New Water Bill set to reform water abstraction licensing

More than two years after a draft was circulated for consultation, the Government's long-awaited Water Bill has finally reached Parliament. The Bill, which had its first reading in the House of Lords on 19 February 2003, proposes significant changes to the system regulating ground and surface water abstractions. Controversially, this includes removing the right to compensation in some circumstances where existing abstraction licences are varied or revoked in order to protect the environment. Other important changes include a new right for someone who has suffered loss or damage as a result of the abstraction of water to bring a civil claim against the abstractor, even where that abstraction is made under and in accordance with an abstraction licence.

These changes will affect anyone who abstracts water in England and Wales, including water companies, food and drink manufacturers using private water sources and industrial and agricultural water abstractors.

The Bill also makes a number of regulatory changes in relation to the water industry, replacing the Director General of Water Services and the Customer Services Committee with a new Board and an independent Consumer Council for Water, as well as making provisions to extend competition in relation to the supply of water.

Part III of the Bill contains a range of miscellaneous amending provisions in relation to water, addressing matters as diverse as the transfer of discharge consents, the adoption of sewers, the system of local and regional flood defence committees and statutory powers for the Coal Authority in relation to water pollution from coal mines. One such amendment – small in size but potentially significant in its impact – is the long promised addition (for England and Wales, but not Scotland) of a "significance" threshold to the water pollution limb of the contaminated land regime under Part IIA of the Environmental Protection Act 1990.

A summary of some of the key changes to the abstraction licensing system is set out below.

Key changes to abstraction licensing in the Water Bill

Part I of the Water Bill sets out wide-ranging changes to the regulation of water abstraction and impounding in England and Wales. One of the driving forces behind these changes has been the need to tackle the problem of abstraction licences granted in the 1960s without sufficient appreciation of their environmental impact and without time limits. Another is to provide powers to address the proliferation of statutory exemptions from abstraction licensing that have grown up over the years.

Although consultations on the reform of the abstraction licensing system have proceeded in advance and independently of consultations on the implementation of the EU Water Framework Directive, which has to be transposed into national legislation by the end of this year, the good news for water abstractors is that the Government considers that the Water Bill amendments will be "largely sufficient" to bring England and Wales into line with the Water Framework Directive in this respect. The Water Framework Directive requires "controls over the abstraction of fresh surface water and groundwater, and impoundment of fresh surface water, including a register or registers of water abstractions and the requirement of prior authorisation for abstraction and impoundment" (Article 11(3)(e)). One area of potential difference, however, that the Government is currently considering is whether the Water Framework Directive requires abstraction and impoundment controls to extend to certain self-contained lakes and reservoirs – which are currently excluded from the key "source of supply" definition in the Water Resources Act 1991 ("WRA 1991").

The abstraction provisions of the Water Bill have been designed in part as substantial amendments to the existing provisions in Chapter II of the WRA 1991 and in part as stand-alone provisions (at times, the logic behind this division is unclear, and it certainly does not make for an easily readable bill). Although there is, of course, the potential for these provisions to be amended as they pass through the House of Lords and House of Commons, some of the key changes proposed by the Government are set out below.

New Licences

All new abstraction licences will be classified as one of three types:

(a) a temporary licence, covering abstraction over a period of less than 28 days;
(b) a transfer licence, applying to the abstraction of water from one source in order to transfer it to another without intervening use over a period of 28 days or more; or
(c) a full licence, which will apply to the abstraction of water from one source of supply over a period of 28 days or more for any purpose.

Every licence will have to state the purposes for which the water is to be used and the date on which the licence expires. The time limit for full and transfer licences is not prescribed in the Water Bill, but the Environment Agency has indicated that the period will generally be twelve years. This has caused some concern amongst water undertakers and those investing in water-related infrastructure, such as hydropower operators. In response, the Government has said that in such cases it may be possible to make the case for the grant of a longer licence.

Full licences will (and transfer licences may) also specify a "minimum value" for the quantity of water to be abstracted. This is not a minimum amount that must be abstracted but rather the smallest quantity to which the licence holder can be restricted in certain circumstances without the Environment Agency being required to pay compensation (as discussed further below). This therefore has the potential to be a very significant figure.

