This Explanatory Memorandum refers to the Water and Sewerage Services (Northern Ireland) Order 2006 (N.I.21)

WATER AND SEWERAGE SERVICES (NORTHERN IRELAND) ORDER 2006

S.I. 2006/3336 (N.I. 21)

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EXPLANATORY MEMORANDUM

INTRODUCTION

1.     The Water and Sewerage Services (Northern Ireland) Order 2006 ("the Order") was made on 14 December 2006.

2.     This Explanatory Memorandum has been prepared by the Department for Regional Development ("the Department") in order to assist the reader in understanding the Order. It does not form part of the Order.

BACKGROUND AND POLICY OBJECTIVES

3.     The proposed reform of the water industry in Northern Ireland will involve transferring responsibility for delivery of water and sewerage services on 1 April 2007 from the Department to a government owned company ("GoCo"). This will be appointed as (initially the sole) water undertaker and sewerage undertaker for the whole of Northern Ireland and will be run on a commercial basis subject to utility regulation. It is the Government's intention to introduce domestic charging for water and sewerage services (many commercial customers already pay charges and this will be extended) from April 2007.

4.     The Order will place extensive general and specific duties on the GoCo as a water and sewerage undertaker and provide detailed statutory powers to enable water and sewerage undertakers to carry out their duties, with suitable safeguards for customers. It will establish a regulatory regime through which the Department and the new economic and customer service regulator will act as the principal regulators of undertakers. This regime will include a system of regulatory controls in relation to supply obligations, drinking water quality standards, trade effluent and sewage disposal, charges and customer levels of service. The Order sets out a framework for making charges and provides for appropriate mechanisms to deal with customer complaints. It also includes provisions on private water supplies, for which the Department of the Environment (DOE) will continue to have regulatory responsibility, and makes amendments to the provisions of the Water (Northern Ireland) Order 1999 to update and expand DOE's functions relating to environmental regulation.

CONSULTATION, EQUALITY AND REGULATORY IMPACTS

5.     The Government has consulted extensively on the future of water and sewerage services. The issue was first raised by the Northern Ireland Executive in its "Review of Rating Policy" consultation published in May 2002. That paper asked how water and sewerage costs might be distributed among domestic customers if the Executive and the Assembly agreed to introduce these. Subsequently the Secretary of State gave a commitment that water and sewerage services should become self-financing. A consultation paper entitled "The Reform of Water and Sewerage Services in Northern Ireland" (March 2003) outlined the need for enhanced and sustained investment in Northern Ireland's water and sewerage infrastructure and invited views on options as to how this could be achieved, including the issue relating to domestic charging. The results of consultation were published in October 2003. Detailed proposals for reform were announced in summer 2004 and a draft Integrated Impact Assessment was published in November 2004. Government's response to this public consultation and its revised policy is set out in a Consultation Report, published in December 2005, along with the final Integrated Impact Assessment and Regulatory Impact Assessment, including the Equality Impact Assessment. All of the above consultation papers can be viewed at www.waterreformni.gov.uk. A consultation paper on arrangements for making new connections to the water and sewerage networks was published at the same time as the draft legislation (June 2006).

GOVERNMENT RESPONSE TO CONSULTATION

6.     Following careful consideration of the response to the various consultations, the Government decided to proceed with the reform of water and sewerage services to make them self financing, thus generating the revenue needed to sustain investment in Northern Ireland's water and sewerage infrastructure and free up resources for other public services. The main elements of the reform package are:

?     all households will pay a direct charge for water and sewerage services received, consisting of a standing charge and a variable element based on the discrete capital value of each property; the new household charges will be phased in from April 2007 with one third payable in the first year, two-thirds in the second year and the full amount in 2009-10. There will be special protections for those on low incomes. All new properties and new connections to the water mains will pay a metered charge while pensioner households will be the first group to be offered the choice of a meter.

?     all non-domestic customers should pay water and sewerage charges, with the current domestic allowance for metered customers being phased out over a three-year period;

?     Northern Ireland's water and sewerage services will be provided by a Government-owned Company (GoCo) which will operate under companies legislation;

?     the role of the Northern Ireland Authority for Energy Regulation (NIAER) will be expanded to include the economic and consumer regulation of water and sewerage services; and

?     the Consumer Council will become the statutory consumer representative for water and sewerage services in Northern Ireland.

