leak reduction and more general demand reduction, which in turn depend on the incentives set through metering and the charging structure’.
In contrast to the National University of Ireland, Dublin, the Campaign Against Household and Water Taxes (2011) argues against domestic water metering on the grounds that the benefits will not outweigh the costs when compared to the benefits and costs of tackling unaccounted for water:-
“This submission sets out to give the expected savings from domestic water metering a context within the overall potable water supply system in Ireland. It will show that it would make no sense whatsoever to spend €500 million on installing water meters in over 2 million dwellings when compared with the potential savings from spending the same money to affect the huge unaccounted for water losses that still persist in this country.
We can only conclude that by far the main reason for installing water meters at this stage is for billing purposes. Our campaign is opposed to a water tax and will oppose metering on the grounds that it is being introduced primarily to facilitate the introduction of yet another stealth tax.”
61 Presentation by Sean Corrigan, Manager of the Ballycroy, Killeen and Kilmeena Group schemes in County Mayo, at the 5th Annual Water Summit, Croke Park, Dublin on 1 December 2011. 83 In its submission to the Joint Committee, the Consumers’ Association of Ireland (2011) was keen to stress the need for the supply system to be efficient and safe in cases when consumers are being charged for water supply:-
“Efficient resource management must precede any charges being imposed. If consumers must pay for their water supply, then they must not also pay for the costs associated with an inefficient system, or indeed one that has in the past led to public health issues with unsafe drinking water. It also needs to be borne in mind that many consumers already spend significant sums on water filtering systems – some of them quite expensive to maintain on an annual basis.
A metered water supply system must be efficient before it is rolled out with infrastructure investment made to reduce water loss from leakage to a minimum. If there is waste in the system, this can only have the effect of increasing the cost of water charges to consumers. If a meter system is implemented, water meter technology could assist with identifying where leaks are present. When the types of meters are being selected this must be considered. Water meters should have the capacity to detect leaks, which can then in the long term contribute to a more efficient water supply network.”
The installation of water meters and water pricing can also play an important role in tracing leaks and thus, reducing demand, something that may not have happened in the absence of charges per unit of consumption.
Pricing is important from the point of view of both the supplier and the customer. As noted by the National University of Ireland, Dublin ‘the charging scheme needs to provide a strong incentive to consumers, and also provide a ‘reliable’ cash flow to Irish Water’.
The Joint Committee also heard the views of some local authorities in this regard. Dublin City Council noted:-
“There was a discussion on the subject of universal metering. The experience in the United Kingdom, after 25 years of privatisation, is that there is meter coverage to a figure of approximately 33%. The water companies at the forefront such as Anglian Water have a coverage rate of approximately 66%.
I mentioned exceptional users. The correct strategy is to identify who these users are, meter them and, jointly with these customers, try to deal with whatever issues arise.
To refer to the UK water companies only, the most progressive are now beginning to consider how they should deal with leaks on the private side. They are sometimes prepared at their own cost to fund replacement to a distance of up to eight to ten metres inside a private property, which they find to be particularly cost-effective. Where one upgrades a 100 year old public supply pipe from the road but does not upgrade the 100 year old supply pipe on private property, one runs the risk of transferring the leak from one side----- 84 Cathaoirleach: I have an idea of the point Mr Leahy wants to make on leaks. The way the sewerage system works is that the householder is responsible for the sewerage system from his or her property to the mains. Mr Leahy is suggesting that in Britain the private companies took on the responsibility for making repairs on the piece of land between the household and the mains.
Mr Tom Leahy: Some have, although there are limits to that liability. I would not for one moment suggest we take on additional unfunded liabilities. Nonetheless, it is a debate worth having. While I have mentioned the privatised system in the United Kingdom, there are other models in use throughout the world. An interesting one is the Paris model, a private model that is now a public model in order to save water for Paris. Interesting issues arise in this regard.”
Cork City Council suggested the following:-
“On the issue of meter reading and complaints, one certainly will get complaints. In the majority of cases, this is not down to the meter itself, to poor calibration or to the operator of the meter. We have found that many of the issues arise from the non-domestic user’s own pipe network. Consequently, monitoring the meter on a regular basis is a highly effective way to manage unidentified water loss within the private system. On the domestic side, it was mentioned earlier that it was in the order of 18% but I suggest it is much higher than that in many cases.
This leads me to the possible Government decision regarding the introduction of charges on domestic water and so on. While I do not intend to comment on whether this is desirable, were domestic charging to be introduced, the only way to so do that would be beneficial in the reduction of unidentified water loss would be by having a meter in every household. Potentially, more innovative ways to incentivise people to examine their use of water must be considered. As a thought, I offer the example of the highly successful home energy scheme. An incentive currently exists in cash terms to upgrade one’s central heating system, to insulate one’s attic and walls, etc. A report was published last week indicating the scheme is highly successful in respect of the return to the economy, the reduction of energy consumption and so on. Very often, such an incentive to private owners leads them to invest more money themselves to ensure the private heating supply or private water network within their own households is adequate and is not costing them money. Potentially, if domestic water charging is to be introduced, some innovative method in this regard may need to be considered. Such innovation may have a commonality with the incentivised energy scheme”.
85 The Economic and Social Research Institute suggested that there be regional water charges, owing to the fact that the cost of extracting water is low in some areas and thus, having one national price for water would remove this comparative advantage.
The establishment of a new Irish water utility is based on a national approach. Exact details regarding the water charge have yet to be announced but the Department of Environment (2012) has indicated that the setting of the water charge will be a matter for the Regulator within an overall policy and pricing framework which will be developed by the Government.
9.6.2Cost of Installation
The Government has announced its intention to proceed with a domestic water metering programme to commence later in 2012. The Department of Environment estimates that the metering programme will be targeted at approximately 1.05 million households of the estimated 1.35 million households connected to public water supplies. The remaining 300,000 households (e.g. gated communities, apartment complexes, houses with shared service connections) will not be metered initially due to technical or cost constraints. It is intended that the metering programme will be the responsibility of the new Irish water utility when it is established. Until the new utility is in place, the Department of Environment intends managing the procurement process for the metering programme in collaboration with local authorities.
The Joint Committee understands that the Department of Environment has prepared detailed cost estimates for the programme based on market soundings with suppliers as well as an examination of the costs incurred by local authorities in the non-domestic metering programme. However, more definitive costs will not be available until after the procurement process has begun. The procurement strategy will involve national centrally negotiated contracts for the purchase of the equipment, boundary boxes, meters, Automatic Meter Reading transmitters, with local and regional framework contracts for the installations. The Department intends commencing a survey of all domestic connections to public water supplies later this year. The surveying, to be carried out by local authorities, will facilitate the bundling of installations based on the extent of excavation and other works that will be required.
The Joint Committee understands that the Government plans to fund the metering programme from the National Pensions Reserve Fund in accordance with the Fund’s statutory remit (the loan will be on commercial terms).
The Department of Environment is cognisant of concerns regarding the level of investment anticipated with this scheme, including in the context that charges would be introduced for some households without meters being installed. The rationale for the current proposals is based on this being a long-term investment aimed at best managing, funding and converging water resources:-
“There has been criticism from some commentators about the timing of a large scale investment programme of this nature when charges could be introduced either by way of a simple flat rate water charge 86 or by the installation of meters on a request basis (in other words an opt-in approach). While acknowledging these views, the Government believes the installation of water meters represents a long term investment in how we, as a society, manage and fund our water resources and that it is appropriate to press ahead with this programme at this time. From an environmental point of view, the best way to conserve water is to incentivise people to use less. Furthermore, the OECD [Organisation for Economic Cooperation and Development] (2010) has concluded that water metering is unequivocally the fairest way to charge for domestic water usage. The Government’s intention is to provide a free allowance and charge for usage above that threshold.” (Department of Environment, 2012, page 18)
The National University of Ireland, Dublin highlighted that:-
“The costs of metering will depend on where they are located, and what detail they gather and process, ranging from €150 – €350 per household, with a compelling logic now in favour of hand held units.
[…]
There will be substantial economies of scale. If an entire estate is done, the costs per unit will be much cheaper than if installers come on an ad hoc basis. There are very large costs associated with allowing people to ‘opt out’.”
The Economic and Social Research Institute made a number of important points in relation to the potential costs of rolling out meters and aspects of this, which a cost benefit analysis should consider:-
“A range of figures regarding the cost of rolling out meters have been put forward. In this respect the experience in the UK is of particular interest as different types of options have been implemented there. The Walker Review (2009) considers the cost of alternative meter installations. Internal installation was found to cost between £106 and £385, and external installation in new boxes cost between £293 and £471. Using the highest, £471, and lowest, £106, number and assuming that meters are rolled out to 1.48 million households, the total cost would range between less than €200 million and more than €800 million. This shows that the type and cost of installation has a very significant impact on the total cost. For this example the implication of the calculations is that the benefit of external installation would have to be more than €600 million higher than that for an internal installation in order to pass economic criteria. Therefore a cost benefit analysis should consider the costs and benefits of internal and external installation.”
The PwC report notes that the proposed water metering programme has been reported to cost over €500 million. Quoting (page 22) a report from the Irish Academy of Engineering and Engineers Ireland, it states that international evidence suggests the cost is more likely to approach €1 billion. 87 The Economic and Social Research Institute highlighted that it is likely that the costs and benefits of meters will vary across regions owing to different abstraction costs, treatment costs and investment needs. For this reason, it suggested:-
“Therefore the [Cost Benefit Analysis] of the roll-out of water meters should be done separately for each River Basin District Area as the benefit cost ratios are likely to vary significantly.”
9.6.3Location of Meters
The Joint Committee considered the issue of where meters should be placed, either inside or outside the home, and the costs of each option.
The Economic and Social Research Institute in its presentation to the Joint Committee highlighted the importance of where meters are located and the effects of this on the related costs. It estimated that the cost could range from between less than €200 million and more than €800 million, depending on where the meters are located:-
“The location of the meter is important. Meters can either be located within a property or at the boundary of the property. The key difference in terms of benefit is that leaks external to a property are not immediately attributable to the householder if the meter is located inside the property. On the other hand, internal meters are more likely to be monitored by householders. The cost of the two options differs significantly”.
That is not to say, however, that the choice of meter location is best determined by financial considerations alone. There is a clear choice between putting water meters inside the home and placing them at the boundary of properties. This is an important decision owing to the differing costs and benefits associated with each approach.
