MD180

TO MANAGING DIRECTORS OF ALL
WATER AND SEWERAGE COMPANIES AND
WATER ONLY COMPANIES                                                                                 25 September 2002

FLOODING FROM SEWERS

In March this year we published a consultation paper "Flooding from Sewers : A way forward". We invited views on the issues raised in the paper and proposals for tackling sewer flooding both in the short term (up to 2005) and in the longer term at the next Periodic Review (PR04).

The purposes of this letter are twofold: first, to provide a summary of the views received on the issues raised in the paper and, second, to confirm Ofwat's approach to proposals that companies might make, in the short term, for enhancing the current flooding relief programmes.

We will set out our approach to sewer flooding over the longer term in the methodology paper, "The proposed framework and approach to the 2004 Periodic Review", due to be published next month.

We received 64 responses to the consultation and these are available in the Ofwat library. A summary of the views received is attached to this letter, including a full list of respondents. It also includes a summary of the points made at a seminar we held on 21 May to discuss the issues raised in the consultation paper.

Progress before 2005

The consultation paper proposed that each sewerage company should consider whether more rapid progress in dealing with the most serious problems is practicable and necessary. There was almost unanimous support for the proposal, and we have already had discussions with a number of companies. Companies and WaterVoice Committees have asked what we now expect companies' proposals to cover, and companies have asked how we would treat the expenditure involved. The following paragraphs deal with these points.

Companies' proposals must be based on a system for prioritising schemes which has been discussed with the WaterVoice Committee and is based primarily on an overall assessment of the severity and frequency of the problems faced by the customers concerned. Hitherto, the main focus has been on dwellings at risk of internal flooding. That will still be the main priority, but companies may include schemes for dealing with the worst cases where the risk is of external flooding. Companies should explain clearly the criteria they have used to establish their priorities.

We agree with the point made by some companies that it is not helpful or efficient for work on continuing issues such as sewer flooding to be subject to stop/start investment or planning. We therefore confirm that companies should assume that some provision will be made for continuing investment on sewer flooding in 2005-6 and beyond, subject to an evaluation of the costs and benefits of the schemes proposed and other priorities for investment.

High cost schemes

While respondents generally agreed that there might be schemes where the costs are too high having regard to the benefits, there was little agreement or comment on how to define what is uneconomic or, indeed, how to deal with those cases considered uneconomic. This issue needs to be considered further in the context of all investment requirements for the period 2005-10 and will be covered in the methodology paper. We will discuss this with companies and WaterVoice.

We would not therefore, expect you to include schemes where costs are exceptionally high in any programme for additional schemes to be completed by March 2005. When deciding whether the costs of schemes are exceptionally high relative to the benefits we will take into account all expected benefits - reductions to internal and external flooding and damage to the environment.

Assessment and funding of proposals

Your proposals should consist of a list of specified schemes and estimated costs together with the Reporter's assessment of those costs and confirmation by him that they can be completed by March 2005. We will also require the Reporter's comments on whether the proposed additional work is likely to jeopardise delivery of the company's quality programme.

Once a programme of work and estimated costs has been agreed with us the actual expenditure will be logged-up, subject to any efficiency challenge, and included in your regulatory capital value at PR04. For the purposes of any interim determinations (IDOKS), the additional outputs will be specified by Ofwat as a new obligation. However given the constrained timetable within which IDOKs are conducted, it is important that both the outputs and the expenditure should have been discussed, with us before any application for an IDOK is submitted. For any such applications made in 2003, we would also expect the programme to have been agreed with us in advance.

Information for annual monitoring and the Periodic Review

We consulted on whether we should review the annual information we collect on internal flooding and whether we should begin to monitor systematically external flooding. There was widespread support for monitoring external flooding and a number of suggestions for areas in which our monitoring of internal flooding might be improved. We will discuss these issues with companies and WaterVoice in October.

In October, we will also be publishing draft information requirements for companies' draft business plans for 2005 onwards. These will set out what we will expect companies to submit in support of their proposals for longer term sewer flooding programmes. We will hold discussions with all companies in advance of draft business plans, to ensure that we establish a clear and common understanding of their sewer flooding issues.

PHILIP FLETCHER

Enc