OVERVIEW OF THE ORDER

7.     The Order is divided into 12 Parts, containing 309 Articles and 13 Schedules.

8.     In summary, Part I is introductory and Parts II and III set out the overall structure of how the water and sewerage services industry is to be governed and establishes the remit of the regulatory bodies. Parts IV to VI set out the duties and functions of the new "undertaker" to deliver water and sewerage services. Part VII deals with charges. Part VIII deals with the undertaker's powers - mainly concerning the carrying out of works. Part IX deals generally with the provision of information and the restrictions on its use. Part X concerns the establishment of the GoCo, which will be appointed as the water and sewerage undertaker. Part XI amends existing environmental legislation governing water to take account of the proposed delivery of water and sewerage services by a company incorporated under Companies Legislation rather than by a Government Agency.

9.     The following terms are used throughout this section of the explanatory memorandum:

10.     The "Authority" means the Northern Ireland Authority for Utility Regulation - broadly it is the regulator of economic and service delivery matters. In its current role as the Northern Ireland Authority for Energy Regulation, it oversees the electricity and gas utilities.

11.     The "Consumer Council" is the General Consumer Council for Northern Ireland which already represents the interests of consumers generally; its remit is extended to perform a number of specific functions in relation to water and sewerage services.

12.     The "Department" means the Department for Regional Development (DRD), which exercises a general oversight role. The Department of the Environment (DOE) also has a significant role as an environmental regulator and overseer of private water matters.

13.     The "Appeals Commission" means the Water Appeals Commission for Northern Ireland.

14.     The "undertaker" means the Government - owned company (often referred to as GoCo) which will be appointed to deliver water and sewerage services currently provided by Water Service, an Agency within the Department. Although the legislation distinguishes between water services and sewerage services and refers to water undertakers and sewerage undertakers, only one company (the GoCo) will be appointed, for the present, to carry out all of these functions.

15.     The Order is based on the legislation governing the delivery of water and sewerage services in England and Wales - the Water Industry Act 1991 though it does not follow it in every respect. Existing Northern Ireland legislation - the Water and Sewerage Services (Northern Ireland) Order 1973 - under which the Department currently provides water and sewerage services, will be repealed and replaced by the Order.

PART I - INTRODUCTORY

16.     Part I provides for the title of the Order, when it's various elements will come into operation and for the definition of various terms used throughout the Order. The coming into operation of this Order is dealt with in the final section of this memorandum.

PART II - REGULATORY AUTHORITIES AND THEIR GENERAL DUTIES

17.     This Part imposes duties on the new regulatory bodies and sets out their general duties.

18.     The powers of the body established under the Energy (NI) Order 2003 to regulate the energy industry in Northern Ireland, the Northern Ireland Authority for Energy Regulation (NIAER), are extended to the water industry by Article 3. This body will become known as the Northern Ireland Authority for Utility Regulation (NIAUR) and for the purpose of this memorandum is referred to as the Authority. Articles 4 and 5 require the Authority to publish a forward work programme and make an annual report.

19.     Articles 6 to 12 set out the general duties of the Authority and the Department. In exercising their functions the Authority and the Department are primarily required to protect consumer interests (wherever appropriate by facilitating effective competition); ensure that the undertaker operates properly in all areas of Northern Ireland; and is able to finance such activity.

In doing so the regulatory bodies must have regard to the interests of the disabled, pensioners, low-income groups, and rural dwellers, and, if appropriate, the interests of gas, electricity and telecommunications customers (Article 6). The regulatory bodies must carry out their primary duties so as to contribute to the achievement of sustainable development, encourage the undertaker to maximise economy and efficiency, ensure no undue discrimination in the setting of charges across the customer base, act in the consumer's interests on land sale matters and ensure probity in the company's dealings.

20.     Article 7 enables the Department to issue guidance to the Authority on social and environmental matters after consultation and with Assembly approval. Article 8 obliges the undertaker, the Authority and Northern Ireland Departments, when developing proposals in relation to water and sewerage functions, to promote conservation and public access. Article 9 requires DOE to notify an undertaker of any area which it considers to be of special environmental interest and liable to be affected by the undertaker's activities. Once notified, the undertaker must consult DOE before carrying out any works except in an emergency. Article 10 enables the Department to approve, by order, codes of practice prepared for the purpose of providing the undertaker with guidance in relation to the environmental or recreational matters dealt with by Articles 8 and 9.

21.     Article 11 requires regulatory bodies, including DOE, to make arrangements with each other to promote co-operation and ensure a consistent approach on the regulatory matters set out in this Order and, in the case of DOE, in connection with water resources and water pollution as they relate to the undertaker. Co-operation arrangements will be set out in memoranda of understanding between parties. Relevant Departments are required, in exercising any of their powers under any statutory provision, to have particular regard to the statutory water supply duties imposed on the undertaker by this Order (Article 12).