Specific issues may also arise in regarding internal installation. Pope (2011), for example, has highlighted the fact that installers would have to get permission to access peoples’ homes and some residents may refuse this permission. In this case, Pope suggests the alternative plan would be to install meters outside the property boundary, which may be easier but would be more expensive. In terms of how this would be funded, Pope (2011) states:-
“The alternative plan may be to install them outside the property boundary, which may be easier but would be more expensive. Experts have said that it could cost up to €800 per meter (€1.1 billion in total).
The Government plans to use money from the National Pensions Reserve Fund to cover the cost.
88 Alternatively, residents could install water meters themselves and pay by usage while those without meters would pay a flat charge”.
Regarding the likely benefits of external installation versus internal installation, the Economic and Social Research Institute made the following points:-
“Issues also arise regarding the location of meters. As I showed in my opening statement, there is potentially a significant difference in the price or cost of an internal and external installation. There appears to be something of a fixation on an external installation, yet I have not seen a cost-benefit analysis to show this is the optimal approach. If we opt for an external installation, it is unlikely that it will be possible to marry that approach with the SMART meters and communications module. One would end up duplicating to some degree and one would have drive-by meters, around which there are all sorts of unresolved issues. For instance, where does one install a meter in the case of a property that begins up a private lane? Should it be installed 300 m from the property on the main road or at a location on the lane? If one opts for the latter, driving up the lane with a drive-by meter will be costly. These issues need to be properly assessed and the calculations done before a location is selected. I have some doubts about the likely benefits of external installation over internal installation. There is potential for efficiencies from installing water and energy meters at the same time. That would also allow one to get around some of the access issues. By piggybacking on the communications module, it would be possible to examine fluctuations in demand with greater care because the information would be supplied in real time for all households. This would allow the system to be tailored better. I suspect I would opt for an internal installation, although I would prefer to see the evidence before me. On the rough calculations that I have made, that would be the more efficient approach”.
9.6.4Technological Issues
The Joint Committee also heard views regarding the available technology for meters. For example, the National University of Ireland, Dublin explained the following in relation to the different technologies and their capabilities:-
“Meters manufactured now have pulse output to enable a radio unit to log consumption, with built-in radio units as standard. It takes about 6 months from design to first deployment – lab tests, field tests, industrial batch produced, more lab tests, first deployment (under close supervision). Sensors for water management can provide real time information to mobile phone or other hand held devices on leak detection, network efficiency, pressure, temperature, water quality, sewage management. Radio based systems inform customers via monitor or mobile phone of leak conditions, when going into higher rates, ways to control usage. And they allow monitoring of unoccupied property.”
89 In some cases, local authorities are already engaging with technology companies. Dublin City Council highlighted its collaborative work with IBM:-
“I wish to mention work we are doing with IBM as part of a SMART Dublin initiative. IBM has sourced a smarter cities technology centre in its complex in Dublin, one of the very few in the world. We have the ambition that this centre will result in the Dublin region being the international SMART technology centre of the world. The slide shows an example of a visualisation on which we have been working with IBM to allow the operator to see the significance of numbers, effectively the wood from the trees.”
9.6.5False Readings
The Joint Committee discussed concerns regarding water metering including the issue of false readings. In this context, Dublin City Council outlined its experience:-
“On metering and the possibility of there being false readings, our experience is that at reasonably high flows there is a very good correlation, as happened in the pilot study, between the sum of all the meters in a particular area and the volume provided. At very low flows, which occur in the middle [of] the night, there is a misreading to a figure of 30% to 40% between the meters, but since the volume provided is tiny, this is not particularly significant. One would look for the specification of the meter at high and average flows, in respect of which there is a very good correlation.”
90 10. COSTS, TARRIFFS AND WAIVERS
10.1 Introduction
“We are the only country in the OECD where households do not pay directly for the water they use. Our current model of Water Provision, where unlimited quantities of an expensive product are provided at no charge, is simply not sustainable”. (Department of Environment, 2012)
The Organisation for Economic Cooperation and Development (2010) conducted an environmental performance review on Ireland. Part of this review included an assessment of the water services industry. The report states that the ‘OECD experience with water management unequivocally underlines the environmental and economic merits of water charges’. The Organisation for Economic Cooperation and Development further states that its analysis on water charges across countries suggests that levying charges that reflect the full cost of supplying water services helps ensure that aquatic ecosystems are adequately protected and sufficient funds are available to maintain and expand water infrastructure. It also helps reduce demands on limited public budgets and gives individual users incentives to use water sparingly (Organisation for Economic Cooperation and Development, 2003 cited in Organisation for Economic Cooperation and Development, 2010).
Water tariffs give water service providers a regular income and provide capital for continuous investment into the water distribution network helping to ensure that leakage is kept to a minimum and water reaches all the required quality standards. According to the Organisation for Economic Cooperation and Development (2010) report the insufficient progress in maintaining and upgrading the water distribution network in Ireland leading to continued high leakage rates is at least partially due to the absence of water tariffs.
Ireland is unusual in Europe is that it does not charge directly for water services as domestic tariffs were eliminated in 1997 and since then, only non-household customers (agricultural, commercial, hospitals, schools, etc.) pay for water. As a part of the changes proposed for the water services sector, the Government aims to achieve better quality water and environment through the introduction of a fair funding model to deliver clean and reliable water. To this it plans to install water meters in every home in Ireland and to move to a charging system that is based on each household paying for domestic water consumption above a free allowance.
10.2 Effects of Water Pricing (Price Elasticity of Demand)
Economists use the concept of price elasticity of demand to estimate how responsive the quantity demanded of a good or service is to changes in prices. For normal goods price elasticities are expected to be negative; i.e. if the price goes up demand falls. If the amount demanded goes down more than the prices increase in percentage terms, if for example the price goes up 10% but demand falls 15%, a good is said to be price elastic and would have a price elasticity of demand of less 91 than -1. If demand falls but not as much as the price rises, if for example the price increases by 10% but demand falls by 5%, the good is price inelastic and has a price elasticity of demand of greater than -1 but less than 0. Labelling a good price inelastic does not mean that increasing the price will not affect demand but it does mean that for demand to fall a lot, the price would have to be increased substantially.
There is disagreement between many proponents of water conservation regarding the effectiveness of water metering. Some believe that the demand for water is inelastic, that it does not respond proportionately to price increase, and alternatives such as rationing and promoting water-saving devices is better for water consumption. The results below support the theory that water demand is price inelastic. However, this does not mean that pricing water does not lead to reductions in consumption.
Dalhuisen et al (2001) review 50 studies of water demand from the 1970s to 2000. The distribution of price elasticities has a sample mean of –0.43, a median of –0.35, and a standard deviation of 0.9262. In line with theoretical expectations, most estimates are negative. The vast majority of estimates for the price elasticity of water were between -1 and 0, yielding the conclusion that there is substantial evidence for water demand being price inelastic. Low elasticities obviously hamper the success of policies for demand management based on water pricing. The paper also concludes that price elasticities are higher in Europe than in the United States of America.
A similar more recent review of the literature (Worthington and Hoffman, 2008) concluded that price elasticity estimates are generally found in the range of zero to - 0.5 in the short run and - 0.5 to -1 in the long run. In addition, they conclude that ‘price elasticities are found to be higher in the summer than the winter and price elasticities are generally highest where outside (read discretionary) water usage is highest (including lawn and garden watering, car washing and swimming pools)’. This suggests that pricing water will reduce excess consumption of water and that the share of water used for sanitary reasons will increase.
More recent studies for individual countries show similar results. Musolesia and Nosvellib (2007) show for Italy a short term elasticity of -0.27 and a long run elasticity of -0.47. This suggests that a 1% increase in price would lead to a 0.47% fall in water consumption in the longer term. Schleich and Hillenbrand (2007) estimate a price elasticity of -0.229 for Germany which is slightly lower than for other studies.
Guiden (2006) estimated a price elasticity of -0.37 for the United States of America. However, the addition of ‘price information’ to the bill the household received changed the estimated elasticity to -0.51. This price information included the amount charged per unit, consumption history and conservation messages and the results show that people react more to price changes if they understand the impact on the amount they have to pay. This result is important when designing the billing system for Ireland in order to maximise the effectiveness of charging on reducing water consumption.
62 It should be noted that the various different ways that water is charged for can have an effect on the price elasticity, blocking pricing (where the price per litre changes depending on level of consumption) can reduce the price elasticity but still be effective in limiting consumption. 92 Martínez-Espineira and Nauges (2004) point out that a large share of water consumption is dependent on durable equipment (washing machines, dishwashers, sanitary fittings, etc.) and the water usage habits developed over time. The effect of charging for water on water consumption may not be felt immediately. It takes time for individuals to change their habits and it also takes time to upgrade to more water efficient appliances. Thus, the introduction of metered water charges in Ireland may not have a major effect on water consumption in the short run but as time goes by and individuals adjust their behaviour and buy more water efficient appliances, a large cumulative effect may become apparent.
Martínez-Espineira and Nauges (2004) show using data from Seville, Spain, that a certain amount of water usage, 3 metres3 per capita per month (around 100 litres per capita per day), was highly insensitive to price changes. They conclude that once this threshold is achieved through pricing, other methods of water conservation is needed to reduce water consumption further. This suggests that price elasticities may vary with consumption and households with very high discretionary consumption will reduce usage in response to a price increase whereas households where consumption is mainly non-discretionary will be unable to change their patterns of consumption, in the short run at least.
One issue in relying on estimated price elasticities from other countries in the Irish case is that Ireland does not currently have water charges for domestic households. The studies in other countries look at the effect when the price is changed, not the effect when charges are introduced. This means it is likely, at least initially, that price elasticities from other countries are not comparable. When charges are introduced it is likely that it will take time for patterns of consumption to adjust. If the proposed free allocation is set at a relatively high level it could result in some individuals increasing consumption to reach that limit. However, when taken as an aggregate the introduction of water charges should have a negative effect on water demand. The vast majority of studies in other countries show that water is a normal, albeit a price inelastic, good, with an increase in price leading to a reduction in demand. When the price rises from zero, there will be a demand effect and consumption will fall. However, once individuals and households adjust to the initial effect, the results from the various studies suggest that increasing the price will decrease demand but not as much as the price increase.
