2002 ASP 3

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WATER INDUSTRY (SCOTLAND) ACT 2002

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EXPLANATORY NOTES

INTRODUCTION

1. These Explanatory Notes have been prepared by the Scottish Executive in order to assist the reader of the Act. They do not form part of the Act and have not been endorsed by the Parliament.

2. The Notes should be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or schedule, or a part of a section or schedule, does not seem to require any explanation or comment, none is given.

THE ACT

3. The largest element of the Act (Part 3) provides for the establishment of Scottish Water as the successor to the three water and sewerage authorities established by the Part II of Local Government etc. (Scotland) Act 1994 ("the 1994 Act"). Many of the provisions in Part 3 of the Act are based on equivalent provisions in Part II of the 1994 Act. Provisions have also been included for Scottish Water to have a board structure that differs from that of the existing authorities and for Scottish Water to have a greater measure of commercial freedom than that enjoyed by the existing authorities.

4. The Act's other elements provide for changes to the representation of the interests of water customers to take account of the establishment of Scottish Water (Part 1) and the creation of a Drinking Water Quality Regulator with powers in respect of Scottish Water and private water supplies (Part 2). As these provisions deal with the regulatory framework within which Scottish Water will operate, they precede those relating to the creation of Scottish Water.

5. The 1994 Act refers to the water authorities that it created as "the new water and sewerage authorities". For ease of understanding, these notes refer to them as the "existing authorities".

PART 1 - WATER INDUSTRY COMMISSIONER AND CUSTOMER PANELS

Section 1 - Water Industry Commissioner for Scotland

6. This section continues in existence the Water Industry Commissioner for Scotland established by section 67A of the 1994 Act (which was inserted by section 12 of the Water Industry Act 1999 ("the 1999 Act")).

7. Subsection (2) gives the Commissioner the general function of promoting the interests of customers of Scottish Water in relation to the provision of services by it in the exercise of its core functions. This is similar to the Commissioner's general function under the 1994 Act in relation to the existing authorities. Scottish Water's "core functions" are all its statutory functions, but excluding its new general power under section 25(1) and the ancillary power under section 25(2) so far as relating to that power (see section 70(2)).

8. Subsection (3) gives the Scottish Ministers a power of direction over the Commissioner, equivalent to that provided in the 1994 Act (under section 67A(4)).

9. Subsection (4) gives effect to Part 1 of schedule 1 which makes detailed provision as to the appointment of the Commissioner and as to the Commissioner's staff, status and accounts which essentially is a restatement of the current provision as to those matters set out in Schedule 9A to the 1994 Act.

Section 2 - Water Customer Consultation Panels

10. This section provides for the establishment of Water Customer Consultation Panels to replace the Water Industry Consultative Committees established by section 67A(2) of the 1994 Act. Those Committees will cease to exist by virtue of the repeal of section 67A of the 1994 Act by the Act.

11. Subsection (1) provides that the Scottish Ministers shall establish the Panels by an order, which must specify, or make provision for determining, the area of Scotland for which each Panel is responsible and the number of Panel members (subsection (2)).

12. The Panels are to represent the views and interests of the customers of Scottish Water (in respect of Scottish Water's core functions) in the area for which the Panel is responsible and must publish reports on matters they consider relevant to the interests of those customers and make any recommendations they consider appropriate to the Commissioner about the promotion of the interests of those customers (subsections (3) and (4)). The Commissioner must have regard to any representations made by the Panels, and to their reports and recommendations, in exercising the Commissioner's functions in relation to Scottish Water (subsection (5)).

13. Subsection (6) gives effect to Part 2 of schedule 1, which makes detailed provisions as to the membership of the Panels, remuneration of their members, provision of administrative support to them, and their proceedings.

14. An order under subsection (1) is to be made by statutory instrument and is subject to negative procedure in the Parliament (see section 68).

Section 3 - Functions of the Commissioner

15. This section is based on section 68 of the 1994 Act as amended by the 1999 Act. Subsection (1) requires the Commissioner to investigate complaints about Scottish Water made by its current, potential or former customers (in respect of its core functions). Such complaints can be made direct to the Commissioner or through the Customer Panels, which are required to pass any complaints on to the Commissioner (subsection (2)). The Commissioner need not investigate any complaint which is not pursued with Scottish Water or which he judges is vexatious or frivolous (subsection (3)). The Commissioner can make representations to Scottish Water on behalf of a complainer (subsection (4)).

