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Draft Water Services (Scotland) Bill
Consultation on Proposed Provisions

SECTION C: A Commentary on the draft bill

COMMENTARY ON DRAFT WATER SERVICES (SCOTLAND) BILL

Introduction

This commentary describes the provisions contained in the draft Water Services (Scotland) Bill at section B of this paper and how the Executive expects them to be applied in practice.

Overview of Draft Bill

The draft Bill is intended to ensure that those providing water and sewerage services to customers served by the public water and sewerage networks do so in a manner that is consistent with the Scottish Executive's public health, environment protection and social policy objectives.

Part 1 provides that common carriage on the public networks is prohibited; that only Scottish Water can provide water and sewerage services to households; and that anyone providing water and sewerage services to non-household customers on the public networks can do so only if licensed for that purpose.

Part 2 provides for the Water Industry Commissioner to grant licences to those wishing to serve non-household customers; confers powers on the Commissioner to monitor and enforce compliance with the conditions attached to licences; and amends the Commissioner's general function to take account of these new functions. It provides that licences granted by the Commissioner empower the licence holder to buy from Scottish Water wholesale water and sewerage services, which the licence holder can sell to those occupying premises defined as eligible. It defines eligible premises as any premises that are connected to the public system and are not used as dwellings. It provides that licence holders, in respect of the charges that they pay Scottish Water for each of the customers that they serve, shall make a proportionate contribution to the total costs of providing water and sewerage services on the public infrastructure. It provides that the charges paid by licence holders are covered by the arrangements that exist at present for agreeing water and sewerage charges between Scottish Water and the Water Industry Commissioner.

Part 3 contains a number of miscellaneous and general provisions. These include the procedures for making subordinate legislation under the Bill, how references in the Bill are to be interpreted and a general power for Ministers to make regulations and to amend other legislation as a consequence of the provisions contained in the Bill.

The schedule makes more detailed provisions about licences and compliance.

The Bill includes a number of reserve powers for Ministers. These will be available to Ministers should it prove necessary, in light of how the Bill's provisions operate in practice, for them to make exceptions or modifications to the provisions. Any modifications will be consistent with the broad policy intentions of the Bill.

WATER SERVICES (SCOTLAND) BILL

[CONSULTATION DRAFT]

Part 1

PUBLIC WATER SUPPLY AND PUBLIC SEWERAGE SYSTEMS: OFFENCES AND MAIN DEFINITIONS

Section 1: Public water supply system — offences

C1. Section 1 provides for common carriage on the public water networks for which Scottish Water is responsible to be prohibited and for anyone other than Scottish Water not licensed for the purpose to be prohibited from retailing water services to customers on the public networks.

C2. Subsections (1) and (2) prohibit common carriage by making it an offence for anyone other than Scottish Water to introduce water into the public water supply system or to use the public system for the purpose of supplying water to premises connected to the system.

C3. Subsection (3) prohibits any arrangements for using the public water supply system to supply the premises of customers except under the authority of a licence. (Part 2 of the Bill establishes a system for licensing "water service providers" and "sewerage service providers".)

C4. Subsections (4) and (5) allow Ministers to specify in regulations circumstances where the prohibitions in subsections (1), (2) and (3) will not apply. These give Ministers powers, which could be used if, for example, it emerged in practice that the prohibitions were catching activities other than those described above. Ministers will consult on any regulations that they propose to make under subsection (4). (The procedure by which the Parliament will approve such regulations is specified at section 17 and described at paragraph C51 of this commentary.)

C5. Subsections (6) and (7) set out the penalties for anyone committing an offence under this section. The penalties are intended to provide the Procurators Fiscal and the courts with flexibility in responding to the gravity of particular offences. They recognise that the offence at subsection (1), of adding water to the public networks, with its direct threat to public health and the environment, is by its nature more grave than the other offences.

C6. Subsection (6) provides that adding water to the public networks can be treated in two ways depending on the gravity of the particular offence. Subsection (6)(a), which would apply in lesser cases, provides that anyone guilty of an offence can be liable to fine of up to £20,000 on summary conviction (i.e. where convicted by a Sheriff sitting without a jury). Subsection (6)(b) specifies more severe penalties for conviction of an offence on indictment (i.e. where convicted by a jury in the Sheriff Court or the High Court). Anyone convicted on those terms is liable to an unlimited fine, imprisonment for up to 2 years, or both of these depending on the circumstances of the offence.

C7. Subsection (7) specifies penalties for anyone guilty of the offences at subsections (2) and (3) of using the public water supply to supply customers, or arranging for a supply to be made without being licensed for that purpose. These offences, which do not involve the physical addition of water to the public networks, are less grave. Accordingly, at subsection (7)(a) the maximum fine available on summary conviction is the statutory maximum, which at present is £5,000. At subsection (7)(b) the maximum penalty for conviction on indictment is an unlimited fine.

C8. Subsection (8) provides that any agreement found to contravene the prohibitions in this section (i.e. an agreement between a person purporting to supply water services and a customer on the public networks) is void.

Section 2: Meaning of "public water supply system

C9. The Executive's intention is that a water services licence will authorise a provider to arrange for a supply of water to be made to any eligible premises on the public water supply system. Section 2 defines what constitutes the public water supply system for the purposes of the Bill.