PART III - APPOINTMENT AND REGULATION OF UNDERTAKERS

22.     This Part sets out the arrangements for appointing water and sewerage undertakers, deals with general issues of enforcement and insolvency and extends the remit of the General Consumer Council for Northern Ireland.

Chapter I - Appointments

23.     This chapter sets out arrangements for the appointment of water and sewerage undertakers including their modification. Article 13 enables the Department or, with the Department's consent, the Authority to appoint water and sewerage undertakers. The terms of appointment will be set out in a licence.

The arrangements set out in this chapter apply equally to any replacement or additional appointments. It is the Government's intention to appoint a single Government owned company ("GoCo") as water and sewerage undertaker with effect from the commencement of this Order.

24.     Article 14 empowers the Department or the Authority to vary or terminate appointments in specified circumstances. The powers must be exercised so as to ensure that there is always an undertaker to provide water and sewerage services to all parts of Northern Ireland.

25.     Articles 15 to 17, together with Schedule 1 to the Order, set out the procedures to be followed in making new appointments or variations of existing ones and the making of transitional arrangements that may arise in the transfer of duties between undertakers.

26.     Articles 18 and 19 confer power on the Department or the Authority to impose conditions on the undertaker in an appointment or subsequently. They set out the circumstances in which conditions may be made and procedural matters, including references to the Competition Commission.

27.     Article 20 provides for the modification of the conditions of a company's appointment by the Authority with the undertaker's agreement and after following the procedures set out in Article 20.

28.     Article 21 to 27 provides for modifications of an appointment upon reference by the Authority to the Competition Commission where a condition of a company's appointment may operate against the public interest. The Competition Commission is obliged to investigate and report on the matter in accordance with the procedures set out in these Articles. Article 28 provides for modifications in other circumstances. Article 29 extends certain functions of the Office of Fair Trading concerning competition to enable them to be concurrently exercised by the Authority in relation to water and sewerage.

Chapter II - Enforcement and Insolvency

29.     Chapter II sets out the circumstances in which an enforcement order can be served and when financial penalties may be imposed on an undertaker.

Articles 30-34 Enforcement Orders

30.     Articles 30-34 set out the circumstances in which an enforcement authority is required to make an enforcement order to ensure an undertaker's compliance with any condition of its terms of appointment or any of its statutory obligations. The enforcement authority can be the Department, the Authority or either depending on the particular provision under which enforcement may take place. An enforcement order requires an undertaker to do or not do anything set out in the order (Article 30). Where there is a contravention of any condition of an undertaker's terms of appointment or any of its statutory obligations a final enforcement order must be made. However the Authority and the Department can make provisional orders in some cases and accept undertakings from the undertaker that remedial measures are being taken. The procedures which must be followed when making or revoking an enforcement order (Article 31) are set out (Article 32) as well as how the undertaker can appeal to the High Court against an order (Article 33). Article 34 deals with the undertaker's liability under an enforcement order.

Articles 35-39 Financial Penalties

31.     Articles 35-40 deal with the financial penalties which may be imposed on the undertaker where the enforcement authority has determined that there has been a contravention in any condition of its appointment, a failure to attain any performance standard or a contravention of its statutory duty. A penalty may not exceed 10% of the undertaker's turnover (turnover to be determined by order made by the Department). The steps to be followed by the enforcement authority when imposing penalties are listed in Article 35. Article 36 requires each enforcement authority to publish a statement of policy on penalties and Article 37 sets out time limits on when penalties can be imposed. An undertaker can appeal to the High Court against any penalty imposed upon it (Article 39).

Articles 41-44 Special Administration Orders

32.     Articles 41-44 state that the insolvency of an undertaker is to be dealt with through special administration orders made by the High Court. During the period of a special administration order all company affairs are managed by a person appointed by the High Court.

Chapter III - General Consumer Council

33.     Chapter III extends the role of the General Consumer Council for Northern Ireland to confer upon it functions connected with the interests of consumers in relation to water and sewerage services. The Consumer Council, which is established under the General Consumer Council (NI) Order 1984, has similar statutory functions under legislation governing other utilities.

34.     In carrying out its functions the Consumer Council has to have regard to the interests of certain groups and to the achievement of sustainable development (Article 45). It is also under a duty to make arrangements with the Authority and the Department to ensure co-operation between them (Article 47) and to publish an annual forward work plan (Article 46).