16. Subsection (5) places a new duty on the Commissioner to report back to a Customer Panel on any complaint referred to the Commissioner by the Panel under subsection (2), either by providing a report on the investigation the Commissioner has carried out or by giving the Panel reasons why the Commissioner decided not to investigate such a complaint.

17. Subsection (6) gives the Commissioner a duty to advise the Scottish Ministers on any matter that appears to relate to Scottish Water's standards of service or the manner in which it conducts its customer relations (in respect of its core functions).

18. Subsection (7) gives the Commissioner a general ancillary power to do anything that may aid the exercise of the functions of the Commissioner.

Section 4 - Power of the Commissioner to require information

19. This section, which is based on section 69 of the 1994 Act as amended by the 1999 Act, places a duty on Scottish Water to provide the Commissioner with information, where it is reasonable that the Commissioner should require the information to carry out the Commissioner's functions (subsection (1)).

20. Subsection (2) provides for the Commissioner or Scottish Water to refer to the Scottish Ministers for a final decision in any disagreements over whether information sought by the Commissioner is sought reasonably.

Section 5 - Annual reports by, and information from, the Commissioner

21. This section provides for the Commissioner to make annual reports and provide information. Subsection (1), which is based on section 70 of the 1994 Act as amended by the 1999 Act, requires the Commissioner to submit an annual report to the Scottish Ministers at the end of each financial year on the exercise of the Commissioner's functions and to provide Ministers with any further information on these that they require. Subsection (2) requires the Commissioner's annual report to summarise action taken by him in the course of the year in connection with Customer Panel recommendations, representations or reports and, where he has decided to take no action, a summary of the reasons. Subsection (3) provides that Commissioner's annual report must set out any Ministerial directions given to the Commissioner during the year.

Section 6 - Funding of the Commissioner

22. This section sets out how the Commissioner will be funded and is based on section 71 of the 1994 Act as amended by the 1999Act and SI 1999/1820.

23. Subsection (1) gives the Scottish Ministers power to pay grants to the Commissioner, should they choose to do so. Subsection (2) gives the Scottish Ministers powers to direct Scottish Water to make payments to the Commissioner in respect of the Commissioner's expenses.

PART 2 - DRINKING WATER QUALITY REGULATOR

Section 7 - Drinking Water Quality Regulator for Scotland

24. Subsection (1) provides for the appointment by the Scottish Ministers of a Drinking Water Quality Regulator for Scotland who will have the general functions of ensuring that drinking water quality duties are complied with by public water suppliers and of supervising the enforcement by local authorities of such duties (subsection (2)).

25. Subsections (3) to (5) make provision for the Regulator to authorise other persons to discharge on behalf of the Regulator any of the functions of the Regulator. The Scottish Ministers are given power to issue directions to the Regulator, with which the Regulator must comply (subsection (6)). Subsection (7) defines terms related to the Regulator's functions for the purposes of this Part of the Act. In particular, it defines "drinking water quality duty" to mean such duties under Part VIA of the Water (Scotland) Act 1980, under this Act and such other enactments as the Scottish Ministers may specify by order. It also defines "public water supplier" to mean Scottish Water.

26. An order under subsection (7) is to be made by statutory instrument and is subject to negative procedure in the Parliament (see section 68).

Section 8 - Power to obtain information

27. This section gives the Regulator power to serve notices requiring the provision of information relating to the quality of water supplied by a public water supplier and the production of documents. The Regulator may serve such a notice on the public water supplier itself, its officers or employees or any other persons believed to be in possession of relevant information or documents. The Regulator cannot require a person to disclose anything that they would not be required to disclose during legal proceedings in the Court of Session (subsection (3)).

28. Subsection (4) gives "document" a broad meaning for the purposes of this section so that it covers any medium in which information is stored; but documents stored otherwise than in legible form must be provided in a legible form. Subsection (5) enables copies to be taken of documents produced under this section.

29. Subsection (6) provides for it to be an offence not to comply, without reasonable excuse, with a requirement in a notice under this section or intentionally to alter, suppress or destroy a document required to be produced. Subsection (7) establishes penalties for those found guilty of the offence. At present the statutory maximum fine for a summary conviction is £5,000 and this is subject to periodic revision. In the case of conviction on indictment, the fine would be an amount without limit which the Court, having regard to the circumstances, considered appropriate.