There is a danger that further price increases will be seen as revenue raising measures. With price inelastic goods, as demand does not fall as much as the price rises, the total amount of revenue raised increases. Besides water, other examples of inelastic goods include alcohol, cigarettes and petrol and their nature as inelastic goods makes them targets of revenue raising taxes such as excise duty.
10.3 Tariff Systems
There are several ways of setting water tariffs and those used across Europe include:-
(1) Pricing by consumption bracket / block can be either progressive or regressive; in the first case, the price per meter³ rises with the increase in
93 consumption63, in the second case, the price goes down when the user passes from one consumption bracket to another;
(2) Fixed pricing does not depend on the volume consumed, and may depend on the size of the water meter installed;
(3) Often, there is both a fixed (e.g. connection fee) and a variable (e.g. price per meter³) component to water tariffs (International Office for Water 2009).
Examples of tariff systems for water services in operation across European countries include:-
(1) In England and Wales metered households (applied to 37% of households by 2009-2010) are charged a volumetric tariff, or where un-metered, a charge based on the rateable value of the property;
(2) In France water tariffs are based on a fixed component and a volume based charge, but only some households are metered and pricing is by way of consumption bracket or by fixed charge;
(3) In Germany householders are metered and charged based on the volume of water consumed;
(4) In the Netherlands all households are metered and tariffs are based on a fixed component and a volume based charge;
(5) In Northern Ireland there is currently no stand-alone domestic water charge, and the Executive’s draft Programme for Government 2011-2015, consultation for which closed on 22 February 2012, contains a commitment not to introduce water charges before 2015 – all indications are that this position is unlikely to change – households already make a contribution towards the cost of water services through the domestic regional rate which equates to about half the level of funding required and the rest (£240m) comes from a Block Grant from the United Kingdom Parliament;
(6) In Spain there is a volumetric charge based on metered usage;
(7) In Sweden most households are metered, paying a connection fee and annual charges that are based on a basic price per year and a current price per meter³ consumed.
The above observations indicate that metering is seen by other countries as essential for water services management and for planning and reducing demand, especially in water stressed areas.
63 With block or basket pricing usually all water consumed is charged at the same price but the price is different depending on what block the household is in e.g. block 1 could be 0 to 7 metres3 per month and all water charged at €15 per metre3 with block 2 at 7 to 10 metres3 per month with all water (not just the level above 7metre3) consumed charge at €20 per metre3. This gives households an incentive to keep water consumption below the block threshold. 94 10.4 National or River Basin District Area Tariff Structure
According to the Economic and Social Research Institute submission:-
“Water abstraction costs differ significantly across the country (e.g. Shannon basin v. Liffey). Likewise, treatment costs are likely to differ and so are investment needs. Indeed the potential demand response to metering might enable certain investments to be deferred or even avoided; e.g. Lough Derg – Dublin pipeline. In this context it is likely that the benefits and costs of meters will vary across regions. Therefore the [Cost Benefit Analysis] of the roll-out of water meters should be done separately for each RBD [River Basin District] as the benefit cost ratios are likely to vary significantly … the water abundance in the Shannon basin should imply a lower cost of water due to lower abstraction costs holding all else equal. As such the Shannon basin possesses a natural advantage to attract firms that are water intensive. Charging the same price for water throughout the country removes this comparative advantage and implies an implicit transfer from water abundant regions to regions where water is scarce. To the extent that a common price implies a distortion of prices; i.e. customers in water abundant areas will face a higher price than they should and those in water scarce regions will face prices that are too low. This issue can readily be taken account by allowing different prices for each RBD”.
However, the Joint Committee accepts that as the new Irish water utility is being established as a national public utility, that a standard national tariff should be levied. In this, it agrees with the PwC assessment (page 76):-
“Tariff structures for domestic and non-domestic customers would be determined by the Regulator on a national basis, based on predetermined criteria, in response to proposals from Irish Water.”
10.5 Focus on the United Kingdom – the Walker Report (2009)
A recent review of water services in the United Kingdom (Walker 2009) indicates that charging for water, based on volume consumed, is the fairest way to administer water and already the United Kingdom is moving towards this.
The Walker (2009) review recommends that, for England and Wales at least, pay- per-volume charging on a metered basis is the fairest way for householders to pay for their water consumption (noting also the costs incurred to install meters). Furthermore the review does not recommend the continuation of charges based on property rateable valuation nor council tax bands in the long-term or for an alternative based on the number of people living in the house. In evaluating the benefits it is necessary to take account of both the potential water savings and the reduced costs of more systematic metering. The review concludes there is a strong case for metering where water is scarce; for high discretionary users; and on change of occupancy. With metering becoming more widespread a transition from one charging system to another is already under way. This cannot be achieved
95 successfully without leadership. The review recommends that OFWAT, working with others including the Environment Protection Agency, should provide this leadership.
The review also highlights the importance of affordability, recommending that all metered low-income families should be given a discount on their water bills, or if this is too expensive, that at the least all low income customers with children should be given a discount, as this group is shown to be most at risk. Decisions will need to be made on who should pay for any package of help targeted on customers with low incomes; the Government or water customers.
A fair charging system should include the following elements:-
(1) Incentivise the efficient use of water and thereby a sustainable supply of water;
(2) Charge according to the use made of the system;
(3) Apply the ‘polluter pays’ principle wherever possible;
(4) Be affordable, particularly to those on low income;
(5) Be simple and transparent for customers and involve them in decisions on prices;
(6) Do not be too expensive to administer, enabling companies to make a fair return on their investments, while also being the most effective way of ensuring people can afford their water bills;
(7) Be fair to future generations (Walker, 2009).
The key messages from consultation for the review included:-
(1) Fully exploit any synergies with the SMART Metering Programme in the energy sector;
(2) Bad debt is clearly placing too much of a burden on the water customers who pay their bills;
(3) The review recommends urgent legislative changes to allow water companies to bill named customers, thereby allowing them to pursue debts through the courts….;
(4) The review concludes that price should continue to be regional, reflecting water costs [and] that it is appropriate for water customers to pay for improvements to the water quality as they are benefitting…;
(5) The review concludes that the future challenges from flooding are such that the charging system should incentivise household customers to minimise their surface drainage (Walker, 2009).
Following on from the Walker Review (2009), the Department for the Environment, Food and Rural Affairs, in 2011, issued a consultation on water affordability in 96 response to the review64. It invited views on some proposed changes to the current WaterSure tariff, a waiver systems for vulnerable groups, plus what the United Kingdom Government guidance to water companies on company social tariffs might cover; and options that could reduce the bills of all households in the South West region (subject to drought) and those with specific water affordability problems. The review stated that leakage levels currently run at about 25% of all water supplied. A quarter of this is estimated to be attributable to household customers.
10.6 Alternatives to Metering and Volumetric Charges65
While the Programme for Government envisages a universal metering programme, the following approaches were also considered:-
(1) Fixed charge: Instead of paying volumetric charges, households could be charged on a fixed / assessed basis on an on-going basis. This has the advantage of raising revenue without extensive capital investment, while meeting the European Union / International Monetary Fund commitment to introduce water charges. However, it does not address conservation of water resources including customer usage and supply side leakage and would not be a sustainable approach over the long term.
(2) Opt-in approach: Households could opt to have meters installed with those customers being billed on the basis of usage and other households paying on a fixed / assessed basis. This approach would reduce the requirement for extensive capital investment and could allow a more phased approach to metering, while giving households a choice as to how they wish to pay. One of the main concerns with this approach is that only ‘water conscious’ users would opt to install a water meter and water consumption would not be reduced significantly. There could also be higher installation and operational costs. Data from the United Kingdom data suggests it could add between 40 – 100% to the costs of installing meters. An alternative option whereby customers would meet the cost of meter installation with subsequent incentives through reductions in their water charge would have similar drawbacks in terms of higher costs and could be socially divisive.
(3) Meter selected classes of property: Consideration was given to metering specific categories of properties. For example, area based metering could be an option, targeting areas with water scarcity. Alternatively, metering could be targeted at newly built houses or houses which are meter-ready; for example recently built properties which were required, under planning conditions, to be meter ready (estimate of 135,000 units). Targeting these categories of property for priority metering would lead to inefficiencies in the overall cost of metering and in the collection of the billing data.
64 http://www.defra.gov.uk/consult/2011/04/05/water-affordability-1104/ 65 This section, Alternatives to metering and volumetric charges, is taken from Department of Environment, 2012, paged19 to 21. Reform of the water sector in Ireland (refer to References section for full details). 97 Other options would be to require metering on a change of occupancy, which method is employed in some parts of the United Kingdom, or metering for rented properties. Both of these options would result in significantly higher installation costs. Another approach would be to meter high discretionary users but in practice it would be very difficult to identify such discretionary users.
Investment in water mains rehabilitation has also been considered as an alternative to metering. The estimated costs of the metering programme would finance the rehabilitation of about 3.5% of the distribution network and would reduce leakage levels by about 5% to 5.5%. Investment in the rehabilitation of water mains should include a leakage target. This should be fair and based on each local authority’s current leakage rate and their capacity to reduce leakage; i.e. unaccounted for water in Limerick County is approximately 16% while it is closer to 60% in Roscommon and as such there is significantly more investment required for Roscommon to substantially reduce leakage.
The domestic water metering programme is expected to achieve savings of approximately 10% in consumption as well as significant savings through reductions in customer side leakage.
Mains rehabilitation does not address customer side leakage and does not impact on consumer behaviour. Mains rehabilitation needs to be sustained as part of long-term strategy complementary to metering rather than instead of it.
A longer lead in for metering is another option for completion of the metering programme. Rolling out the metering programme over a 10 year period, with an average of 100,000 households metered per annum would imply a fixed / assessed charge for the majority of households for a number of years. Assuming a metering programme of 100,000 properties per year, by 2021 there would still be an estimated 500,000 households on a flat rate charge. There would also be a significantly longer period before savings relating to reductions in consumption and leakage would be realised.
The Programme for Government proposes water charges based on usage above a free allowance. A decision has yet to be taken on the level of allowance to be provided and how it will be funded. An allowance per household would be more practical from an administrative point of view but the impacts on larger households of this approach will need to be further considered. Providing allowances based on occupancy would be administratively difficult and costly, as well as being open to potential fraud (Department of Environment, 2012). Social Justice Ireland, in its submission to the Joint Committee recommended inter alia:-
(1) There should be an allocation of 150 litres of water per day without charge for each adult in a jobless household in receipt of social welfare payments. There should be pro-rata adjustments for children. There should also be adjustments for each person with a disability or who is ill.
