The unintended consequences of sewage escape
In the final episode of a 10 year litigation saga, Thames Water Utilities have lost their appeal against a sentence in relation to environmental offences charged following the collapse of a sewer in 2003 which resulted in the discharge of raw sewage onto land in Bromley.
In 2011 Thames Water were fined £204,000 and ordered to pay compensation of £2,250 by Bromley Magistrates’ Court for breaches of section 33(1)(a) Environmental Protection Act 1990 (the “EPA”) which prohibits the deposit of controlled waste onto land and the Water Resources Act 1991 (“WRA”). Thames Water had pleaded guilty to the offences charged under the WRA but fought the charges brought under the EPA. As reported in the April 2013 edition of our newsletter, Thames Water had previously unsuccessfully attempted to challenge the convictions under the EPA on the grounds that leaked sewage does not fall within the common definition of “deposit”.
Southwark Crown Court rejected the appeal on 26 September 2013 and increased the compensation order for local residents affected by the sewage to £4,000. Thames Water was also ordered to pay over £10,000 for the appeal costs of the Environment Agency. There is no further avenue of appeal and Thames Water are estimated to have incurred costs of over £750,000 in dealing with these proceedings. The Environment Agency are also investigating a similar incident in the same area which took place in January 2013.
This case has implications beyond the water industry. The scope of section 33(1)(a) EPA is not limited to controlled waste in the form of sewage and so the Court’s finding that the unintended escape of sewage can amount to a “deposit” under the EPA could apply to the unintended escape of other types of controlled waste. This is particularly relevant to the chemicals and manufacturing sector and means that a wider range of circumstances could result in a successful prosecution.
The Court looked at the draft sentencing guidelines on environmental offences when considering the appeal. It is hoped that, once issued, the final version of these guidelines will give greater certainty to defendants charged with this type of offence as to the level of sentence they can expect. However, even without these guidelines, it is clear that the Court is imposing increasingly strict sentences for pollution offences under the EPA. This is likely to influence the approach of businesses providing indemnity insurance for the defence of environmental prosecutions. The Court’s approach also emphasises the importance of responding swiftly and proactively where a pollution incident has occurred in order to help to build a due diligence defence or to provide mitigation if enforcement action is brought.
The Water Bill 2013-14 - progress update
The House of Lords first reading of the Water Bill took place on 7 December 2014. The main thrust of the Bill is to reform the water market to increase competition in the sector. Allied to this, DEFRA has released a series of briefing notes explaining the key changes proposed by the Bill.
Reform provisions relating to the upstream water market seek to make it easier for new entrants to trade supply or provide water and sewerage services. The Bill proposes to remove the current threshold that determines when non-domestic customers can switch supplier, making it easier for large businesses to choose their supplier in future.
To complement this, the proposals make water supply licensing more flexible by “unbundling” authorisations in a licence. Currently, licensed suppliers are required to provide both retail and upstream services (this includes distribution, storage and treatment for instance). Under the Bill, the system is revised to allow companies to engage in singular or combined services, such as retail and/or wholesale authorisation. This potentially makes it easier for companies with supply capacity to provide services to non-household premises and water companies.
However, for water and sewerage undertakers, the Bill seeks to remove the statutory right to compensation for losses resulting from modifications and revocations of abstraction licenses, which is payable by the Environment Agency under the current regime.
A major regulatory development is the proposal to extend the environmental permitting regime to include abstraction and impoundment licensing. Presently, abstraction issues are treated separately as a matter of water management, rather than as a polluting activity. Clause 48 of the Bill would allow regulators to establish standards, objectives or requirements relating to abstraction and impoundment, which would mirror substantive requirements of the current permitting regime applied to water discharge activities. However, details of how abstraction and impoundment will be integrated into the environmental permitting regime are yet to be finalised and the Government anticipates that changes may not be introduced until early 2020s, when wider abstraction reforms are expected to be passed.
As noted in the previous edition of our newsletter, most of the Bill covers England and Wales only. The only two exceptions relate to the creation of a cross-border and sewerage retail market between England, Wales and Scotland, and the extension of the permitting regime to cover fish passages.
The Bill is of particular relevance to businesses which use large volumes of water. The proposed reforms, particularly those introduced with a view to increasing competition in the water sector, have the potential to reduce costs for businesses by giving an increased ability to choose and change suppliers, and the potential for more new entrants to the market through the “unbundling” of authorisations in water supply licences.
Abstraction reform consultation
In parallel to Parliamentary discussions surrounding the Water Bill, DEFRA launched a public consultation on proposals to reform abstraction licensing in late December 2013. These proposals are currently available for comment until March 2014.
Two options have been put forward to reform the abstraction system: i) the “current system plus” and ii) “water shares” options. The first option is broadly similar to the current system which imposes annual and daily limits on licence holders, with the Environment Agency and Natural Resources Wales able to modify or revoke abstraction licences if there is a risk of environmental deterioration. However, reform proposals would allow additional abstraction at high flows. According to DEFRA, this model should improve the link between water availability and abstraction, and “would allow more water to be taken at high river flows with these volumes not counting towards abstractors’ annual quotas”.
The second option being proposed is more complicated, and would give abstractors a share in the available water resource within a catchment area rather than annual abstraction limits. Licence holders would be allocated shared responsibility for water resources based on water availability.
Both proposed options would allow water to be traded more easily between catchments through pre-approved trading. At present, water trading between catchments is rare as the process takes between three to four months to be approved under current regulatory procedure. Government plans confirm that around 5,000 abstractors in England and Wales currently exempt from holding a licence would be brought under the revised regime. DEFRA intends to legislate for abstraction reform from 2015 with a view to implementation in 2020s.
Under the current regime, many abstractors were given licences to take a fixed volume of water, without regard to how much water was available. The reforms could cause difficulties for some licence holders, particularly those in manufacturing, who will be concerned that the amount of water they are able to abstract may be reduced. However, at present, where water is licensed but not used, the regulator is not able to make this water available to others. By making it more straightforward to change licences and to trade water, the abstraction reforms should mean that more business are able to abstract the amount of water suitable for their needs.