Section 9 - Powers of entry, inspection etc.

30. Subsections (1) to (4) confer a number of powers to enable the Regulator to establish whether drinking water quality duties are being complied with. These are powers of entry to the premises of public water suppliers and of those receiving supplies from a supplier and, if entry to those premises is not sufficient, powers of entry to the premises of other persons (subsection (2)), power to carry out inspections, measurements and tests on the premises or of substances, articles and documents found there (subsection (2)(b)) and power to remove such substances etc. for the purpose of carrying out such inspections etc. (subsection (2)(c)) and power to remove samples from the premises (subsection (2)(d)). Subsection (3) provides that the powers in subsection (2) cannot be exercised in relation to the premises described in subsection (2)(a) (iii) unless the Regulator is satisfied that the information he requires cannot be obtained by exercise of his powers in relation to the premises referred to in subparagraphs (2) (a) (i) and (ii).

31. The owners and occupiers of premises being entered are required to give the Regulator such assistance and information as the Regulator requires (subsection (4)). Refusal or failure to comply is an offence, as is obstruction of a person exercising the powers of entry etc. conferred by this section (subsection (5)). Subsection (6) specifies the penalties for these offences.

Section 10 - Enforcement notices

32. Subsection (1) gives the Regulator power to serve an enforcement notice on a public water supplier whom the Regulator believes has contravened or is contravening a drinking water quality duty. Such a notice may be served where the Regulator believes that the contravention is likely to recur or continue and that the water supplier is not taking appropriate steps to rectify the contravention or prevent it recurring. Subsection (2) gives the Regulator power to consult the relevant local authority and Health Board when considering whether to serve a notice.

33. Subsection (3) requires that an enforcement notice contain details of the alleged contravention, the Regulator's reasons for believing it to be a contravention, the date by which it is to be rectified, any particular steps the Regulator wants the supplier to take (including any dates by which those steps must be taken (subsection (4)) for that purpose and the date on which the notice takes effect, which may be no earlier than the last day for bringing an appeal against the notice under section 11(2) (subsection (5)).

34. Subsection (6) requires the Regulator, before serving an enforcement notice on a public water supplier, to give the public water supplier a copy of the proposed notice and time to make representations to the Regulator about it. The Regulator must take into account any representations arising from an advance notice of enforcement before proceeding to enforcement (subsection (7)).

Section 11 - Enforcement notices: further provisions

35. Subsection (1) provides for publicising enforcement notices by requiring the Regulator to send copies to the Commissioner and to any local authority or Health Board consulted under section 10(2), and for the Regulator to publish the notice so as to bring it to the attention of persons affected.

36. Subsections (2) to (5) make provision for a public water supplier to appeal to the sheriff against an enforcement notice. The appeal must be lodged within 14 days of the notice having been served. Pending determination of an appeal, a notice is suspended. The sheriff's decision on the appeal is final.

37. Subsection (6) introduces a requirement, where a water supplier has been served with an enforcement notice, for the water supplier to consult the relevant Health Board, and to have regard to the Board's views when dealing with the contravention. This duty is suspended during the period when any appeal against the notice remains extant (subsection (7)).

Section 12 - Failure to comply with enforcement notices

38. This section makes provision for circumstances where a public water supplier fails to comply with the terms of an enforcement notice. Subsections (2) and (3) give the Regulator power to enter any premises and carry out the work necessary to achieve compliance and then to recover from the water supplier the cost of carrying out that work. Anyone who intentionally obstructs those seeking to achieve compliance is guilty of an offence (subsection (4)). If things required by the enforcement notice to be done by a certain date are not done in time, the water supplier is guilty of an offence (subsection (5)) and continued failures to comply could lead to the water supplier being guilty of further offences in this respect (subsection (7)). The penalty for the offences created under this section are, on summary conviction, a fine not exceeding the statutory maximum and on conviction on indictment, a fine.

Section 13 - Emergencies

39. This section makes provision for circumstances where a contravention of a drinking water quality duty by a public water supplier is causing a significant risk to public health or to the quality of the public drinking water supply such that urgent remedial action is needed. In such a case the Regulator can serve an emergency notice requiring the water supplier to take remedial action by a specified date (subsection (2)). Additionally, the Regulator is given the same power as section 12 gives in relation to enforcement notices, i.e. power to enter any premises to carry out work to address the emergency and then to recover the cost of carrying out the work (subsection (3)). There is similar supplementary provision in subsections (4) to (8) to that set out in section 12(3) to (7).