(2) Households below the poverty line which include a person with a job must also be supported and must have a certain allocation of water without charge. Social Justice Ireland advocates a full allocation of 98 150 litres per person per day, with pro-rata adjustments as above, for all ‘working poor’ households.
(3) For households only slightly above the poverty-line, threshold charges should be applied at a low rate for the water that they use beyond their free allowance. This charge should be calculated on a sliding scale basis from a third to a half to two-thirds of the rate paid by households who pay the full charge for water.
In contrast, the Economic and Social Research Institute submission to the Joint Committee considered that:-
“The demand response to water charges depends crucially on the nature of the charging mechanism. The two part structure, where a free allowance is given beyond which a volumetric charge is applied, that has been proposed could result in lower benefits than a purely volumetric system. The reason for this is clearly demonstrated. If the free allowance that is given exceeds the total water demanded for a household then the additional (marginal) cost of consuming an additional cubic metre of water is zero. Even if the allowance is set to as to correspond to average demand then a substantial number of households (those with below average demand) will not face a positive marginal cost; i.e. they do not face an incentive to conserve water and end up paying nothing. Assuming full cost recovery in the system implies that those who consume above the set volume will subsidise those that consume below that level. To eliminate this issue, the free allowance must be below the minimum demand for water by any household. In general it is difficult to see an advantage in this two part mechanism and ideally charges should be purely volumetric.”
The Department of Environment in its recently published Questions and Answers (April 2012) states that no decision has yet been taken on the level of free allowance but it will consult with the Regulator on the approach to the free allowance before the introduction of water charges.
10.7 Affordability and Supports for Lower-Income Groups
The introduction of water charges can lead to issues of affordability when the portion of disposable household income used to pay water charges exceeds a certain threshold. Affordability does not always arise due to low income alone; households with large families or those with medical conditions requiring the use of large quantities of water may also have affordability issues (Department of Environment, 2012).
Previous research conducted by the Library and Research Service indicated that there are no exemptions or reductions on charges for low-income households in place in Sweden, Germany, Finland or Spain. Households with two+ adults in receipt of Council Tax Benefit can avail of the Water Charges Reduction Scheme which offers a reduction of up to 25% in Scotland. In France, the Mutual Housing Fund helps low-income families with expenditure relating to their homes, including water 99 charges and in the United Kingdom, low income metered customers with a high essential use of water receive support from a special WaterSure tariff. This caps the bills of metered households in receipt of a qualifying means-tested benefit or tax credit at the average bill for the company's operating area where the household either has three or more children living at home under the age of 19 or somebody in the household has a medical condition which necessitates a high essential use of water.
At present, social support for other utilities and services such as electricity, telephone, fuel and television licence are funded through the Household Benefits Scheme which is administered by the Department of Social Protection. Further work will be undertaken to the approaches to be deployed to support low income households (Department of Environment, 2012).
The Consumer Association of Ireland, in its submission to the Joint Committee recommended that, if a metered system is introduced, a standard unit rate and reduced rates for low income and vulnerable consumers should be considered.
The Economic and Social Research Institute suggested in its submission that a cash allowance could be given to vulnerable groups such as the elderly and unemployed. This would pay for an acceptable level of water and let individuals decide if they will consume the quantity of water or if they prefer to consume and lower amount of water. This would ensure that while they are still incentivised to consume less they are able to pay for their water.
In its submission, the Irish Business and Employer’s Confederation stated that any financial support for domestic users could be targeted through social welfare rather than a universal free allowance.
10.8 Factors Affecting Water Consumption
There are a number of influences on domestic water consumption, including the use of pricing and non-pricing mechanisms, weather and demographics.
Case Study – Aurora Water, Colorado
In 2002, Aurora, Colorado in the United States of America experienced one of the worst drought years on record threatening the adequacy of its water supply. In response, Aurora Water, the single municipal supplier of water services in the region began an aggressive and diverse campaign to reduce water consumption. It implemented a variety of short and long-term demand management programmes over the next few years. These included non-price strategies such as limits on outdoor water usage (drought restrictions), low-flow toilets and showers and water SMART meters (new technologies) and public education. They included price-related strategies such as incentive programmes and multiple changes in billing structures and rates (Kenney et al, 2008).
Collectively, these demand efforts were highly successful, reducing total annual water deliveries in 2002 and 2003 by 8% and 26% respectively, relative to average deliveries in the 2000 – 2001 period (Aurora (2005) cited in Kenney et al (2008).
However, due to the number of programmes initiated, it was difficult to tell easily which had the most significant impact on domestic water consumption. Subsequently, Kenney et al (2008) conducted a study on the impact of the various mechanisms employed by Aurora Water to reduce water consumption during and post drought conditions.
100 Of the non-price strategies implemented, public education was shown to be of modest benefit. Installing low flow toilets reduced consumption by 10% per toilet and installing low flow showerheads reduced consumption by 8% per fixture. Adoption of water efficient irrigation technologies reduced consumption by 11%. Mandatory outdoor water restrictions showed savings of up to 30% (less for voluntary restrictions).
The changes in billing structures culminated in the adoption of an increasing block rate pricing structure with individualised, household-specific, block widths (i.e. the volume of water priced at a given rate) based on water budgets adjusted annually in response to consumption levels, water storage conditions, and revenue considerations (Kenney et al, 2008). The block pricing mechanism on water consumption used a five tiered pricing system from cheapest to most expensive, whereby the less water the householder used, the lower the block it was allocated to. This mechanism contributed to significant reductions in consumption.
Rebates were offered on toilet refits, sprinkler system upgrades and the Water SMART Reader programme.
The Water SMART Reader is a small battery-operated radio frequency device that allows the householder to read the water meter from inside the home or from a distance. It displays real time information about water usage and this enables the householder to track water usage in relation to their monthly budget. A small number of householders purchased the Water SMART Reader and initially consumption went up 16% contrary to the aims of the programme. Kenney et al (2008) believes the answer to why this happened was related to the block pricing structure as although the total use went up among the Water SMART Reader users, the frequency with which these users entered the more expensive pricing tier diminished. This suggests that informed consumers will adjust their behaviour in accordance with the water budget provided by the utility. Further research by Strong & Goemans (not dated) found that, with the Water SMART Reader, in general, water consumption decreased in a constant price system, consistent with the aims of the programme but consumption increased during periods of an increasing block rate structure.
The voluntary programme of installing the Water SMART Readers across households in Aurora continued and a presentation by Reidy (2008) included findings that 65% reduced their annual overall consumption of water in the year after installation. Large lot customers showed a greater reduction than small lot customers.
The Kenney et al (2008) study concluded that residential water demand is largely a function of price, the impact of non-priced demand management programmes, weather and climate, and most likely, demographic characteristics of households and the homes they occupy.
.
.
101 11. GRANT SCHEMES
There are currently no grant schemes in place for water conservation measures in Ireland. The Sustainable Energy Authority of Ireland does offer grant schemes for energy-saving measures such as internal and external wall insulation, attic insulation and boiler upgrades.
A similar type system could be introduced to encourage investment by householders in water conservation measures such as rainwater harvesting units, re-using grey water, installing low flush toilets, installing more efficient shower heads, etc. As a part of water services, the grant scheme could also incorporate assistance for septic tank upgrades, etc.
In Aurora, Colorado (see Case Study in this report at 10.8) rebates offered for water efficient indoor appliances range from $100 for one low-flow toilet to $400 for one water- efficient washer and two dual-flush toilets. Aurora also offered rebates of 50% of total cost up to a maximum of $200 for irrigation efficiency upgrades. Aurora Water customers wanting a Water SMART Reader are assessed a charge of $30, which is approximately half the cost of providing the Reader) (Kenney et al, 2008).
The investigation into residential water demand and responses to conservation measures implemented in Aurora (Kenney et al, 2008) included analysing the rebate programmes. As such, the database included the identification and tracking of households that had taken part in the city-sponsored rebate programmes for water efficient technologies. Their analysis focused on three different classes of programmes:-
(1) Those for indoor appliances, such as toilet retrofits;
(2) Those for outdoor technologies, such as sprinkler system upgrades;
(3) The Water SMART Reader programme.
Analyses of results suggested that, where all else was constant, participation in the indoor rebate programme reduces household demand by approximately 10%.
This finding is nearly identical in magnitude to those reported in other investigations, particularly Renwick and Green (2000) and Renwick and Archibald (1998) (cited in Kenney et al, 2008). It provides further empirical justification for using indoor rebate programmes as a demand management tool (Kenney et al 2008). In France, new legislation allows for income rebate on the installation of rainwater harvesting devices. These devices are becoming very popular along the Mediterranean coast, where households are more and more affected by droughts and quotas during extreme events (Ecologic, 2007).
Other towns and cities have also implemented rebate systems to subsidise the purchase of water-saving devices by households, for example, Ashland, Oregon, United States of America.
102 Case study: Ashland Oregon, United States of America
In 1991, Ashland City Council adopted a water efficiency programme with four major components; system leak detection and repair, conservation-based water rates, a high-efficiency showerhead replacement programme, and toilet retrofits and replacement. The City Council estimated that these programmes would save 500,000 gallons of water per day at a cost of $825,875, approximately one-twelfth the cost of the proposed dam, and would delay the need for additional water-supply sources until 2021.
Implementation of the programme began with a series of customer water audits, which in turn led to high efficiency showerhead and toilet replacements and a $75 rebate programme. This was later reduced to $60. The City Council also instituted an inverted block rate structure to encourage water conservation. It then began offering rebates for efficient clothes washers and dishwashers, including an energy rebate for customers with electric water heaters. It also provides a free review of irrigation and landscaping.
Implementation of Ashland’s Water Conservation Programme began in July 1992. By 2001, almost 1,900 residences had received a water audit. Almost 85% of the audited homes participated in the showerhead and / or toilet replacement programmes. The city of Ashland has been able to reduce its water demand by 395,000 gallons per day (16% of winter use) and its wastewater flow by 159,000 gallons per day. An additional benefit of the programme has been an estimated annual saving of 514,000 kilowatt hours of electricity. This is primarily due to the use of efficient showerheads (United States of America Environmental Protection Agency 2002 cited in Ecologic 2007).