C10. Subsection (1) defines the public water supply system as all mains, pipes, water treatments works and other similar infrastructure "vested" in Scottish Water (i.e. infrastructure for which Scottish Water is responsible), or used by Scottish Water in exercise of its core functions in respect of the public water supply. (Scottish Water’s core functions are defined at section 70(2) of the Water Industry (Scotland) Act 2002. For all practical purposes they comprise all activities involved in providing statutory public water and sewerage services).

Section 3: Public Sewerage System — offences

C11. Section 3 makes provisions prohibiting common carriage and other activities on the public sewerage system that parallel those at section 1 in relation to the public water supply system.

C12. Subsections (1), (2) and (3) provide for common carriage on the public sewerage system for which Scottish Water is responsible to be prohibited and for anyone other than Scottish Water not licensed for the purpose to be prohibited from retailing sewerage services to customers on the public systems. Subsections (4) and (5) provide for Ministers to make regulations specifying circumstances in which the prohibitions will not apply. Subsections (6) and (7) provide for the same range of penalties in respect of offences on sewerage services as are available at section 1(6) and (7) in respect of water services.

Section 4: Meaning of "public sewerage system"

C13. In parallel to the water services licence, a sewerage services licence authorises a provider to arrange for a supply of sewerage to, or disposal of sewage from, an eligible customer on the public sewerage system. Section 4 provides a definition of the public sewerage system for the purposes of the Bill.

C14. Subsection (1) defines the public sewerage system as all sewers, drains, sustainable urban drainage (SUD) systems, sewerage treatment works or other similar infrastructure "vested" in Scottish Water or used by Scottish Water in exercise of its core functions in respect of statutory public sewerage services.

Part 2

PROVISION OF WATER AND SEWERAGE SERVICES TO ELIGIBLE PREMISES

Water services and sewerage services licences

Section 5: Licence authorisation

C15. Section 5 provides for the Water Industry Commissioner for Scotland to grant licences which authorise licence holders ("the providers") to provide services to the occupiers of eligible premises (as defined in section 6). The Commissioner's powers to grant licences are subject to the provisions at section 7 and at paragraphs 1 and 2 of the schedule to the Bill.

C16. Subsections (1) and (2) and subsections (3) and (4) respectively empower the Commissioner to grant a "water services licence" and a "sewerage services licence". These licences will authorise their holders (the "water services providers" and "sewerage services providers") to arrange for the supply of water or sewerage services to the occupiers of eligible premises. In effect, the provider will provide retail services to customers on the public networks, such as meter reading or billing, although the actual physical service will always be provided by Scottish Water. These subsections also allow providers to charge for the supply of their services and to provide and charge for ancillary services, such as consultancy services. They allow for the provider to make arrangements with Scottish Water, so that in effect Scottish Water, in continuing to provide the physical service, supplies the provider with a wholesale service, which the provider retails to the end user (see section 11 of the Bill, discussed at paragraphs C29 to C32 below).

Section 6: Meaning of "eligible premises"

C17. Section 5 of the Bill provides that a licensed provider may make arrangements with customers in eligible premises in relation to the supply of water and sewerage to their premises and, where he does so, he will not be subject to the general prohibitions in sections 1(3) and 3(3). Section 6 provides the definition of "eligible premises" in this context.

C18. Subsection (1) defines eligible premises as those that are connected to the public water supply system or as the case may be the public sewerage system and are not a dwelling.

C19. Subsection (2) provides that a "dwelling" has the meaning given to it under the Local Government Finance Act 1992 (i.e. premises on which Council Tax is payable). The main purpose of this provision is to ensure that licensed providers cannot make arrangements to provide services to households.

C20. Subsection (3) gives Ministers the power to make orders amending the definition of a "dwelling" for the purposes of the Bill. This is a reserve power, which could be used, for example, in the event of any changes being made to the definition of dwelling for council tax purposes, to ensure that premises used primarily as dwellings are always excluded from the category of "eligible" premises. (The procedure by which the Parliament will scrutinise and approve such orders is specified at section 17 and described at paragraph C51 of this commentary.)

Section 7: Granting of licence

C21. Section 7 specifies the grounds on which the Commissioner can grant a water services or sewerage services licence.

C22. Subsection (1) requires the Commissioner to be satisfied that an applicant has the ability to perform adequately the activities authorised by a licence, before granting the licence. Subsection (2) requires the Commissioner, in assessing an applicant’s ability to perform those activities, to have particular regard to an applicant's knowledge, experience, expertise, financial acumen and business viability, and to any other factors, which Ministers are empowered to specify in an order. (The procedure by which the Parliament will approve such an order is specified at section 17 and described at paragraph C51 of this commentary.) In the interests of transparency, subsection (3) empowers the Commissioner to issue guidance setting out the factors he will consider when assessing an applicant’s ability.

C23. Subsection (4) requires a licence to be in writing. It provides for it to continue in existence with or without a specified time limit, although the expectation in general is that licences will be granted on the latter basis. Subsections (5) and (6) respectively require the Commissioner to notify the applicant and also Scottish Water, of a decision to refuse or grant an application.

