Commentary Part 1.Water Industry Arrangements between relevant undertakers Section 8: Bulk supply of water by water undertakers
61.This section replaces sections 40 and 40A of the WIA with provisions to regulate bulk water supply agreements between “the supplier” (a water undertaker) and a “qualifying person” (another water undertaker or a person who has made an application to become an undertaker).
62.New section 40 allows Ofwat, on the application of one of the parties to the ensuing agreement, to make an order for the supplier to make a bulk water supply to a qualifying person, and for that qualifying person to take it, under such terms and conditions as Ofwat specifies. As under current legislation, Ofwat can only make an order if it is satisfied that the bulk supply is necessary or expedient for securing the efficient use of water resources and where it is satisfied that the parties are unable to come to an agreement themselves. Before making an order, Ofwat must consult the appropriate environmental agency, in particular, on whether the proposed supply would secure an efficient use of water resources, in light of its effect on the environment. An agreement imposed by order takes effect as an agreement between the parties and may therefore be enforceable by private law. It is also open to Ofwat to take action under section 18 to enforce its code about bulk supply agreements (see section 40B(4) to (6)).
63.New section 40A applies similar provisions as under new section 40 when any party to an existing bulk supply agreement wishes to vary or terminate a bulk water supply arrangement. Before varying or terminating the bulk water supply arrangement, Ofwat must consult the appropriate environmental agency, again, in particular, on whether the proposed supply would secure an efficient use of water resources, in light of its effect on the environment. A bulk supply agreement includes one which was made of the parties’ own volition and one made or varied by order under section 40 or 40A. New sections 40 and 40A disapply certain powers in the Competition Act 1998 in respect of bulk supply agreements.
64.New section 40B gives Ofwat a power to produce or revise one or more codes relating to bulk supply agreements in specific cases or more generally. These codes may set out standard or specific terms and conditions between the parties which may be mandatory or not; may include principles for determining what terms and conditions are suitable for particular bulk supply agreements, or more generally; and may also include the procedures for when a request to agree to make a bulk supply is received by an undertaker and steps to be taken to reach, amend or terminate an agreement. These codes must include a provision to require any parties that freely enter into a bulk supply agreement to consult the appropriate environmental agency. Ofwat has a power of direction where it believes an undertaker is not acting in accordance with the codes. The direction is enforceable under section 18 of the WIA.
65.New section 40C outlines the procedures that Ofwat must follow when producing a code. This includes a requirement to consult the appropriate environmental agency and other appropriate persons on the content of the proposed code. Ofwat must specify the consultation period in which consultees may comment. Within 28 days from the end of that consultation period, the Secretary of State or the Welsh Ministers may direct Ofwat not to issue the code or to amend it where a code relates to bulk supplies between undertakers wholly or mainly in England or Wales respectively. The Secretary of State and the Welsh Ministers may issue a joint direction if a code relates to bulk supplies between undertakers wholly or mainly in England and undertakers wholly or mainly in Wales. The relevant minister may only use this power of direction once and only in relation to the first edition of the code.
66.New section 40D outlines the procedure that Ofwat must follow when it considers that revisions it intends to make to a code are minor or urgent in nature. The procedure in section 40C does not have to be followed in relation to such revisions, but notice provisions do apply. Minor changes to a code might include small changes which are uncontroversial or technical amendments (e.g. a change in contact details) while urgent changes might include revisions that are needed to protect consumers, public health or the environment. Urgent changes cease to have effect at the end of a period of six months following the issuing of the revision. The intention is that Ofwat would use this time to consult on making the revision permanent or to consider replacing it with an alternative revision that provides a more permanent solution to the issue that it was seeking to rectify.
67.New section 40E allows Ofwat to publish and revise rules about charges which may be levied by water undertakers on other qualifying persons under bulk supply agreements. Ofwat is required to revise the rules, where necessary, if the Secretary of State or the Welsh Ministers issue revised charging guidance under new section 40I (see below and also see section 38 of this Act which inserts section 144ZE of the WIA (general guidance on charges)). Ofwat has a power of direction, enforceable by section 18, if it believes an undertaker is not acting in accordance with the charging rules.
68.New section 40F permits Ofwat’s rules on charging to include provisions allowing a party to a bulk supply agreement to pay a reduced charge when, for example, they or their customers take steps to reduce pressure on water resources (for example by agreeing to take less water during high peak periods or during droughts, etc.). Ofwat’s rules may impose conditions on the parties to a bulk supply agreement, and rules may include requirements to notify Ofwat of the reduced charge. The rules may also include provision about passing on the reduction to customers.
69.New section 40G outlines the procedure Ofwat must follow before issuing rules on charging, including a requirement to consult. In preparing the draft rules Ofwat must have regard to any charging guidance published by the Secretary of State or the Welsh Ministers (see below and also see section 38 of this Act which inserts section 144ZE of the WIA (general guidance on charges)). Ofwat must specify the consultation period in which consultees may comment. Within 28 days from the end of that consultation period, the Secretary of State or the Welsh Ministers may direct Ofwat not to issue the rules where the rules relate to bulk supplies between undertakers wholly or mainly in England or Wales respectively. The Secretary of State and the Welsh Ministers may issue a joint direction if the rules relate to bulk supplies between undertakers wholly or mainly in England and undertakers wholly or mainly in Wales. Ofwat may not publish the rules until this 28 day period has elapsed.
70.New section 40H outlines the procedure that Ofwat must follow when it considers that revisions it intends to make to rules are minor or urgent in nature.
71.New section 40I enables the Secretary of State and the Welsh Ministers to produce and revise charging guidance to Ofwat relevant to bulk supplies between undertakers wholly or mainly in England or Wales respectively, or jointly where the rules specifically relate to bulk supplies between undertakers wholly or mainly in England and undertakers wholly or mainly in Wales. The Secretary of State and the Welsh Ministers are required to consult each other and other appropriate persons on their draft guidance before it is published.
72.New section 40J requires the supplying party under a bulk supply agreement to provide information about the water supplied under the agreement at the request of the Environment Agency or the Natural Resources Body for Wales. This could include the source or timing of the water supplied under the agreement.
73.This section applies to any bulk supply agreements including those made before the coming into force of this Act and those made voluntarily.