Section 14 - Variation and withdrawal of notices

40. This section empowers the Regulator to withdraw enforcement and emergency notices or to vary them, but not so as to impose more stringent requirements, which would require further enforcement or emergency notices to be issued.

Section 15 - Register of enforcement and emergency notices

41. This section requires the Regulator to keep, and make available for inspection by anyone at any reasonable time, a register of all enforcement and emergency notices issued. Subsection (2) provides details that must be specified in the register in relation to each notice. Subsection (3) gives the Scottish Ministers power to make an order prescribing the manner in which the register is to be kept and further information which it is to contain in addition to that required by subsection (2). Subsection (4) clarifies what is meant by "compliance date" in subsection (2).

Section 16 - Power to require information from local authorities

42. This section requires local authorities to provide the Regulator with information about their enforcement of the drinking water quality duties that they are responsible for enforcing. Local authorities have duties under Part VIA of the Water (Scotland) Act 1980 to ensure compliance with drinking water quality duties by private water suppliers. If a local authority and the Regulator are in dispute over whether information is sought reasonably, they can refer the matter for decision to the Scottish Ministers (subsection (2)).

Section 17 - Annual reports

43. This section requires the Regulator to prepare an annual report for each calendar year on the exercise of the Regulator's functions and to submit the report to the Scottish Ministers.

Section 18 - Powers of entry etc.: further provision

44. This section gives effect to schedule 2 which contains further provision regulating the exercise of the powers of entry conferred by sections 9(1), 12(2)(a) and 13(3)(a) for various purposes.

PART 3 - SCOTTISH WATER

Section 20 - Scottish Water

45. Subsection (1) establishes Scottish Water as a body corporate. Subsection(2) gives effect to schedule 3, which makes detailed provision as to the constitution etc. of Scottish Water.

Section 21 - Transfer of functions from new water and sewerage authorities

46. This section transfers all of the functions of the existing authorities to Scottish Water. This has the effect of making Scottish Water responsible for the discharge of the statutory, or core, water and sewerage functions conferred on the existing authorities, principally by the Sewerage (Scotland) Act 1968 and the Water (Scotland) Act 1980 ("the 1980 Act").

Section 22 - Transfer of property and liabilities

47. Subsection (1) provides for all of the existing authorities' property and liabilities to transfer to Scottish Water. As a result, the public water and sewerage infrastructure will vest in Scottish Water and Scottish Water will become responsible for discharging all of the existing authorities' contractual obligations, including those relating to the staff of the existing authorities, all of whom will transfer - under section 23 - to Scottish Water.

48. Subsection (2) makes it clear that property and liabilities can transfer despite any provision that would otherwise prevent or restrict the transfer.

Section 23 - Transfer of staff

49. This makes it clear that the Transfer of Undertakings (Protection of Employment) Regulations 1981 (S.I. 1981/1794) will apply so as to transfer staff of the existing authorities to Scottish Water, in accordance with the terms of those Regulations, at the same time as the functions and property and liabilities of the existing authorities transfer.

Section 24 - Dissolution of new water and sewerage authorities etc

50. Subsection (1) empowers the Scottish Ministers to dissolve the existing authorities on dates to be set by them by order; and that different dates may be set for the dissolution of each authority (subsection (2)). The existing authorities could continue in existence after the transfer of their functions, property, staff etc. to Scottish Water to enable them, for example, to complete final accounts.

51. Subsection (3) gives the Scottish Ministers power by order to make ancillary provisions in connection with the establishment of Scottish Water, the dissolution of the existing authorities and the transfer to Scottish Water. This power will, in particular, enable the Scottish Ministers to deal with transitional and consequential issues arising from the move to the single authority. For example, the Scottish Ministers will be able to provide that water and sewerage charges made in the name of the existing authorities can be passed to Scottish Water.

52. Orders under this section must be made by statutory instrument and are subject to negative procedure in the Parliament. An order under subsection (3) can textually amend primary legislation but if it does so it will be subject to affirmative procedure (see section 68).

Section 25 - General powers

53. This section confers on Scottish Water wider general powers than those that the existing authorities have under section 89 of the 1994 Act.

