Commentary on provisions of the Act Section 14: Modification by Secretary of State of water company’s appointment conditions etc to recover losses
This section inserts new sections 12J and 12K into the 1991 Act. Section 12J enables the Secretary of State to modify the conditions of appointment of water and/or sewerage undertakers whose area is wholly or mainly in England (referred to here as water companies) to ensure that any shortfall following the provision of financial assistance by the Secretary of State to a company in special administration can be made good. Appointments are colloquially referred to as licences.
	The Secretary of State currently has the power to issue licences under section 6 of the 1991 Act but not to modify the conditions after they have been issued, as that power sits with Ofwat. However, this change will allow the Secretary of State to make modifications in these specific and very limited circumstances only.
	The modifications can require a water company to raise amounts of money determined by the Secretary of State from its consumers, and to pay those amounts to the Secretary of State to make good any shortfall and may include a requirement that amounts be held on trust pending payment to the Secretary of State. The Secretary of State may also make incidental or consequential modifications considered necessary or expedient.
	The Secretary of State can modify the licence of the water company that has been placed in special administration, or any other water company in England.
	The drafting anticipates that the Secretary of State may provide financial assistance under section 153 of the 1991 Act in relation to a water company in administration as part of the Water Industry Special Administration Regime (‘WISAR’, provided for by sections 23-25 of the 1991 Act) which it may not, absent these provisions, be able to fully recover. This shortfall is described as an ‘SAO loss’ and includes any loss or expense incurred as a result of, or otherwise in connection with, the giving of the assistance.
	Money received by the Secretary of State must be paid into the Consolidated Fund.
	New section 12K requires the Secretary of State to fulfil certain procedural requirements before modifying licence conditions under section 12J.
	Notice must be given that the Secretary of State proposes to make modifications. The modifications and their effect must be set out along with reasons for making them and providing a time period of at least 42 days for representations to be made about the proposed modifications. The notice must be published in an appropriate manner so those likely to be affected are aware of it and it must be sent to each water company whose licence conditions are to be modified, other water companies and water supply/sewerage licensees whose interests may be affected, Ofwat, certain persons representing the interests of water companies (such as Water UK) and the Consumer Council for Water.
	The Secretary of State must consider any representations made and if a decision is made to proceed with the licence modifications the decision and the modifications must be published, the effect of the modifications must be set out, as well as explaining how the representations were taken into account and any changes between the modifications and those initially proposed.
	Licence modifications come into effect from a date specified by the Secretary of State not less than 56 days after the publication of the decision to make the modification, unless giving them earlier effect is considered to be necessary or expedient and the notice of intention to modify licence conditions stated the earlier date, gave reasons for the shorter time period and explained why this would not have a material adverse effect on a water company.