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.