103 12. WATER SCHEMES – PROCUREMENT MODELS AND VALUE FOR MONEY
12.1 Background
A major issue of contention brought to the attention of the members of the Joint Committee by several stakeholders was whether the best Value for Money models of public procurement are being employed.
Before exploring this contentious area, it is important to set out some of the concepts underpinning public procurement in general and Public Private Partnerships in particular.
12.1.1 Use and Monitoring of Public Private Partnership Projects
Many public bodies have used Public Private Partnerships and a project tracker is available at http://ppp.gov.ie/ppp-projects/ listing projects at various stages of the procurement process. This website is maintained by the Central Public Private Partnership Unit in the Department of Finance. The role of this Unit is to facilitate the Partnership process centrally, by developing the general policy framework and, where necessary, the legal framework within which they operate. It also provides central guidance to departments and other State authorities in this context. The Unit notes that there are on-going plans for a number of Partnerships, notably in the water investment area, which will be developed on a Design Build Operate basis, with the Exchequer funding the capital cost.
12.1.2 Role of National Development Finance Agency
The National Development Finance Agency was established in 2003 under the National Development Finance Agency Act 2002. The role of the Agency is to advise State Authorities on the optimum means of financing public investment projects. This is in order to achieve value for money and to provide advice in relation to all aspects of financing, refinancing and insurance, including risk analysis, of public investment projects. All Public Private Partnership projects involving the use of private finance must be referred to the Agency. In addition, all projects valued at €30 million or above, must be referred to the Agency for advice, whether they are conducted by traditional procurement or by Public Private Partnership.
In July 2005, the role of the National Development Finance Agency was expanded to include a specialised Public Private Partnership procurement delivery function. This role was given a statutory basis with the enactment of the National Development Finance (Amendment) Agency Act 2007. The Act expanded the role of the Agency. However, these arrangements do not apply to the roads and rails sectors, where existing procurement arrangements will continue. Similarly, existing arrangements remain in place in the local government sector. 104 12.1.3 Defining Design Build Operate Schemes
Design Build Operate is one category of Public Private Partnership scheme, between the public and private sectors. Public Private Partnerships have increasingly been used to facilitate the delivery of public infrastructure projects that would otherwise have relied for their delivery on the more traditional or conventional approach to public sector procurement; i.e. where private sector companies have a very restricted construction role.
The four examples of Public Private Partnership which are generally identified as being suitable in the context of water investment programmes are:-
(1) Design and Build – The Local Authority Services National Training Group considers Design and Build schemes as falling outside the core Public Private Partnership programme, as it considers that the projects’ operational risks rest with the local authority;
(2) Design, Build and Operate schemes shift the responsibility for operation, for a defined period of time, from the local authority to the private sector contractor who designs and builds the facility;
(3) Design, Build, Finance, Operate, Maintain schemes have been used to build a bundled group of schools and the National Maritime College – the operator is paid by the public sector over the operational period after which the operation of the facility may revert to the State;
(4) Operational Contracts are usually put in place for between five and twenty or more years, but the contract may also make provision for the replacement of a plant during the operational period.
Both Design Build and Design Build Operate schemes are financed by public funds and remain the property of the State.
12.1.4 Is Public Private Partnership more Beneficial than Traditional Procurement?
Certain projects can be identified as being more appropriate to Public Private Partnerships than to traditional procurement. Where this happens and they are judged, on an overall basis, to be the most advantageous option, the advantages associated with them may include66:-
(1) Payments linked to performance over the lifetime of the project;
(2) Long term contracts whereby bidders focus on the whole life-cycle cost of projects and not just on the upfront capital costs;
66 http://ppp.gov.ie/glossaryfaqs/faqs/ 105 (3) Construction times tend to be faster as the private sector is incentivised to complete the project in order to begin to receive the on-going regular payments;
(4) Private sector innovation and commercial and management expertise;
(5) A contractual framework allocating risk to the party that can manage it best – the intention is for a single private sector contractor to assume the risk from the public sector, with the contract possibly including provisions for non-payment unless the infrastructure is ready for use;
(6) Allows for a number of appropriate projects to be developed simultaneously as the capital costs can be spread over the longer term.
However, some stakeholders who appeared before the Joint Committee challenged the view that competition for public sector contracts will automatically result in better value for money.
The University of Limerick67, informed the Joint Committee that there are a number of factors which may reduce the degree of competition for contracts. These factors apply to both Public Private Partnership and traditional procurement models:-
(1) Insufficient number of bidders;
(2) Submitting low-priced bids to secure contracts with the intention of renegotiating terms after the contract is awarded, known as ‘Low- balling’;
(3) Collusion amongst bidders;
(4) Poor public sector management of the competitive process due to inexperience or lack of expertise.
However, the University of Limerick went on to place these possible challenges in the specific context of the use of Design Build Operate schemes:-
“It is worth noting that there is evidence that the market for PPP [Public Private Partnership] contracts in [the] water services sector is imperfect. According to the Public Services International Research Unit at the University of Greenwich, the ownership of private companies in Europe has become increasingly concentrated in recent years and is now overwhelmingly dominated by the French
67 Dr Eoin Reeves, who addressed the Joint Committee is a Senior Lecturer at the Department of Economics, University of Limerick. His research interests include different aspects of public sector economics. His recent book, co-written with Dr Dónal Palcic, ‘Privatisation in Ireland – Lessons from a European Economy’, advises against full privatisation of strategically important State-owned enterprises. http://www.oireachtas.ie/parliament/themedia/pressreleases/name-3262-en.html 106 multinationals Suez and Veolia. They also highlight how water and energy multinationals have been fined and / or investigated by the European Commission and national anti-competition authorities. These findings have important negative implications for the market for DBO [Design Build Operate] contracts in Ireland.”
The University of Limerick also stressed the importance of risk transfer as an argument in favour of using Public Private Partnership. However it highlighted that there may be a significant difference between ‘agreed’ risk transfer and ‘de facto’ risk transfer; i.e. regardless of what is stipulated in a contract, the public sector may feel that is obliged to remain with a specified contractor and may be reluctant to penalise that contractor or enforce transfer of risk provisions.
The University of Limerick stated that a second factor which may undermine the potential for ‘transfer risk’ benefits in the case of Public Private Partnerships is the ‘lock-in’ effects of long-term contracts, whereby one party may attempt to re- negotiate the contract after it has been signed; i.e. relying on the dependency of the other party and its commitment to the arrangement. The University suggested that this may be the case in Ireland:-
“There is anecdotal evidence of renegotiations of PPP [Public Private Partnership} contracts in Irish water services. The potential for contract re-negotiations reduces the scope for risk transfer and undermines the case for PPP in terms of achieving VfM [Value for Money].”
Finally, the University of Limerick gave its opinion that the forms of construction contracts which were issued by the Department of Finance and came into effect in 2007 and 200868 have achieved a situation where there is now a greater transfer of construction risks under traditional procurement. As a result, the advantage to Design Build Operate schemes which had existed is no longer extant.
It should be noted at this stage that the Department of Environment69 does not normally require a Public Private Partnership assessment to be conducted in respect of networks or plants valued under €5 million. It acknowledges that the Design Build Operate approach is not demonstrated to be more cost effective in this category. It has also pointed out that there are some large plants in the current Water Services Investment Programme, such as Oberstown Waste Water treatment Plant in County Kildare, where the appraisal has favoured traditional procurement.
However, the Department of Environment’s position70 is that, ‘notwithstanding the fact that the new form of contract has provided greater cost certainty for
68 The evolution of public procurement contracts is described in the Department of Finance Value for Money and Policy Review of the Construction Procurement Reform Initiative (January 2011, p.v). Available online at: http://constructionprocurement.gov.ie/wp-content/uploads/Value-for-Money- Review-of-Construction-Procurement-Reform-Initiative.pdf 69 Note for the information of the Minister for Public Expenditure and Reform regarding the DBO approach to the Enniscorthy main drainage scheme prepared by the Water Services Investment Section of the Department of Environment, May 2011, refers. 70 Ibid 107 conventionally procured contracts’, it considers that, ‘there remain risks with conventional [traditional] procurement regarding certainty of outcome and time delivery…’.
12.1.5 Institutional Structure Supporting Public Sector Use of Public Private Partnership
The framework supporting and advising the public sector on the use of Public Private Partnership includes:-
(1) National Development Finance Agency;
(2) Local authority Services National Training Group;
(3) Public Private Partnership units in Government departments;
(4) Detailed regulatory framework including publication of guidelines.
12.1.6 Views Relating to Design Build Operate Model
The University of Limerick pointed out to the Joint Committee that securing value for money underpins the guidelines. It pointed out that prior to deciding on adopting a Public Private Partnership, a contracting authority is required to objectively demonstrate, by a comparison of the whole life costs of a project, that this approach will deliver better value for money than the traditional procurement approach.
Text Box 5: How is the Public Private Partnership Option Compared to Traditional Procurement?
A Procurement Appraisal Report is prepared which compares the traditional procurement route (public sector comparator) with the Design Build Operate approach. The Report seeks to compare the whole life costs of both models, by calculating the respective capital and operational costs and assigning costs to risks faced with each model.
The determination, in the case of each project, of the relevant Public Sector Benchmark is crucial to determining on a value for money basis which option should be chosen.
A Public Sector Benchmark is a comprehensive, detailed risk adjusted costing of the project elements using conventional procurement over the whole life of the project. It focuses on whole life costs over the contract period and provides a detailed cost valuation of all risks, transferred and retained, within the project.
This provides a benchmark against which the value for money of a Public Private Partnership can be assessed. It should take into account all the assets, services, staff, consumables and other elements required to deliver the project to the same standards and level of certainty required of the private sector under a Public Private Partnership. To be a valid benchmark the Public Sector Benchmark must also reflect the risk that additional costs may accrue to the public sector which, under Public Private Partnership would be the responsibility of the private sector bidder.
Sources: (1) Department of Environment Guidance Note (undated), entitled System for the assessment and review of Public Private Partnership’s within the water and wastewater sectors, Guidance Note 108 http://www.environ.ie/en/Publications/DevelopmentandHousing/PPP/FileDownLoad,19735,en.pdf
(2) Department of Environment, Water Services Section, information note dated May 2011 prepared for the Minister for Public Expenditure and Reform re the Design Build Operate approach to the Enniscorthy Main drainage Scheme.