Section 8: Compliance with licences

C24. Section 8(1) places a duty on the Commissioner to monitor compliance with the terms and conditions of licences and to take any action necessary to ensure compliance. To these ends it confers the following powers on the Commissioner. Subsection (2) enables the Commissioner to give directions to service providers which providers are obliged to comply with. Subsection (3) empowers the Commissioner to issue guidance in relation to compliance with the terms and conditions of a licence. In addition, subsection (4) requires Scottish Water to inform the Commissioner if they believe a licence condition has been breached.

Section 9: Commissioner’s power to obtain information and charge fees

C25. Section 9 gives the Commissioner further powers in respect of his monitoring and compliance functions at section 8 by requiring water and sewerage service providers to provide the Commissioner with information. It also empowers the Commissioner to charge service providers fees.

C26. Subsection (1) places a duty on service providers to comply with any reasonable request for information that the Commissioner might make. Subsection (2) provides that service providers need not provide the Commissioner with information that they would not be required to disclose in proceedings in the Court of Session. This enables the provider to treat as confidential legally privileged information, such as any advice received from its lawyers. Subsection (3) provides that it is an offence for a service provider, without a reasonable excuse, not to provide information required by the Commissioner. Subsection (4) specifies that the penalties for this offence are the statutory maximum (currently £5,000) where convicted by a sheriff sitting without a jury; and an unlimited fine where convicted by a jury.

C27. The Executive’s policy is that the Commissioner should be able to recover from service providers all the costs of administrating the licence system. Subsection (5) provides for this by giving the Commissioner the general ability to charge fees in relation to licences. It gives Ministers the power to set out in an order the detailed basis on which the Commissioner is to charge. The intention is that Ministers will consult on this order prior to it being brought into force. (The procedure by which the Parliament will approve such an order is specified at section 17 and described at paragraph C51 of this commentary.)

Section 10: Licences and compliance: further provision

C28. Section 10 provides for the more detailed provisions on licences and compliance, which are set out in the schedule, to have effect.

Provision of and charging for services by Scottish Water

Section 11: Provision of services by Scottish Water

C29. The Executive intends that water and sewerage providers should assume responsibility for providing services to customers in the following way. First, the provider should apply for and be granted a licence from the Commissioner. Secondly, they should make arrangements with the occupier of eligible premises to provide them with retail services. Thirdly, they should agree specific terms and conditions by which Scottish Water will provide a wholesale supply to the provider.

C30. Section 11(1) provides for this by giving a water service provider the power, once it has made arrangements with the occupier of an eligible premises, to request Scottish Water to supply water to the premises through the public networks. Subsection (2) places a duty on Scottish Water to comply with this request subject to agreeing terms and conditions with the provider. Subsection (3)(a) provides for Scottish Water’s duty to supply water under subsection (2) to cease if the arrangements between a provider and the occupier of premises come to an end. The exception to this is where Scottish Water has a continued duty to supply the premises under section 12(1) of the Bill (see paragraph C34 of this commentary). Scottish Water’s duty to supply water also ceases if the supply to premises is discontinued at the request of the provider under section 13(6). (See paragraph C42 of this commentary). Subsection (3)(b) provides that a duty to supply water under subsection (2) may be superseded by a new duty, such as, for example, when another licensed provider assumes responsibility for the provision of retail services to the premises.

C31. Subsection (4) gives a sewerage service provider the power, once it has made arrangements with the occupier of an eligible premises, to request Scottish Water to supply sewerage to, or dispose of sewage from, the premises through the public networks. Subsection (5) places a duty on Scottish Water to comply with this request subject to agreeing terms and conditions with the provider. Subsection (6) provides that a duty to supply sewerage or dispose of sewage under subsection (5) may be superseded by a further new duty under subsection (5). There are no express provisions for Scottish Water’s duty to supply sewerage, or dispose of sewage, to cease, as is the case in subsection (3) with regards to water. (See section 12(4), which is explained in paragraph C37, for further related provisions.) This reflects the practical difficulties of disconnecting sewerage services.

C32. Where Scottish Water and a water or sewerage service provider cannot come to an agreement under subsections (2) or (5), subsection (7) provides for the Commissioner to determine the terms and conditions of the supply that Scottish Water is to make to the provider.

Section 12: Continuation of provision of services

C33. Section 12 sets out what happens to Scottish Water’s duty to provide water and sewerage, when the arrangements between a particular provider and the occupier of premises come to an end.

C34. Subsection (1) provides that where the arrangements between the occupier of premises and a water service provider have come to an end, such as, for example, on revocation of a licence, Scottish Water has a continued duty to supply water to the premises for the period specified in subsection (2). The exception to this is where the supply is discontinued at the request of a provider under subsection 13(6). The intention of these provisions is to provide customers with a continued supply of water while they find a new retail provider, should the arrangements with their previous provider come to an end. In most cases we would expect a customer to have made arrangements with a new provider prior to the arrangements with their previous provider coming to an end.

C35. Subsection (2) specifies the period for which Scottish Water must continue to supply water, after arrangements between the occupier of premises and a provider have come to an end, as 2 months.

C36. Subsection (3) provides that the duty ceases if a new arrangement is made between a provider and the occupier of premises under section 11(2), or if the occupier tells Scottish Water that a supply of water is no longer required.