35.     Articles 48 to 52 place duties and confer powers upon the Consumer Council in relation to consumer information. Article 48 obliges the Council to obtain information about consumer matters, including the views of consumers; Article 49 allows the Council to make proposals about consumer matters and Articles 50 and 51 enable it to provide information to consumers and publish advice and information. Article 52 empowers the Consumer Council to direct the Authority and the undertaker to provide it with information and Article 58 obliges the Authority to consult the Consumer Council on the exercise of any of its functions. The Consumer Council, itself, may be required to supply information if directed to do so by the Authority or the Department (Article 53). Article 54 enables the Department to make regulations dealing with issues concerning the provision of information and Article 57 places general restrictions on the disclosure of information by the Consumer Council where that information relates to a particular individual or business or to anything that might be subject to criminal proceedings.

36.     Article 55 sets out the Consumer Council's role in relation to consumer complaints about an undertaker in carrying out its functions. Where a complaint is referred to the Consumer Council by, or on behalf of, the complainant, it is under a duty to investigate the complaint unless it is frivolous, might be better dealt with by other procedures under the legislation, cannot be resolved by the undertaker, or the undertaker has not been given a chance to resolve the complaint. The Consumer Council can pursue a complaint on behalf of a complainant and report to the Department or the Authority. Article 59 places the Consumer Council under a duty to publish statistical information about complaints concerning the undertaker regardless of which body the complaint has been made to.

Chapter IV - Miscellaneous

37.     Chapter IV deals with a number of general matters concerning the regulation of undertakers.

38.     Article 60 places the Authority under a duty to review the performance of the undertaker and allows the Department to give general direction to the Authority in relation to the prioritisation of these duties. Article 61 specifies that, in dealing with any dispute under the Order, the Authority may determine the procedure to be followed including any matters relating to costs and expenses; the Authority is obliged to give reasons for its decisions where it determines a dispute. Article 62 requires an undertaker to make an annual statement to the Authority about any performance bonus awarded to directors of the company appointed as the undertaker. Article 63 requires undertakers to establish a complaints procedure following consultation with the Consumer Council, which it must publicise. The Authority can direct the undertaker to review and modify its complaints procedure.

PART IV - WATER SUPPLY

39.     This Part sets out the undertaker's water supply duties and matters concerning performance standards in relation to water supply. Similar measures apply to the provision of sewerage services (see Part VI below). It also deals with plans which the undertaker must make, matters concerning water quality, private water supplies and fluoridation.

Chapter 1 - General Duties of Water Undertakers

40.     Article 65 sets out the general duty of the undertaker to develop and maintain an efficient and economical system of water supply. The undertaker's obligation to meet its water supply duty is enforceable by the Department, or the Authority, if the Department delegates responsibility to it. In order to facilitate the determination of what constitutes a breach of the undertaker's duty or to establish overall performance standards in connection with water supplies the Department may make regulations setting out these matters (Article 66). However, the Department cannot make regulations unless the Authority has first applied to it to do so and set out the substance of what should be contained in the regulations after consulting the undertaker and carrying out customer research (Article 69). The regulations, amongst other things, can require the undertaker to pay compensation to customers if it fails to meet the prescribed standards. Article 67 obliges the Authority to collect information about performance standards and to publish them annually. The undertaker is required to provide information on performance standards to the Authority (it commits an offence if it fails to do so) and to its customers (Article 68). Regulations, whilst additional to enforcement, do not in any way qualify the powers to enforce.

41.     Articles 70 to 73 require the undertaker to produce water resource management and drought plans setting out how the undertaker proposes to manage water resources and cope with any drought. The Articles set out the procedures to be followed by the undertaker, when producing these plans.

Chapter II - Water Supply Duties

42.     Chapter II sets out the duties of the undertaker to supply water to its customers.

43.     Articles 74 and 75 set out the arrangements for the undertaker to follow when providing bulk supplies of water to another undertaker.

44.     Articles 76 to 106 establish the circumstances governing the supply of water to the undertaker's customers including the making of new connections to the water supply system. Article 76 places a duty on the undertaker to provide a water main (i.e. the main conduit for supplying water to an area such as a street) sufficient for domestic purposes when requested to do so. Articles 86 to 90 also allow the undertaker to make agreements with people, who have decided to provide their own water mains and services pipes, to adopt the mains or pipes so that they become owned and maintained by the undertaker. Articles 79 and 80 place an accompanying duty on the undertaker to connect premises to the water supply system, including carrying out any ancillary work (Article 80) such as laying services pipes (i.e. pipes connecting the household plumbing to the water main), when requested to do so ¹. Where the undertaker agrees to adopt mains or pipes, the agreement can include terms for connection of those mains or pipes to the water supply system but, whether the undertaker adopts or provides the mains and pipes itself, only the undertaker can make a connection to the water supply system (Article 89). Finally, Articles 91 to 93 and 105 set out the duty of the undertaker to supply its customers with a supply of water for domestic purposes, to maintain the connection with the water mains and to maintain standards of constancy and pressure. The term, "sufficient for domestic purposes" is set out in Article 2(4) - (6) as meaning drinking, washing, cooking, central heating and sanitary purposes. It can include water used for the purposes of a profession but not a laundry or other business (Article 2(4) to (6)). The duty to maintain pressure means that water must be able to reach the top-most storey of every building although there are height related exceptions. The undertaker can require the installation of a cistern (Article 106) in certain circumstances and the Department can relax the pressure requirements in accordance with the procedures set out in Schedule 3.