However, the University of Limerick stated:-
“It is quite clear that the scope for objectively conducting VFM tests in the water services sector is compromised by the DOE’s [Department of Environment’s] stated preference for DBO [Design Build Operate]. This contention is supported by the experience of a number of local authorities and has led to perverse investment decisions and delays in the procurement of vital infrastructure.”
This alleged bias in favour of Public Private Partnership, especially when comparisons have shown that the traditional method of procurement would secure better value for money, would, the University of Limerick believed lead to doubts over the standards of accountability; i.e. local authorities are effectively forced to choose Design Build Operate over traditional procurement71:-
“The available evidence from the water services sector indicates that the adoption of PPP [Public Private Partnership] is failing to meet required standards of accountability as local authority managers are told that DBO [Design Build Operate] is as the only available option.”
This view, that the Department of Environment favours the use of Design Build Operate over traditional procurement, regardless of circumstances or the findings of Value for Money comparisons, was also made by the Services Industrial Professional and Technical Union in its submission to the Joint Committee:-
“Very early in this process the PPP [Public Private Partnership] model began to mushroom in the water sector of the economy and in particular in waste water with very sudden and strong support from the Water Services Investment Unit of the Department of the Environment. In other words it seemed that contrary to the concept of a robust test of the choice of route for the project, there was a developing indication that the funding Department had a ‘preferred option’.”
In addition, the Services, Industrial, Professional and Technical Union elaborated on this:-
“There are PPPs [Public Private Partnerships] operating in many different parts of the economy. Our particular focus was on their suitability as a model for the delivery of water services … here are two other aspects which are fundamental to this and which influence it. One gives a contract of control for drinking water and wastewater
71 Submission to the Joint Committee dated 10 January 2012 (p.11) 109 which can last 20 years. One is pretty sure what can happen to a road over 20 years … However, the one sure thing about drinking water and fresh water is that circumstances are going to change. Anybody who says they can predict what will happen over the next 20 years in regard to water is just not being up-front. All the indicators show that water will become a very scarce and expensive commodity. For example, the regulation on disposal of wastewater outcome – It is called a cake – means that currently it is spread on land.”
Clearly, regulation will become stricter. The issue therefore is to sign a contract with fixed conditions. The one thing everybody knows about a Public Private Partnership is that once a condition in the contract is changed, the price is negotiated. When a contract is signed on a fixed level, therefore, any aspect of it which changes means the contract is renegotiated.”
The then Department of Environment, Heritage and Local Government’s Guidance Note72 states that:-
“To date the preferred method of procurement for Water and Wastewater projects has been the DBO [Design Build Operate] approach. These guidelines are flexible in terms of whether a DB [Design Build], DBO or a DBOF [Design Build Operate Finance] approach is being suggested.”
It may, at this point, be worth reviewing the current state of play vis-á-vis the 36 Public Private Partnership projects currently committed to by the Government. The following table shows a subset of these projects; i.e. those relating to water treatment. These constitute 19 of the current 36 projects and, with the exception of one, all are being delivered by Design Build Operate.
Table 9: Selected Public Private Partnerships Committed to by Government73 Contract Service Contract Design Build Operate Projects Signed Commencement Ends Balbriggan / Skerries Treatment Plant 2004 2006 2028
Castlebar Treatment Plant 2008 2010 2032
Clareville Water Treatment Project 2006 2010 2030
Cork Treatment plant 2001 2004 2027
Donegal (A) Treatment Plant 2006 2008 2030
Dublin Bay Treatment Plant 2001 2003 2024
Dungarvan Treatment Plant 2004 2007 2029
Meath Villages Treatment Plants 2007 2010 2032
72 Ibid (see Text Box 5) 73 Adapted by the Oireachtas L&RS from a reply to a written Parliamentary Question answered by the Minister for Public Expenditure and Reform on 4 October 2011 110 Mullingar Treatment Plant 2008 2010 2032
Port Laoise Treatment Plant 2006 2009 2031
Portrane / Donabate / Rush / Lusk 2010 2012 2032
Shanganagh Treatment Plant 2008 2011 2034
Sligo Treatment Plant 2006 2008 2030
South Tipperary Treatment Plant 2003 2007 2029
Tullamore Water Treatment Plant 2010 2012 2032
Waterford Treatment Plant 2006 2010 2033
Wexford Treatment Plant 1999 2004 2026
Wicklow Treatment Plant 2007 2009 2031
Design Build Finance Project
Fatima Mansions Redevelopment 2004 2004 2011
The Services, Industrial, Professional and Technical Union gave its opinion that the Department of Environment had a ‘clear and indeed biased stand’ in favour of the Public Private Partnership model in general and Design Build Operate in particular since the year 2001 and cited what it gave as two specific examples of this:-
(1) The Lee Road Water Treatment Plant;
(2) The Enniscorthy Main Drainage Scheme.
The Union gave its opinion, that, in both these cases, it was judged by the local authorities that the projects would deliver best value for money if the traditional procurement option was chosen but that ‘extensive delays’ followed when this was communicated to Department of Environment and that there were ‘very clear indications … that no funding would follow as long as this was the position of the Councils’.
However, the Department of Environment set out in correspondence between it and Wexford County Council (correspondence seen by Joint Committee), that that it made decisions as to which procurement approach to select based on a range of factors. In the case of the Enniscorthy Main Drainage Scheme, the Department stated on 30 March 2011 that these factors included74:-
(1) The extent of the cost difference between approaches; i.e. in this case it was 0.86% and described as ‘marginal’;
74 Amalgamating information from (1) Department of Environment, Heritage and Local Government (now Department of Environment), Water Services section, letter to the Director of Services, Wexford County Council, dated 30 March 2011 and (2) Information Note dated May 2011 prepared by the Department of Environment for the Minister for Public Expenditure and Reform. 111 (2) Value for Money;
(3) Cost certainty for both the capital and operation and maintenance phases;
(4) Asset maintenance;
(5) Efficient delivery (cost and timescale) of project;
(6) Certainty that the employer’s performance requirements would be consistently met;
(7) Predicted resolution timescale;
(8) National perspective compliance vis-á-vis the Urban Waste Water Treatment Directive.
The Department additionally indicated that:-
“…experience of a reasonable sample of DBO [Design Build Operate] projects indicates that DBO tendered prices are generally 15 – 20% less than the equivalent conventional costs [i.e. capital costs – other costs referred to in comparing total costs are ‘Operational & maintenance Costs’ and ‘Risks’]”
The Services, Industrial, Professional and Technical Union asserted that, in the national context, at the beginning of 2011, the Department of Environment did not have a database which could show the costs of operating projects which had been selected as appropriate for Public Private Partnership.
The Department of Environment finalised a Value for Money Report on Water Services in 2010 and undertook, in future, to address this lacuna as set out in the following recommendation75:-
“Recommendation: Data which will emerge in the future from Water Services Strategic Plans, and the type of data underlying the Forfás study, should be collated more regularly to be used as an outcome indicator for assessing impact of future Programmes in responding to economic needs.”
This lack of data was recognised by the Kerry County Council when it addressed the Joint Committee on 11 October 2011. However, despite this, the Council was of the opinion that the Design Build Operate option was more economical though it also noted that it did involve an initial financial commitment on the part of the local authority:-
“This gives rise to the argument about the merits of the DBO [Design Build Operate] system as opposed to a conventional plant system. We are very much in the early stages of obtaining DBO statistics for
75 Report available online at:- http://www.environ.ie/en/Publications/Environment/Water/FileDownLoad,27138,en.pdf 112 Ireland, but the tender prices we see are substantially lower through the DBO scheme than through the conventional arrangement. This must be balanced to some extent. When the Celtic tiger was roaring, costs increased greatly, but they are now far lower. However, even a DBO arrangement at the early stage would show the figures are coming in much lower. It does tie up local authority funding and forces local authorities to create the early sinking fund for the replacement of a plant, which money was taken from our general accounts heretofore.”
A different viewpoint was offered from an operational county council view by Leitrim County Council spoke when it addressed the Joint Committee on 10 January 2012. It also stressed the point that an initial financial allocation was necessary, an allocation that could not then be re-allocated elsewhere should other priorities emerge, but also provided figures that, in its opinion, illustrated that Design Build Operate schemes were not attractive by comparison with traditional procurement76:-
“I refer to a waste water treatment plant operated by Leitrim County Council in Newtowngore village, which is similar to the five new plants built where no plant existed previously. It meets all the required guidelines of the urban and rural water Directive and the Environmental Protection Agency, and cost €7,007 to operate in 2011. A similar design, build and operate, DBO [Design Build Operate], plant at Ballinaglera is costing €21,293 in its first year. Moreover, that excludes the networks, the cost of which is included in the figure for Newtowngore. The second project undertaken, at a cost of €7.9 million, was the Carrick-on-Shannon waste water treatment plant. Carrick-on-Shannon is the largest town in Leitrim. The old plant had a PE [Population Equivalent] of 3,000 people, was operated and maintained by Leitrim County Council and cost €200,000 per year to run. This figure of €200,000, to which I refer in respect of the existing old plant, was the council budget provided. If that sum was not used on this plant, it gave the council flexibility to do something, in that it could move it around, adjust it a bit or have a little job done somewhere else. I make the point that under the DBO, the money must be provided at the beginning of the year and is untouchable. The plant was overloaded and needed replacement. The cost of the operation and maintenance of the new plant was €393,179 in year one. The fixed costs are €284,256 per year over 20 years, accumulating to approximately €5.7 million in 20 years’ time.”
Issues related to clustering and the impacts of that practice from the point of view of the timeframe for delivery costs and the wishes of local communities were also raised the Joint Committee77.
76 Ibid 10/1/12 77 10/1/12 113 Kerry County Council addressed issues raised by the Joint Committee regarding Design Build Operate Schemes and privatisation78. It acknowledged some concerns about the use of Design Build Operate universally and suggested that attempts should be made to retain local expertise in small local authorities with small schemes. It insisted however that a great deal comes in terms of efficiencies and that many of the efficiencies are made by bundling schemes and bringing in technology so one can manage schemes remotely. It noted that modern plants have automatic samplers, pumps and chlorine monitors, with which one can operate remotely. It pointed out that it does not require a caretaker to be at the plant, as used to be the case. It is now a case of redeploying and having staff available to manage four or five plants together, partly remotely, and who will only respond to issues that arise.