C37. Subsection (4) places a duty on Scottish Water to continue providing sewerage, or disposing of sewage from premises, even if the arrangements between the occupier of the premises and the provider have come to an end. This reflects the practical difficulties of disconnecting sewerage services. (See also section 11(5), which is explained in paragraph C31, for further related provisions.)

C38. Subsection (5) amends section 9 of the Water (Scotland) Act 1980. The new section 9(2A) provides that Scottish Water is not required to supply water for non-domestic purposes where it believes there is no reasonable prospect of recovering charges from a customer. The requirement to supply water for non-domestic purposes can only come to an end if the arrangements between a provider and a customer have ended because of non-payment of charges (9(2A)(a)), or the supply of water to a premises has been discontinued at the request of the provider (under section 13(6)) because of non-payment of charges (9(2A)(b)). The intention of this provision is to ensure, where a customer is unable to find a water service provider, for example because of a track record of not paying bills, that Scottish Water should not be forced to provide them with a supply of water. The new section 9(2B) provides, where Scottish Water refuses to supply a customer on this basis, that the customer has a right to have this reviewed by the Water Industry Commissioner who, in terms of the new section 9(2C), can either confirm the decision to refuse or direct Scottish Water to give a supply.

Section 13: Discontinuation of supply of water

C39. Section 13 enables water service providers to request that Scottish Water discontinue the supply of water to premises where charges have not been paid.

C40. Subsection (1) provides that before a water service provider can request that Scottish Water discontinue a supply of water, they must obtain a court decree in respect of charges owed and that there has been failure to comply with the decree. Subsections (2) to (4) require a provider to serve a notice, and a copy of the decree, on the occupier of the premises, Scottish Water and the Commissioner before requesting the Scottish Water discontinue the supply. Subsection (3) gives Ministers the power to specify by order the form the notice will take and what it will include. (The procedure by which the Parliament will approve such an order is specified at section 17 and described at paragraph C51 of this commentary.)

C41. Subsection (5) gives the occupier of premises, on whom a notice has been served, the right to make representations to their provider within 5 days of the notice being served. The provider must have regard to these representations.

C42. Subsection (6) requires Scottish Water to discontinue the supply of water, on the request of the water services provider, providing that Scottish Water can make the disconnection without affecting any supply of water to the premises for domestic purposes, or any supply of water to any other premises. Subsection (7) provides that a supply of water for domestic purposes is defined in accordance with section 7 of the Water (Scotland) Act 1980.

Section 14: Scottish Water’s charges schemes

C43. Section 14 sets out the principles by which Scottish Water should charge for the services it provides to water and sewerage service providers. The Executive's intention is that Scottish Water should charge water and sewerage service providers what in effect is a wholesale charge as the means by which it recovers from the service providers the cost to it of continuing to deliver network services to the provider's customers. The principle underpinning the wholesale charge is that it should reflect the costs incurred by Scottish Water in the exercise of its core functions as a whole. Section 14 achieves this by amending and supplementing the provisions relating to Scottish Water's charging functions contained in sections 29, 31,32 and 33 of the Water Industry (Scotland) Act 2002.

C44. Subsection (1) inserts a new section 29A into the 2002 Act to treat service providers as the customers of Scottish Water. So that the charges to be paid to Scottish Water by service providers can be included in the charges scheme that Scottish Water is required to agree with the Water Industry Commissioner under sections 31 and 32 of the 2002 Act. Customers of providers will not count as customers of Scottish Water for the purposes of the charges schemes and will be charged directly by their providers under the authority of their licences. Subsection (2) adds two new subsections to section 31 of the 2002 Act. The new section 31(3A) makes it clear that the charges scheme can include charges for services provided by Scottish Water to service providers. The new section 31(3B) provides that the scheme can specify reasonable additional charges to be paid by service providers as contributions towards the costs incurred by Scottish Water in the exercise of its core functions.

C45. Subsection (3) adds a new section (section 33A) to the 2002 Act. This carries the principles on cost recovery described above into the process by which Scottish Water and the Commissioner agree the contents of a charges scheme. The new section requires Scottish Water and the Commissioner, in agreeing any charges scheme, to ensure that the costs Scottish Water incurs in delivering network services to the premises of a service provider's customers are met by the charges recovered from that provider. The charges scheme is also to ensure that the costs Scottish Water incurs in exercising its core functions as a whole are shared across all customers on the public networks (whether being served directly by Scottish Water or a water or sewerage service provider).

C46. Subsection (4), which amends section 35 of the 2002 Act, provides that the occupier of a premises is not liable for charges where the provision of services is via a provider (except where water continues to be supplied by Scottish Water under section 12(1)). Instead it is the provider who is liable to Scottish Water for charges by virtue of the new section 29A of the 2002 Act.

The Water Industry Commissioner for Scotland

Section 15: The Commissioner’s general function

C47. Section 15 amends the general functions of the Commissioner under the Water Industry (Scotland) Act 2002 to reflect the change in functions conferred on him by the Bill. Section 1 of the 2002 Act is amended to give the Commissioner a duty to promote not only the interests of Scottish Water’s customers but also the interests of service providers' customers. In effect, therefore the Commissioner is being required to promote the interests of all customers served by the public water and sewerage networks, regardless of whether they are customers of Scottish Water or a service provider. Service providers are excluded from this revised duty, as the intention here is that the Commissioner's duty should only be towards the ultimate consumers i.e. the providers' customers rather than the providers themselves.