54. Subsection (1) confers on Scottish Water a new general power to engage in any activity (whether in Scotland or elsewhere) that is not inconsistent with the exercise by it of its core water and sewerage functions. Subsection (2) confers on Scottish Water an ancillary power to do anything that will assist it to discharge both its core functions and its general power under subsection (1). Subsections (3) to (5) provide illustrations of the things that Scottish Water can do by virtue of this ancillary power; but the list is not an exhaustive description of what can be done. Subsections (3)(e), (4) and (5) are based on provision made in relation to local authorities by section 1 of the Local Government (Contracts) Act 1997.

55. Subsection (6) makes it clear that the powers conferred on Scottish Water by this section are additional to any other powers they may have; but the powers cannot be used to avoid any express prohibitions or restrictions placed on it elsewhere. It also establishes that the section does not enable Scottish Water to raise funds beyond the restrictions provided for in sections 41 and 42.

56. Scottish Water must exercise its powers under this section in accordance with directions to be given by the Scottish Ministers under section 56.

Section 26 - Customer standards code

57. This section, which is based on section 66 of the 1994 Act, provides for Scottish Water to prepare and observe a code of practice, referred to as "the customer standards code", in relation to its core functions.

58. Subsection (1) places a duty on Scottish Water to prepare and then submit to the Commissioner a customer standard code covering customer service standards, procedures for dealing with complaints and the payment of compensation. The first code is to be submitted to the Commissioner by the time Scottish Water submits its first charges scheme to the Commissioner (subsection (2)). The code can be varied from time to time and replaced with a new one (subsection (3)). The code comes into force when it is approved (subsection (4)). The procedure for approval is specified at section 27.

59. Subsection (5) places a duty on Scottish Water to endeavour to observe the approved code; but contravention will not of itself give rise to civil or criminal liability. Scottish Water must inform its customers of the contents of a code (subsection (6)).

60. Subsection (7) places on the Commissioner the duty to monitor Scottish Water's compliance with an approved code. It also gives the Commissioner the powers to report to the Scottish Ministers on compliance and to require Scottish Water to review a code.

Section 27 - Approval of customer standards code

61. This section, which is based on provisions at sections 66 and 76 of the 1994 Act, specifies the procedure for approval of Scottish Water's customer standards code. The Commissioner must approve the customer standards code as drafted or can agree changes to it with Scottish Water before approving it (subsection (1)), and before approving a code the Commissioner must consult each Customer Panel. Where the Commissioner cannot approve the code without modification, and the Commissioner and Scottish Water cannot reach agreement on modifications to the draft code, it is to be sent to the Scottish Ministers for approval (subsection(2)). Scottish Water can require the Commissioner to send the code to the Scottish Ministers for approval where 3 months after submission it has not been approved by the Commissioner (subsection (3)).

62. Subsection (4) gives the Scottish Ministers power to approve codes sent to them under subsections (2) or (3), after consulting each Customer Panel, either without modification or, after having consulted the Commissioner and Scottish Water, with modification.

63. Subsection (5) requires the Commissioner to send the Scottish Ministers a copy of any code approved by the Commissioner; and subsection (6) requires the Scottish Ministers to send to the Commissioner a copy of any code that they approve.

Section 28 - Consultation code

64. This section requires Scottish Water to have a code of practice on consultation.

65. Subsection (1) provides that the consultation code should set out the consultation Scottish Water will carry out on any significant activities and proposals for such activities, in respect of their core functions. The code must be submitted to Scottish Ministers for approval.

66. Subsection (2) requires the consultation code to include provision for consultation with those who live, work or have business in the area affected by the activity being consulted on, or those who represent the interests of such persons. The code must also contain provision about how consultation is to be carried out by Scottish Water and provision for Scottish Water to have regard to the views of those consulted.

67. Subsection (3) provides that Scottish Water must consult each Customer Panel before submitting the consultation code to Scottish Ministers, and have regard to their views. Subsection (4) provides for Scottish Ministers to approve the consultation code, and subsection(5) provides that the code only comes into force when Ministers have approved the code.

68. The code can be varied from time to time or replaced with a new one (Subsection (8)). Scottish Water is required to publish the code and provide a copy of it to anyone who asks for it (subsection (6) and must endeavour to comply with it (subsection (7)).