With regard to the proportion of waste water treatment plants operated under Design Build Operate, the Department of Environment states that79:-
“a very substantial proportion of the 482 waste water treatment plants in agglomerations with a population equivalent over 500 are operated by local authorities”.
From the point of view of Local Authority skills, the Department of Environment maintains that80:-
“…the Department has encouraged the use of the Performance Management System which was developed for DBOs [Design Build Operates] for local authorities. This system not only provides a structured methodology to ensure quality performance … Furthermore, since 2010, the Department has provided greater focus to the training provided to local authority staff provided by the Water Service Training Group by providing dedicated funding for up-skilling of staff in four specific areas….”
It is clear from the views of the different stakeholders who appeared before the Joint Committee that there are very differing views as to the role Design Build Operate schemes should play in the construction and operation of the water services infrastructure81:-
“Today’s meeting has presented irrefutable evidence that the existing departmental practice of forcing local authorities to go down the design-build-operate, DBO, model has resulted in enormous problems and ends up being more costly than leaving it in the hands of the local authority and the traditional procurement models.”
It is also clear that a considerable degree of work has been carried out by State bodies aimed at improving the Public Private Partnership process and achieving better value for money.
78 10/1/12 79 Information Note for Minister for Public Expenditure and Reform 80 Ibid 81 10/1/12 114 However, as illustrated by the debate between the Joint Committee and the University of Limerick, much of the important data concerning Design Build Operate schemes are owned by local authorities.
In addition, as it has been clearly signalled that infrastructural and other investment will continue apace in future and that this will be a major element in the introduction and development of the new Irish water utility, the Joint Committee believe that thorough research needs to be carried out in this area.
As stated at the Joint Committee meeting on 10 January 2012:-
“What is their view with regard to Irish Water’s relationship with the DBOs [Design Build Operates] in the future? … we could advise the Comptroller and Auditor General to have a look at DBOs that may come under the future plans for Irish Water.”
12.2 Value for Money – Staffing Issues
The issue of staffing in the context of the planned transition from the local authorities to the new Irish water utility was the subject of considerable debate at the Joint Committee meetings.
The Economic and Social Research Institute set out some of the factors involved in the future staffing of the new Irish water utility in its presentation to the Joint Committee on 24 January 2012:-
“An important reason for amalgamating the water authorities into one company is to generate efficiency savings. These encompass staffing, administration and financing costs. The degree to which such efficiency gains are going to be achieved depends on approach taken by Irish Water and the regulatory regime. With regard to staffing, it would appear likely that Irish Water will, in the first instance, take over the existing workforce which, given the fragmentation of the service, is likely to be significantly larger than that needed. In reducing staff numbers it will be important to preserve some degree of ‘local knowledge’. One model that might be considered is to outsource services but to enable existing staff to tender for the service.”
An associated issue, staffing levels at plants, is mentioned in correspondence (seen by Joint Committee) between the Department of Environment and Cork City Council regarding the Lee Road Water Treatment Plant upgrade. The Department states82:-
“There is a significant risk associated with conventional procurement and City Council operation of the upgraded plant due to the need to achieve a significant reduction in staff numbers at the plant in future. At present, there are 17 staff members operating the plant. This will have to be
82 Appendix to letter of 19 June 2008 from Water Services Section, Department of Environment, to Cork City Council. 115 reduced to approximately 6 or 7 to be comparable to the staffing levels envisaged in a DBO [Design Build Operate] operated plant.”
The Association of County and City Councils, in its submission to the Joint Committee prior to meeting it on 11 October 2011, indicated its opposition to the transfer of staff to the new Irish water utility:-
“The Association appreciates that a Government decision has been made to establish an entity to be known as Irish Water. While it is not our intention to oppose the decision per se, we do intend to make a cogent argument that infrastructure and staff resources built up by Ireland’s City and County Councils should remain intact. We would contend that Irish Water’s remit should be limited to the co-ordination and facilitation of major cross-country improvement schemes.”
The Association based its position on, inter alia, the following advantages of the current system and possible challenges:-
(1) County and City councils provide experience and flexibility;
(2) Risk of creating another quango and of relinquishing public investment in water infrastructure;
(3) Smaller counties with a low population base may lose out in the prioritisation of capital investment for their area inasmuch as local authorities and elected representatives may have no input into determining priorities, and their concerns regarding necessary investment may not be taken into account;
(4) Changing from local to national does not necessarily bring improvement;
(5) Any transfer of group water schemes to the new Irish water utility would require significant legal and administrative changes.
These views were underscored by Leitrim County Council. It summarised that the following important qualities and points needed to be borne in mind in the context of long-term planning and the role of caretaker83:-
(1) A caretaker is the lowest-paid person in sanitary services in all local authorities in comparison with the engineering and technical staff;
(2) Caretakers provide cover seven days per week in most local authorities and are always in the front line to restore services in difficult times, such as, for example, those occasioned by severe frost, burst water mains, water shortage or blocked sewers;
(3) Caretakers must work on their own initiative and outside office hours;
83 10/1/12 116 (4) Apart from having highly unsociable hours, caretakers also possess local knowledge in this regard;
(5) The loss of skills and expertise on foot of the Design Build Operate schemes taking over and the relocation of the existing caretakers is immeasurable;
(6) It is important that training should continue – if the local authorities are not running the plants they will lose the necessary skills and in 20 years’ time they will not be in a position to take over the plants from the Design Build Operate contractors who will be in control as they will be the only ones with the key skills.
117 13. ALTERNATIVE SOURCES OF WATER FOR LEINSTER REGION INCLUDING GREATER DUBLIN AREA
13.1 Shannon Abstraction Option
Concerns are growing over water shortages in Ireland. These concerns are due to our domestic consumption rate of approximately 150 litres per person per day, which coincides with the rate in the United Kingdom but is higher than many other European Union countries. They are also due to the high national average for unaccounted for water (41%). According to Frank Convery (2008), Dublin is running out of water, with shortages expected by 2015 or earlier, unless action is taken.
Dublin City Council, acting as the lead authority for the Greater Dublin Area, has considered a number of options for securing a new source of water for this area. It favours the option of extracting water from the river Shannon abstraction, for cost and environmental reasons. This preference is based on the following assumptions (Frank Convery 2008):-
(1) Population growth from 1.35 million in 2005 to 2.2 million by 2031;
(2) Per capita consumption of 145 litres per day;
(3) Customer leakage of 50 to 60 litres per property per day;
(4) Distribution leakage of 33% of water production in 2005 falling to % of water production by 2031;
(5) Other sources of supply such as ground water and the Aughrim, Avoca, Boyne, Dargle Dodder, Liffey and Vartry rivers are already being developed but are not capable of providing a sufficient yield to meet requirements;
(6) Annual running costs of €40 million for desalination as against annual running costs of €10 to €15 million for abstraction and transport of water from the river Shannon.
(7) Average and minimum flow-rate on Shannon (Athlone) 100 metres3 and 12 metres3 per second respectively, and Greater Dublin Area average and peak demand of 2 metres3 and 4 metres3 per second respectively.
(8) The abstraction proposed will not materially affect navigation, flooding, fisheries, tourism, agriculture and power generation activities in the Shannon catchment area.
The Economic and Social Research Institute suggested to the Joint Committee that the potential demand response to metering might enable certain investments, such as water pipeline from Loch Dearg on the river Shannon to the Leinster area be deferred or even avoided.
118 The River Shannon Protection Alliance presented its submission to the Joint Committee with regards to the proposal to abstract water from the river Shannon for use in the Leinster region. The Alliance expressed concern that the proposal will negatively impact on the ecology and hydrology of the river Shannon. It also considers that a concerted leakage programme and the introduction of water charges could reduce the demand for water to such a level that abstraction from the river Shannon might not be necessary.
The Joint Committee is cognisant of, and took careful note of, the arguments made against the proposal to extract water from the river Shannon. However, it also considered the views of experts such as Engineers Ireland who informed it that:-
“Steps must be taken to secure a long-term water supply for the Dublin region as the key economic driver of the country. The current proposal by Dublin City Council to extract excess water from the Shannon, and store it in a worked-out peat bog in the midlands, presents an appealing opportunity to secure a water supply for Dublin.”
Having considered all these opinions, the Joint Committee believes that it is essential that a sustainable source of water be identified and utilised for development in the Leinster region and indeed for all regions in Ireland. It is vitally important that these sources are utilised in a way that does least damage to the environment, but at the same time guarantees the day to day needs of Irish people and the future economic development of Ireland.
13.2 Alternative Sources of Water for Leinster Region including Greater Dublin Area
Ten water supply options were assessed for their potential to meet the future water supply needs of the Leinster area in a sustainable manner. The assessment of options was undertaken within the legislative framework of the Strategic Environmental Assessment Directive. The Strategic Environment Assessment process commenced in 2006 and has involved two phases of formal public consultation in relation to the water supply proposals.
In October 2010 Dublin City Council adopted the plan (amended 2008 draft Plan) containing the recommended option.
The recommended option involves abstracting raw water from Loch Dearg on the river Shannon and pumping it through a new pipeline to a proposed storage reservoir at the Garryhinch cut-away bog in Co Laois and Co Offaly. The water will be treated to drinking water standards at this location and the treated water will be transported in a series of pipelines to the Dublin Region Water Supply Area with provision for local supplies.84
84 http://www.dublincity.ie/WATERWASTEENVIRONMENT/WATERPROJECTS/Pages/WaterSupplyPr oject-DublinRegion.aspx 119 14. EUROPEAN WATER SAVING POTENTIAL85
14.1 River Shannon Abstraction Option
Total water abstraction in the European Union amounts to about 247,000 million metres³ per year. On average, 44% of total water abstraction in the European Union is used for energy production, 24% for agriculture, 17% for public water supply and 15% for industry.
As regards the public water supply, which includes households, public sector and small businesses, there is the potential to reduce leakage in the supply network, by up to 50%, by using water saving devices and more efficient household appliances. These water saving technologies are easy to introduce and implement. They also have short payback periods, which further enhance their uptake possibilities.
Applying the above mentioned measures would allow for a reduction in water consumption from 150 litres per person per day, the average in the European Union, to a low 80 litres per person per day. A similar reduction could be applied to public water supply, leading to an estimated potential saving of up to 33% of current abstraction.