Part 3

MISCELLANEOUS AND GENERAL

Section 16: Offences by bodies corporate and partnerships

C48. Section 16 ensures that officers of companies and other corporations and members of partnerships can be held personally liable, in certain circumstances, for any offences under the Bill that their companies or partnerships commit.

Section 17: Orders and regulations

C49. Section 17(1) provides that the powers to make orders and regulations that the Bill confers on Ministers are exercisable by statutory instrument. In terms of subsection (2), in exercising such powers, Ministers can make such incidental, consequential, transitional or savings provisions as considered necessary and different provision for different circumstances.

C50. Subsections (3) and (4) set out the parliamentary procedure by which the Parliament scrutinises the various statutory instruments that are capable of being made under the powers in the Bill.

C51. Subsection (3) empowers Ministers to make and bring a statutory instrument into force, subject to the instrument being laid before the Parliament. The instrument continues to have effect unless the Parliament passes a resolution objecting to it within 40 days of it having been laid. This procedure is applied to instruments whose purpose is to give detailed effect to the Bill's provisions, where any closer scrutiny is considered unnecessary. Subsection (4), however, specifies that Ministers cannot make and bring into force a statutory instrument until the instrument has been laid in draft before the Parliament and the Parliament has by resolution approved it. This procedure requires closer Parliamentary scrutiny and is applied to the few provisions in the Bill that enable primary legislation to be amended, or enable provisions in the Bill to be modified in a significant way.

C52. Subsection (3) applies to statutory instruments in respect of the following provisions:

• Section 6(3): An order to vary the meaning of "dwelling" for the purposes of the Bill's definition of "eligible premises" at section 6.
• Section 7(2): An order to specify any other factors beyond those at 7(2)(a) and 7(2)(b) that the Commissioner is to take into account in assessing the ability of an applicant for a licence to discharge the licence's terms and conditions.
• Section 9(5): An order specifying the matters for which the Commissioner, under the powers conferred by section 9, may charge applicants for a licence.
• Section 13(3): An order prescribing the form and content of the notice that a provider must issue under section 13(2), prior to requesting that Scottish Water discontinue the supply of water to premises.
• Section 18: An order to make further provision for the purposes of the Bill (where this does not amend primary legislation.)
• Paragraph 1(1) of the schedule: An order prescribing the form and content of an application for a licence required under this provision.
• Paragraph 1(4) of the schedule: An order prescribing the timescales and content of the notice that an applicant for a licence must publish under this provision.

• Paragraph 1(7) of the schedule: An order specifying the circumstances in which the procedural requirements in paragraph 1(4) to 1(6), for licences being applied for and assessed, do not apply.

• Paragraph 10(1) of the schedule: An order specifying the manner in which the Commissioner must maintain a register of water and sewerage services licences.
• Paragraph 10(2)(g) of the schedule: An order specifying any additional information, beyond that at sections 10(2)(a) to 10(2)(f), to be included in the Commissioner’s register of water and sewerage services licences.

C53. Subsection (4) applies to statutory instruments in respect of the following provisions:

• Section 18: An order to make further provision for the purposes of the Bill (where this amends primary legislation.)
• Section 1(4): Regulations which specify the circumstances in which the prohibition on common carriage on the public water networks at section 1(1), on using the public water networks to supply services at section 1(2), and on providing services on the public water networks without a licence at section 1(3) do not apply.
• Section 3(4): Regulations which specify the circumstances in which the prohibition on common carriage on the public sewerage networks at section 3(1), on using the public sewerage networks to supply services at section 3(2), and on providing services on the public sewerage networks without a licence at section 3(3) do not apply.

Section 18: Ancillary provision

C54. Section 18 enables Ministers to make orders by statutory instrument where they consider that these are necessary to give proper effect to the Bill's provisions. The parliamentary procedure for making these order will depend on whether the order is used to amend primary legislation or not and is described at paragraph C51 above.

Section 19: Interpretation

C55. Section 19(1) specifies the meaning to be placed upon the abbreviated references to legislation in the Bill. Subsection (2) provides that the usual definition of Scottish Water's core functions (i.e. that given at subsection 70(2) of the Water Industry (Scotland) Act 2002) is to apply in the context of the Bill.

Section 20: Short title and commencement

C56. Subsection 20(1) specifies the title by which the Bill should be cited once it has been enacted. Subsections (2) and (3) empower Ministers to bring different provisions in the Bill into force at different times following Royal Assent.

C57. Subject to the Parliament passing the Bill and to it receiving Royal Assent, the Executive expects to bring the provisions at Part 1 relating to common carriage and use of the public networks into force 2 months after Royal Assent. The remaining provisions, at Part 1 and all of those at Part 2, relating to the licensing regime, will be brought into force after public consultation on the regulations associated with them. This is expected to happen by April 2006.

SCHEDULE

(introduced by section 10)

LICENCES AND COMPLIANCE: FURTHER PROVISION

Paragraph 1: Application for licence

C58. Paragraph 1 empowers Ministers to make an order in respect of applications for a water or sewerage licence under the Bill. It makes detailed provisions about the Commissioner's functions in considering applications from those seeking licences, and about the requirements to be placed on applicants.

