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Investing in Water Services 2006 - 2014

4 EXTENDING PUBLIC WATER & SEWERAGE NETWORKS

Introduction

4.1 This chapter looks at the need to provide additional capacity within the existing water and wastewater infrastructure to allow new housing or businesses to be connected for the first time. Current legislation¹¹ requires Scottish Water to provide a domestic connection where it is practical to do so at a ‘reasonable cost’. Scottish Water operates two different approaches to assessing ‘reasonable cost’ depending on whether the domestic connection sought is for new build housing or for connecting to an existing property for the first time. Beyond reasonable costs, connection to the public supply can be funded from a range of sources including the water investment programme, which is paid for by water charge payers, or by contributions from developers.

4.2 In the past, when set against the weight of legislative requirements to improve drinking water quality and meet environmental standards, only limited funds have been available to allow additional properties to join the public network. In this context, and set against the on-going scale of investment required in this industry, consideration of who should pay to extend the network is a key issue. This is being considered as part of the Principles of Charging Consultation, and the outcome of this will clearly impact on this investment programme. In addition, the forthcoming regulations under the Water Environment and Water Services (Scotland) Act 2003 will revise the mechanism by which Scottish Water determines ‘reasonable cost’ for both new development and first time provision. This will also impact on this issue.

NEW DEVELOPMENT

Accommodating new development needs

4.3 Decisions to build new housing and commercial development can give rise to a requirement for additional investment within the water and wastewater infrastructure. These decisions often reflect changing patterns of migration with some areas experiencing a growing population while others face the opposite. Assessing whether there is capacity within the infrastructure is not always a straightforward process. This is because of the inter-relationship between the sewer system and neighbouring watercourses and SEPA’s requirement that Scottish Water must demonstrate no detriment to watercourses from development proposals.

4.4 While capacity sometimes exists within wastewater or water supply infrastructure to allow new properties to connect, lack of capacity is a constraint on development in some areas and this can have a significant impact upon local communities as well as on wider public policy goals.

What investment is currently underway?

4.5 The current investment programme was formulated as part of the Quality and Standards II process and was agreed by Ministers in August 2001. It was developed against a need for considerable and challenging levels of capital improvements for the water industry to counter historic under investment, to improve water quality standards, and to achieve the environmental standards required by legislation. The need to strike the right balance between sustainable improvement on the key priorities (public health and the environment) and affordability in terms of cost to customers was a major constraining factor in the final decision. This has meant that only limited provision was made in the current programme to accommodate new development issues.

4.6 Within the current investment programme of £1.8 billion, some £200 million will provide benefits to current constraints. While the investment is not specifically aimed at dealing with development constraints, a beneficial effect of that investment is the freeing up of existing capacity to allow further development. In addition, a further allocation of £41 million is being made to help ease the constraints on new housing and to assist with first time sewerage in rural areas. But it is clear from the work of the specialist working group that there is a significant demand across local authority areas for investment to extend Scottish Water infrastructure to meet new development needs. Funding this requirement remains a key issue.

What are these development needs?

4.7 Although the population of Scotland is falling overall, the trend towards smaller households means that the number of households is still growing and different areas will see different levels of growth. Responding to this requirement is a complex issue. In part this is due to the uncertainties inherent in the planning process but it is also in recognition of the current understanding Scottish Water has of their assets.

4.8 To get a better understanding of this issue, the 32 Scottish local authorities were asked to predict their future development requirements to 2014. Scottish Water assessed these sites to determine the extent of constraints. A total of about 8,600 development sites with the capacity to accommodate 230,000 houses were identified for the Quality and Standards III period (2006-2014). A further 14,000 hectares for non-residential development was identified. Approximately half of the sites would be constrained if no further capacity was provided.

4.9 The forecasts of housing needs have been tested against known aggregate data sources. These suggest that the housing stock may increase by approximately 15,000 per annum¹² over the next eight years (predominately due to household growth). This would imply an increase in the housing stock of 120,000. This contrasts markedly with the forecast in the previous paragraph.

4.10 Accurate assessment of development constraints depends upon various assumptions, in particular household composition. Work is ongoing to consider these issues, however it is generally accepted that household size is declining and this will reduce the extent to which new development is constrained by capacity issues.

What are the cost ranges to deliver these requirements?

4.11 Costs associated with the release of development constraints are derived using the known levels of demand for new development as described above, a generic approach to costing based on the assumptions mentioned above, and on existing information about household occupancy. On this basis, we estimate that the costs of releasing all identified constraints would range from over £1 billion over the 8 year period (where the water customer pays for the release of all known constrained development) to around half of this (where the cost of providing additional capacity is shared between the developer and the customer¹³).

How do we decide upon the final investment requirements?

4.12 There are strong reasons why there should be provision within the forthcoming investment programme to allow new development (housing and businesses) to connect. The working group has been able to estimate the costs associated with providing such additional capacity based upon a number of assumptions. The key issue of who should pay for this investment is currently being considered as part of the Paying for Water Services Consultation. However, what is clear is that when set against the scale of other investment requirements, it would be difficult for the charge payer to fund the release of all anticipated new development without generating significant charge increases. The investment programme to 2014 will be informed by the priorities for economic development and area regeneration set out in the National Planning Framework for Scotland.