¹ There is no significant change to the general rule governing responsibility for water pipes. The water main and the service pipe up to the edge of the private property are the responsibility of the undertaker. The internal plumbing and service pipe within the private property are the responsibility of the owner.

45.     Article 94 applies to supplies of water for non-domestic purposes. As with other supplies, the undertaker is obliged to provide the supply but may decline to do so if, taken along with the undertaker's existing and probable future supply obligations, it would involve unreasonable expenditure by the undertaker or put at risk its ability to meet existing or probable supply commitments. The terms of the supply are to be agreed between the person making the request and the undertaker (Article 95).

46.     While the undertaker is required to provide mains, connections and supplies of water, its customers are required to meet certain obligations, including financial ones. The provision of a water main, the making of a connection to supply water or any work necessary as a result of an adoption (Article 88) will be at the expense of the person making the request (as is currently the case). Articles 77, 82(2)(a) and 88 additionally enable the undertaker to require financial securities from those requesting water mains, connection work or work arising from an agreement to adopt (see the DRD consultation document on "Charges for connections to the water and sewerage networks" published June 2006 for more detail). The Government has also announced that charges will be introduced for the supply of water. The details of the relevant charges will be set out in the undertaker's charges scheme (see paragraphs on finance and charges below under Part VII).

47.     Articles 81 and 82 (and, in respect of adoption, Article 86) enable the undertaker to impose conditions, in addition to the financial ones mentioned above before it connects or adopts any new pipes to its system. These conditions include the provision of appropriate information to the undertaker, that certain standards of plumbing and fittings have been met, that appropriate means of maintaining water pressure have been installed (Article 106) and any requirements as to separate service pipes have been met (Article 104). Article 81 requires the undertaker to insist that a water meter be installed in all newly connected premises.

48.     The provisions described above provide the undertaker with financial security and enable it to ensure that consistent standards are met in the development of the public water supply system. Other provisions offer protections for consumers. Articles 77(4), 78, 83 and 85 set out time limits for the completion of work by the undertaker and for it to pay quarterly interest on any securities deposited with it if work is not completed within three months of a prescribed date. If the undertaker breaches its duty to supply the main or connection within the prescribed time it will be liable in certain circumstances to the person making the request for any loss or damage they suffer (Article 76(4) and 79(6)). A similar provision applies (Article 93) if the undertaker fails in its domestic supply duty. It is an offence, in certain circumstances, for the undertaker to fail in its duty to supply water at constancy and pressure (Article 105(10)) or to limit supplies of water to its customers (Article 103). Disputes between an undertaker and customer about such matters as interest payments, reasonableness of securities demanded, the situation of connection points, extension of time limits, agreements (or refusal to make agreements) on adoption (Article 87) or the terms of any agreement for supply of water for non-domestic purposes (Article 95) may be referred to the Authority for resolution.

49.     An undertaker is not in breach of its duty to supply water if it is allowed to disconnect supplies in the circumstances set out in Articles 99 to 102 and Schedule 2. The undertaker may cut off or reduce supplies for the purpose of carrying out necessary works as long as it gives reasonable notice to customers who are affected (unless in the case of emergencies or negligible effect). If the disconnection lasts more than 24 hours the undertaker must make an emergency supply of water available and, after 48 hours, must inform the district council. The undertaker may also disconnect non-domestic water supplies for non-payment of charges after following the appropriate procedures (set out in Article 100). However, Schedule 2 to the Order lists premises that may not be disconnected for this reason. This includes domestic premises, residential homes for the elderly, hospitals and other medical facilities, schools, educational establishments and other child care facilities and prisons and emergency service premises. Disconnection can also be made at the request of the customer (Article 101). Under Article 115 the undertaker can, in an emergency, disconnect premises in order to avoid misuse, waste or contamination of the water supply and decline to reconnect until remedial work is performed. It is an offence for the undertaker to disconnect other than in accordance with the circumstances set out in the legislation.

50.     Articles 96 to 98 set out specific water supply duties for public purposes - principally concerning making water available for fire fighting.