C59. Sub-paragraph (1) requires applications to the Commissioner to be made in whatever form Ministers determine in an order. Sub-paragraph (2) requires applicants to provide the Commissioner with any information over and above that specified in the order, for which he has a reasonable requirement in considering their application. This requirement is qualified by sub-paragraph (3), which allows applicants to withhold information, such as advice to the applicant from their legal advisers, that would be treated as confidential in proceedings in the Court of Session.

C60. Sub-paragraph (4) requires applicants to publish a notice of their application and to explain in this notice the procedures by which anyone can make representations to the Commissioner about the application. The timing of this notice and the procedures on representation contained in it are to comply with whatever requirements Ministers prescribe for them in an order.

C61. Sub-paragraph (5) requires the Commissioner to give notice to applicants of any proposed refusal of an application, explaining the reasons for it and specifying a time within which representations about it may be made. Sub-paragraph (6) provides that in making a final decision about whether to grant or refuse an application, the Commissioner is required to have regard to any representations that he receives from the applicant and other interested parties. Sub-paragraph (7) provides that Ministers have the power to make an order specifying the circumstances in which sub-paragraphs (4) to (6) do not apply. This is a reserve power, which could be used were Ministers to consider in light of experience that certain classes of application did not need to be subject to the general procedures established at sub-paragraphs (4) to (6).

C62. Sub-paragraph (8) makes it an offence for an applicant to provide false or misleading information in an application for a licence. Sub-paragraph (9) specifies that the penalties for anyone guilty of this offence are the statutory maximum (currently £5,000), where convicted by a Sheriff sitting without a jury, and an unlimited fine, where convicted by a jury.

C63. Sub-paragraph (10) gives applicants who are refused a licence the right to appeal against that refusal to the Court of Session. Sub-paragraph (11) gives Scottish Water a right of appeal to the Court of Session against a licence being granted. Sub-paragraph (12) establishes that decisions by the Court of Session in these cases are final.

Paragraph 2: Conditions of licence

C64. Paragraph 2 makes provisions about the conditions that are to attach to water services licences and sewerage services licences.

C65. Sub-paragraph (1) provides for each licence to contain within it certain standard conditions, and any other "ordinary" conditions particular to individual licences, which the Commissioner judges to be necessary. Sub-paragraph (2) requires the Commissioner to specify what the standard conditions are to be within 9 months of the sub-paragraph coming into force. The intention is that the Commissioner will use part of the 9-month period to consult publicly on draft conditions prior to them being determined.

C66. Sub-paragraph (3) provides for the matters to be covered by the standard conditions. The Executive expects that these will include requirements that service providers avoid undue discrimination between customers, meet their financial obligations to Scottish Water at all times, and comply with standard procedures in transferring or surrendering licences. In the interests of allowing the Commissioner to operate flexibly and to take into account different circumstances, the sub-paragraph enables conditions to apply only to specified classes of licence and to come into effect or be suspended in particular circumstances.

C67. Sub-paragraph (4) requires the Commissioner to consult Ministers on his proposals for standard conditions and to publish the conditions once determined. The intention is that the Commissioner should consult Ministers about these proposals having had regard to the outcome of the public consultation exercise on the draft conditions.

C68. Sub-paragraphs (5) to (11) provide for the Commissioner to review and modify the standard conditions and to modify other conditions of any licence if necessary as a consequence of modifying a standard condition. This is the mechanism for changing the standard conditions for all licences that contain them. The Commissioner is not required to obtain the agreement of each licence holder to whatever change is being made.

C69. Sub-paragraph (5) places a duty on the Commissioner to review the standard conditions from time to time and gives him the power to modify them and also, in consequence of so doing, the ordinary conditions of the licence. The Executive expects that the frequency with which this is done will depend on the number of licences issued, the rate at which they are issued, and the experience gained of their operation in practice. Sub-paragraph (6) requires that the Commissioner, before making any modification to a standard condition or a consequential amendment to an ordinary condition, should notify the licence holders affected by any proposed modification, Scottish Water and Ministers; and that he should publish this notification. Sub-paragraph (7) requires that the notice explains the Commissioner's reasons for proposing modifications and specifies the timescale within which representations about them can be made to the Commissioner. Sub-paragraph (8) requires the Commissioner to have regard to any representations made about the proposed modification. Sub-paragraph (9) requires the Commissioner to publish any modifications that are made to the standard conditions.

C70. Sub-paragraph (10) empowers the Commissioner to grant a licence that does not contain the standard conditions in their normal form, again in the interests of flexibility to reflect the particular circumstances of the case. Sub-paragraph (11) requires, where the Commissioner is minded to grant a licence on this basis, that the Commissioner should follow the procedures for consulting on modifications to standard conditions set out at sub-paragraphs (6)-(8).

C71. In the interests of flexibility, sub-paragraph (12) gives the Commissioner discretion to provide in an ordinary condition of a licence, for that condition to have effect or cease to have effect or be modified at such time, in such manner and in such circumstances as the Commissioner considers appropriate.

C72. Sub-paragraph (13) empowers the Commissioner to modify any conditions within a particular licence, if the Commissioner considers that the modification is necessary in the circumstances of the case. Sub-paragraph (14) requires, where the Commissioner is minded to modify a condition on this basis, that the Commissioner should follow procedures for consulting on modifications to standard conditions set out at sub-paragraphs (6)-(8).