Thresholds and Exemptions

The Water Bill increases the threshold for exemption from abstraction licensing from 5m3 to 20m3 per day. There are around 48,000 abstraction licences at present and this move is expected to remove some 20,000 of those abstractions from the requirement to be licensed. At the same time, the Bill also provides powers to revoke existing statutory exemptions from abstraction licensing, such those relating to particular areas and made under local or private acts. From discussions with DEFRA, it appears that the intention is to revoke such statutory exemptions over a number of years after the Water Bill comes into force, with the ultimate intention of removing all current statutory exemptions.

The 20m3 exemption will itself be subject to powers enabling the Secretary of State to raise or lower it in relation to a specific geographical area and/or class of inland water or underground strata. It is likely that the policy behind this provision is, in part at least, driven by the need for greater flexibility in order to comply with the outcome–based approach of the Water Framework Directive. Unlike the Water Bill, the Water Framework Directive does not provide for an absolute minimum threshold but instead provides that Member States can exempt abstractions or impoundments "which have no significant impact on water status".

Protected Rights

One of the ramifications of the creation of the three types of abstraction licence is that only the full licence will have the benefit of existing provisions providing protection against the Environment Agency granting new licences that derogate from an existing licence holder's rights. However, the Water Bill preserves the existing situation under which certain unlicensed abstractions are also treated as "protected rights" (broadly, where groundwater is abstracted by an individual for domestic purposes or where inland waters are abstracted for use on neighbouring land for domestic or agricultural purposes and, in either case, the quantity of water does not exceed the 20m3 daily limit). One addition to this system, though, is that the Water Bill provides for the Secretary of State to make regulations requiring the Environment Agency to set up registers of unlicensed protected rights in particular geographical areas. Where such a register is established, it will be necessary for the holder of an unlicensed protected right to register it in order for it to maintain its protected status.

Revocation, Variation and Compensation

One of the most contentious elements of the reform of the abstraction licensing system has been the proposal that abstraction licences should be able to be varied or revoked without compensation in some circumstances. Under the current system, there are procedures by which the Environment Agency or Secretary of State may cause a licence to be revoked or varied, with corresponding provisions enabling the licence holder to claim compensation if this causes them certain types of loss or damage. There are a number of limitations on this right to compensation, including that no compensation is payable if no water has been abstracted under the licence in question for the past seven years. Under the Water Bill, this period is to be reduced to four years. In addition, in respect of an "old" licence (that is one granted before the Water Bill comes into effect) which has no time limit, it will be possible from 15 July 2012 onwards for the licence to be revoked or varied without compensation on the grounds that the Secretary of State is satisfied that this is "necessary in order to protect any waters or underground strata, or any flora or fauna dependent on them, from serious damage".

This last provision does not apply to "new" licences granted under the Water Bill, which will all be time limited in any event. However, such licences are subject instead to new provisions enabling the quantity of water that they permit to be abstracted to be reduced to a "minimum value" specified in the licence without compensation being payable. This can only be done if a minimum of twelve years has passed since the grant of the licence and the Secretary of State is satisfied that the variation is "necessary in order to protect the availability of water in the source of supply to which the licence relates".

Civil Liability

Section 48 of the WRA 1991 currently provides that it is a defence to any legal action (other than an action for negligence or breach of contract) in respect of the abstraction of water to show that the water was abstracted under and in accordance with an abstraction licence. The Water Bill proposes to amend this by inserting a new duty on "a person who abstracts water from any inland waters or underground strata" not to cause loss or damage to another person by that abstraction, and a corresponding right for a person who suffers such loss or damage to bring a claim against the abstractor – to which the licence defence will not apply.

Enforcement Notices

It is proposed to insert a new provision into the WRA 1991 giving the Environment Agency the power to serve an enforcement notice on anyone abstracting water without an abstraction licence (and without the benefit of a relevant exemption); constructing, installing or extending any means (such as a borehole or machinery) by which groundwater may be abstracted other than in accordance with a licence; or otherwise failing to comply with an abstraction licence. In addition to having powers to order the relevant breach to cease, the Environment Agency will also be able to require restorative works to waters and flora and fauna to be carried out. However, there is a high threshold to be reached before these powers are exercisable, namely that it must appear to the Environment Agency that "the breach or failure to comply is causing or is likely to cause significant damage to the environment". The full Bill can be viewed here.

For further information, please contact Jenny McKenzie at [email protected] or on + 44 (0) 20 7367 3082.

For information on the water industry aspects of the Water Bill not covered by this Law-Now, please contact Richard Temple at [email protected] or on + 44 (0) 20 7367 3738.