Strategic modelling

4.13 Planning authorities have expressed concern about the lack of provision for the testing of strategic development options under Quality and Standards II. Identifying the most appropriate pattern of future development may involve asset modelling work for which Scottish Water is not currently funded. It is clearly important that Scottish Water and planning authorities work closely together on the provision of infrastructure to support new development and the question of how modelling work should be funded needs to be resolved. The question of who should fund this work remains outstanding.

FIRST TIME CONNECTION

What are first time connections?

4.14 First time connections to the public water and sewerage networks arise when properties which have their own private arrangements for securing water (e.g. a private water supply) or disposing of sewage (e.g. septic tank) seek connection to the public system. Such situations are found mainly in rural areas. First time connection for supply of drinking water, or for connection to the public sewer network tend to be driven by respectively public health and water quality considerations, and the need to improve the water environment. Requirements for first-time connection to the public sewer system were also considered by the working group on the environment as a mechanism for meeting compliance with other environmental legislation.

Providing first time connection?

4.15 As with new development, Scottish Water is only obliged to provide connection where it is practical to do so at a ‘reasonable cost’. This means that Scottish Water will provide a connection where it falls under certain financial thresholds. Scottish Water defines the reasonable cost threshold for a first time water connection as £500, and operates a sliding scale for wastewater connections based on the potential contribution the connection will make to the network. This varies depending on the council tax band of the house and the threshold ranges from £1,995 for a band A house to £5,985 for a Band H house. Above this level, it falls to the Scottish Water charge payer, other public funding sources, e.g. local authorities, or the householder themselves to fund the additional cost of connection above the reasonable cost level. There are also European obligations on Scotland to provide collecting systems for conurbations unless these are excessively costly.

4.16 As noted in the section on development constraints, forthcoming regulations under the Water Environment and Water Services (Scotland) Act 2003 will revise the mechanism by which Scottish Water determine reasonable cost.

What investment is ongoing at present?

4.17 Within the current Quality and Standards II investment programme, a total of £19 million was identified to provide first time connection for drinking water for 55 properties and connection for sewerage for 1,222 properties. In addition a further allocation of £41 million is currently being allocated to help ease the constraints on new development and to assist with first time sewerage in rural areas.

4.18 It should also be noted that it is not a realistic objective to provide universal connection to the public networks in Scotland. First, there will always be occupiers who have no wish to be connected and their preferences will as far as possible be respected. Secondly, there will be areas of the country where, for technical or cost reasons, it is simply not feasible to make such connections. Alternative means of delivering the necessary services in these areas will have to be considered.

What are the investment requirements for Quality and Standards III?

4.19 First time provision costs are available under 2 categories, drinking water and wastewater. The 32 Local Authorities (Environmental Health) were asked to provide Scottish Water with details of sites for potential connection to the public water supply. The Local Authority list was based on drinking water quality and a total of 5,010 properties in 789 locations were identified. In addition, SEPA have provided information on first time sewerage schemes which they believe require funding on the grounds that current private arrangements are having a deleterious impact upon the water environment. This process identified 166 settlements, providing sewerage for 14,381 properties and improving 197 kms of water.

What are the cost ranges to deliver these requirements?

4.20 The cost for connection to the public water supply of the sites identified by Local Authorities is considered to be in the region of £200 million over the 8 year period. The cost for first time wastewater provision is over £600 million, also over the 8 year period.

4.21 Analysis of the individual costs of implementing these projects indicates that none of the projects fell within the ‘reasonable cost’ criteria’ set by Scottish Water (see above) and that the cost per property ranged from £3,000 to £794,000 for water and £14,000 to £748,000 for wastewater. As the overall programme is likely to be unaffordable, the environment working group has prioritised the investment required for first time wastewater provision. The high priority schemes would deliver important environmental benefits at a cost of £260 million.

How do we decide upon the final investment requirements?

4.22 There is no specific requirement on Scottish Water to provide connections of this kind beyond reasonable cost, and so the costs associated with them must be regarded as an additional capital and ongoing maintenance cost for Scottish Water, if further connections are to be made to the public networks. However, this begs the question of how such provision should be funded, if not by existing charge payers, or the taxpayer.

4.23 Requirements for first time connection for wastewater feature in the current investment requirements sought by the environmental regulator, SEPA, on the grounds that they are the most effective mechanism by which compliance with environmental legislation, e.g. the Shellfish Directive, can be secured. This need is driven by environmental problems caused by inadequate private sewerage arrangements and the inability of private individuals to operate the complex treatment processes that may be required.. SEPA argue that while they have powers to prevent private sewage schemes causing pollution, difficulties enforcing these, especially in multiple ownership situations, mean that seeking a public network connection is usually a more practical solution. However, the capital costs of providing such schemes are not small.

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