C73. Sub-paragraphs (15) and (16) empower a water or sewerage services provider to appeal to the Court of Session against the inclusion or modification of a condition in a licence, on the grounds that the condition, or the condition as modified, is unreasonable in the circumstances of the case. Sub-paragraph (17) provides that the decision of the Court in the appeal is final.

Paragraph 3: Transfer of a licence

C74. Paragraph 3 establishes the basis on which a service provider can transfer a licence to another person.

C75. Sub-paragraph (1) allows in principle for a licence to be transferred from a service provider, who holds a licence, to another person. A transfer can be in respect of all, or part of, the activities covered by a licence. Sub-paragraph (2) requires any transfer to comply with any conditions (whether standard or ordinary) relating to transfers and to be subject to the consent of the Commissioner.

C76. Sub-paragraphs (3) and (4) empower the Commissioner to consent to a transfer, but only where he is satisfied that the person the licence is being transferred to is able to carry out adequately the activities in respect of which the transfer is being proposed. In deciding whether someone is able to conduct these activities adequately the Commissioner must take into account the factors that would normally be considered when granting the licence under section 7 of the Bill. Sub-paragraph (5) requires the Commissioner to notify Scottish Water of any transfer to which he is minded to consent and to publish this notification. Sub-paragraph (6) specifies the matters to be contained in this notice, including the reasons for the proposed transfer. Sub-paragraph (7) requires the Commissioner to have regard to any representations made in response to this notice.

C77. Sub-paragraph (8) empowers the Commissioner to make his consent to a transfer subject to any conditions in respect of the licence or more generally as he considers appropriate. Sub-paragraph (9) requires the Commissioner to notify, as soon as is practicable after his decision about a transfer, those parties with an interest in that transfer and Scottish Water.

C78. Sub-paragraph (10) permits prospective transferees to appeal to the Court of Session against a decision by the Commissioner to withhold consent to a transfer. Sub-paragraph (11) provides that the decision of the Court of Session in such cases shall be final. Sub-paragraph (12) ensures that any attempt to assign a licence is caught by the provisions of this paragraph.

Paragraph 4: Powers of entry etc.

C79. Paragraph 4 provides for the Commissioner to have powers of entry to premises so as to enable him to discharge the duty, placed on him at section 8, to monitor and ensure compliance with licence conditions. Sub-paragraph (1) empowers the Commissioner, or anyone authorised by him, to exercise the powers specified in sub-paragraph (2).

C80. Sub-paragraph (2)(a) enables the Commissioner and his officials to enter (i) the premises of any water or sewerage services provider ("the first category"), (ii) the premises of anyone that a provider has arranged to provide with services ("the second category"), or (iii) the premises of any other person ("the third category"). Sub-paragraphs (2)(b) and (c) respectively make provision for powers to inspect such documentation and articles, and to remove them from the premises, as the Commissioner considers necessary to give effect to his monitoring and compliance duties. The exercise of the powers of entry are qualified by sub-paragraph (3). Thus whereas the Commissioner, or anyone authorised by the Commissioner, can enter the premises of a licensed provider in terms of the first category at any reasonable time without notice, they can only enter premises falling within the second and third categories on giving 24 hours' notice. Moreover, sub-paragraph (4) specifies that premises in the third category can be entered only where the Commissioner is satisfied that gaining access to premises in the first and second categories only would not be sufficient to enable him to discharge his monitoring and compliance duties. In practice, this would mean that the Commissioner could seek entry to premises in the third category only where he had grounds for believing that he might obtain there information relevant to monitoring and compliance that could not be obtained in any of the premises in the preceding two categories. The effect of these qualifications is to direct the Commissioner's powers of entry, first to the premises of service providers, then to the premises of customers of service providers, and only in the last resort to premises in general.

C81. Sub-paragraph (5) requires that the Commissioner be given reasonable assistance by the owners and occupiers of premises that are subject to the exercise of the Commissioner's powers of entry. This duty extends to those who are present on the premises when the powers are being exercised.

C82. Sub-paragraph (6) provides that anyone obstructing the Commissioner, or failing to provide assistance to the Commissioner, in the exercise of the powers at this paragraph is guilty of an offence. Sub-paragraph (7) specifies that the penalties for anyone guilty of this offence are the statutory maximum (currently £5,000), where convicted by a Sheriff sitting without a jury, and an unlimited fine, where convicted by a jury.

Paragraph 5: Powers of entry etc.: further provision

C83. Paragraph 5 provides for a sheriff or justice of the peace to grant warrants where this is necessary to give effect to the powers of entry conferred at paragraph 4.

C84. Sub-paragraph (1) establishes, that a sheriff or justice, where satisfied that evidence provided to them on oath meets at least one of the conditions specified at sub-paragraph (2), can issue a warrant authorising the Commissioner, or those authorised by him, to enter premises as provided for at paragraph 4(2). As a warrant authorises the use of force if necessary, the power to issue a warrant is qualified to ensure that it is exercised only after there has been proper consideration of the circumstances. Sub-paragraph (2) specifies the conditions at least one of which must be satisfied before a sheriff or justice issues a warrant. In essence these ensure that a warrant will be issued only in circumstances where entry cannot be gained without one, or where entry is required urgently. Sub-paragraph (3) further qualifies the power to issue a warrant in cases where the conditions in sub-paragraphs (2)(a) and (b) are satisfied, by requiring the Commissioner to have given notice of the intention to apply for a warrant, save where to have done so would defeat the purpose of gaining entry to premises.