Water savings will help address the issues of water scarcity and droughts. They will also deliver financial and economic benefits, which include delayed or avoided procurement of additional water supply infrastructures, reduction in sewage and wastewater treatment capacity and reduced water bills.
Savings can also bring environmental benefits which include reduced fertiliser use, soil erosion and leaching and reduced stress in river basins. It should be noted however that ‘net’ water savings leading to environmental improvements in the status of aquatic ecosystems will only be achieved if the volume of water is actually reduced and savings in one area are not just used elsewhere.
Water savings will also bring additional ancillary benefits; for example by reducing energy consumption, electricity bills and carbon dioxide emissions. This will contribute to climate change strategies and policy actions (Ecologic, 2007).
The European Environment Agency (2005) cited in Ecologic (2007)) estimates that 80% of water used by the domestic sector is returned to the aquatic environment through leaks in the distribution network and through wastewater. Only 20% is actually consumed, primarily by drinking and eating.
85 This section is taken from the European water saving report by Ecologic (2007) 120 Text Box 6: Water Saving Devices
Rainwater harvesting is one measure to reduce fresh water abstraction needs. It is used for water conservation and storm water management. Rainwater storage tanks can be connected to garden irrigation systems through filters. When connected to a toilet cistern or washing machine, use is maximised because, unlike garden watering, the tank is used even when it is raining. Some plumbing alterations to existing homes are required; e.g. up connections.
Legislation surrounding rainwater harvesting is strict. Many countries do not allow plumbing in houses to be altered in order to accommodate rainwater harvesting (for sanitary reasons). A double network should thus be installed in the house. In other countries, such as Belgium, Germany and the Netherlands, it is forbidden to use rainwater in specific devices, such as dishwashers. In France, new legislation allows for income rebate on the installation of rainwater harvesting devices. They are becoming very popular along the Mediterranean coast, where households are more and more affected by droughts and quotas during extreme events (Ecologic 2007).
Re-use of wastewater in a domestic setting can be considered for certain purposes. Washing machines, dishwashers and kitchen sinks, account for at least 50% of household consumption. Grey water is water that is normally indirectly re-used when it is discharged into a watercourse and used again downstream. However, it can also be directly re-used in households, even if there are only a few examples. There is not widespread acceptability for this in Europe, but nevertheless, treated wastewater is re-used in some Mediterranean countries, such as Cyprus, France, Greece, Italy, Malta, Portugal and Spain. At present, the most important use of re-used water in Europe is for irrigation for different purposes; e.g. crop cultivation, public gardens, parks, golf courses and also for industrial use. Domestic use appears to be the least developed sector and only focused on in pilot studies (Ecologic 2007)
Information campaigns are considered to be an important part of initiatives such as promoting water- saving devices, raising prices to pay for leakage and encouraging more rational water use. They can include (i) general advice and information on conservation, (ii) tactical irrigation advice, and (iii) advice on leakage. (Ecologic 2007)
121 15. TERMS OF REFERENCE OF COMMITTEE
a. Functions of the Committee – derived from Standing Orders [DSO 82A; SSO 70A]
(1) The Select Committee shall consider and report to the Dáil on—
(a) such aspects of the expenditure, administration and policy of the relevant Government Department or Departments and associated public bodies as the Committee may select, and
(b) European Union matters within the remit of the relevant Department or Departments.
(2) The Select Committee may be joined with a Select Committee appointed by Seanad Éireann to form a Joint Committee for the purposes of the functions set out below, other than at paragraph (3), and to report thereon to both Houses of the Oireachtas.
(3) Without prejudice to the generality of paragraph (1), the Select Committee shall consider, in respect of the relevant Department or Departments, such—
(a) Bills,
(b) proposals contained in any motion, including any motion within the meaning of Standing Order 164,
(c) Estimates for Public Services, and
(d) other matters as shall be referred to the Select Committee by the Dáil, and
(e) Annual Output Statements, and
(f) such Value for Money and Policy Reviews as the Select Committee may select.
(4) The Joint Committee may consider the following matters in respect of the relevant Department or Departments and associated public bodies, and report thereon to both Houses of the Oireachtas—
(a) matters of policy for which the Minister is officially responsible,
(b) public affairs administered by the Department,
(c) policy issues arising from Value for Money and Policy Reviews conducted or commissioned by the Department, 122 (d) Government policy in respect of bodies under the aegis of the Department,
(e) policy issues concerning bodies which are partly or wholly funded by the State or which are established or appointed by a member of the Government or the Oireachtas,
(f) the general scheme or draft heads of any Bill published by the Minister,
(g) statutory instruments, including those laid or laid in draft before either House or both Houses and those made under the European Communities Acts 1972 to 2009,
(h) strategy statements laid before either or both Houses of the Oireachtas pursuant to the Public Service Management Act 1997,
(i) annual reports or annual reports and accounts, required by law, and laid before either or both Houses of the Oireachtas, of the Department or bodies referred to in paragraph (4)(d) and (e) and the overall operational results, statements of strategy and corporate plans of such bodies, and
(j) such other matters as may be referred to it by the Dáil and/or Seanad from time to time.
(5) Without prejudice to the generality of paragraph (1), the Joint Committee shall consider, in respect of the relevant Department or Departments—
(a) EU draft legislative acts standing referred to the Select Committee under Standing Order 105, including the compliance of such acts with the principle of subsidiarity,
(b) other proposals for EU legislation and related policy issues, including programmes and guidelines prepared by the European Commission as a basis of possible legislative action,
(c) non-legislative documents published by any EU institution in relation to EU policy matters, and
(d) matters listed for consideration on the agenda for meetings of the relevant EU Council of Ministers and the outcome of such meetings.
(6) A sub-Committee stands established in respect of each Department within the remit of the Select Committee to consider the matters outlined in paragraph (3), and the following arrangements apply to such sub-Committees—
(a) the matters outlined in paragraph (3) which require referral to the Select Committee by the Dáil may be referred directly to such sub-Committees, and
123 (b) each such sub-Committee has the powers defined in Standing Order 83(1) and (2) and may report directly to the Dáil, including by way of Message under Standing Order 87.
(7) The Chairman of the Joint Committee, who shall be a member of Dáil Éireann, shall also be the Chairman of the Select Committee and of any sub-Committee or Committees standing established in respect of the Select Committee.
(8) The following may attend meetings of the Select or Joint Committee, for the purposes of the functions set out in paragraph (5) and may take part in proceedings without having a right to vote or to move motions and amendments—
(a) Members of the European Parliament elected from constituencies in Ireland, including Northern Ireland,
(b) Members of the Irish delegation to the Parliamentary Assembly of the Council of Europe, and
(c) at the invitation of the Committee, other Members of the European Parliament.
b. Scope and Context of Activities of Committees (as derived from Standing Orders [DSO 82; SSO 70]
(1) The Joint Committee may only consider such matters, engage in such activities, exercise such powers and discharge such functions as are specifically authorised under its orders of reference and under Standing Orders.
(2) Such matters, activities, powers and functions shall be relevant to, and shall arise only in the context of, the preparation of a report to the Dáil and/or Seanad.
(3) It shall be an instruction to all Select Committees to which Bills are referred that they shall ensure that not more than two Select Committees shall meet to consider a Bill on any given day, unless the Dáil, after due notice given by the Chairman of the Select Committee, waives this instruction on motion made by the Taoiseach pursuant to Dáil Standing Order 26. The Chairmen of Select Committees shall have responsibility for compliance with this instruction.
(4) The Joint Committee shall not consider any matter which is being considered, or of which notice has been given of a proposal to consider, by the Committee of Public Accounts pursuant to Dáil Standing Order 163 and/or the Comptroller and Auditor General (Amendment) Act 1993. 124 (5) The Joint Committee shall refrain from inquiring into in public session or publishing confidential information regarding any matter if so requested, for stated reasons given in writing, by—
(a) a member of the Government or a Minister of State, or
(b) the principal office-holder of a body under the aegis of a Department or which is partly or wholly funded by the State or established or appointed by a member of the Government or by the Oireachtas:
Provided that the Chairman may appeal any such request made to the Ceann Comhairle / Cathaoirleach whose decision shall be final.
125 16. MEMBERS OF JOINT COMMITTEE
Mr James Bannon TD (Fine Gael) Mr Paudie Coffey TD (Fine Gael) Mr Niall Collins TD (Fianna Fáil) Mr Noel Coonan (Fine Gael) Leas-Chathaoirleach Ms Marcella Corcoran Kennedy TD (Fine Gael) Ms Clare Daly TD (Socialist Party) Mr Timmy Dooley TD (Fianna Fáil) Mr Dessie Ellis TD (Sinn Féin) Mr Luke Flanagan TD (Independent) Mr Terence Flanagan TD (Fine Gael) Mr Kevin Humphreys TD (Labour) Mr Seán Kenny TD (Labour) Mr Ciarán Lynch TD (Labour) Cathaoirleach Ms Sandra Mc Lellan TD (Sinn Féin) Mr Tony Mc Loughlin TD (Fine Gael) Ms Catherine Murphy TD (Independent) Mr Gerald Nash TD (Labour) Mr Patrick O’Donovan TD (Fine Gael) Mr Brian Stanley TD (Sinn Féin) Mr Robert Troy TD (Fianna Fáil) Mr Brian Walsh TD (Fine Gael)
Senator Cáit Keane (Fine Gael) Senator Denis Landy (Labour) An Seanadóir Fiach Mac Conghail (Neamhspleách) Senator Catherine Noone (Fine Gael) An Seanadóir Labhrás Ó Murchú (Fianna Fáil) Senator Ned O’Sullivan (Fianna Fáil)
126 NOTES
1. Deputies appointed to the Committee by order of the Dáil on 9 June 2011
2. Senators appointed to the Committee by order of the Seanad on 16 June 2011
3. Deputy Ciarán Lynch elected as Chairman on 21 June 2011
4. Deputy Noel Coonan elected as Vice Chairperson on 21 June 2011
5. An Seanadóir Fiach Mac Conghail replaced Senator Éamonn Coughlan on 31 January 2012
127 17. REFERENCES
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130 APPENDIX 1 – REPORT OF DELEGATION TO GARRYHINCH AND LOUGH BOORA
131 132 133 134 135 136 APPENDIX 2 – REPORT OF DELEGATION TO LOCH DEARG WATER EXTRACTION POINT ON RIVER SHANNON
137 138 139 140 141 142 143 144 145 146 147 148