C85. Sub-paragraph (4) provides that a warrant remains in force until the purposes for which the warrant was issued have been fulfilled, for example when entry to the premises cited in the warrant has been gained.

C86. Sub-paragraph (5) empowers the Commissioner, or anyone authorised by him, and subject to the terms of any warrant, to be accompanied by others on, and to take equipment on to, the premises so as to be able to conduct monitoring and enforcement activity effectively. Where appropriate, this must be done in a manner consistent with the terms of any warrant granted under sub-paragraphs (1) to (3). The sub-paragraph also requires anyone exercising a power of entry and if required to do so, to provide written evidence of their authority to do so. Sub-paragraph (6) requires those entering premises to leave them in a condition no less secure than that in which they found them.

C87. Sub-paragraphs (7) to (9) provide protection for those whose premises are entered under paragraph 4(2). Sub-paragraph (7) places a duty on the Commissioner to pay compensation to anyone who suffers damage or loss as a result of the powers of entry being exercised except where such loss or damage is attributable to the fault of the person who sustained it. Sub-paragraph (8) makes it an offence for anyone to disclose any commercially sensitive information obtained as a result of exercising the power of entry and sub-paragraph (9) specifies that the penalties for anyone guilty of this offence are the statutory maximum (currently £5,000), where convicted by a Sheriff sitting without a jury, and an unlimited fine, where convicted by a jury.

Paragraph 6: Enforcement notices

C88. Paragraph 6 gives the Commissioner power to issue enforcement notices and describes the process to be followed in issuing these notices.

C89. Sub-paragraph (1) gives the Commissioner power to issue enforcement notices if a water or sewerage services provider has contravened or is contravening a licence condition and the contravention is likely to recur. The Commissioner can do so only where it appears to him that the provider is not taking appropriate steps to remedy the contravention or prevent it from recurring. Any enforcement notice that the Commissioner issues must contain information about the contravention and the steps required by the provider to remedy it and about the timescales for doing so, as specified at sub-paragraphs (2) to (4).

C90. Sub-paragraphs (5) and (6) specify the steps that the Commissioner must take before issuing an enforcement notice, such as consultation with Scottish Water and other appropriate persons and allowing the provider to whom the notice will relate to make representations. Sub-paragraph (7) requires the Commissioner to have regard to any representations made to him by the provider about an enforcement notice. Sub-paragraph (8) requires copies of enforcement notices to be sent to Ministers and Scottish Water.

C91. Sub-paragraph (9) gives those on whom a notice has been served a right to appeal to the sheriff against the notice within 14 days. Sub-paragraph (10) empowers the sheriff to make any order in respect of an appealed notice that he considers necessary and provides that the sheriff's decision is final in such cases.

C92. Sub-paragraphs (11) and (12) empower the Commissioner to withdraw, waive or relax any requirement of an enforcement notice, without in any way restricting his power to issue subsequently a further notice in respect of the same contravention.

Paragraph 7: Enforcement notices: offences

C93. Paragraph 7 sets out the sanctions for a water or sewerage service provider, who having been served with an enforcement notice, fails to satisfy the requirements of the notice. Sub-paragraphs (1) and (2) specify that such a failure is an offence and that where a failure recurs subsequently, that too is an offence. Sub-paragraph (3) specifies that the penalties for anyone guilty of these offences are the statutory maximum (currently £5,000), where convicted by a Sheriff sitting without a jury, and an unlimited fine, where convicted by a jury.

Paragraph 8: Revocation of licences

C94. Paragraph 8 gives the Commissioner the power to revoke a water or sewerage services licence under certain circumstances.

C95. Sub-paragraph (1) provides that a licence may in principle be revoked. Sub-paragraph (2) empowers the Commissioner to revoke a licence where there has been a failure to comply with the terms of an enforcement notice. Sub-paragraph (3) empowers the Commissioner to revoke a licence where there has been a failure to comply with a term or condition of a licence and where he considers that the provider would fail to comply with an enforcement notice relating to the contravention.

C96. Sub-paragraph (4) allows the Commissioner to revoke a licence if he considers that a water or sewerage services provider no longer has the ability to perform adequately the activities in their licence. In making this decision the Commissioner must have regard to the factors mentioned in section 7(2) and to other matters specified under that subsection. Finally, sub-paragraph (5) allows the Commissioner to revoke a licence if requested to do so by a provider.

C97. Sub-paragraph (6) provides that before revoking a licence the Commissioner must consider the terms and condition of the licence, the providers’ responsibilities to their customers and any other relevant matters. Sub-paragraph (7) provides that a notice of revocation must specify the reasons for the revocation and the date from which it will have effect.

C98. Sub-paragraph (8) allows a provider on whom a notice of revocation is served to appeal to the sheriff against the notice within 14 days. Subsection (9) empowers the sheriff to make any order in respect of such an appeal and the decision of the sheriff is final.

C99. Sub-paragraph (10) requires the Commissioner to send a copy of the notice of revocation to Scottish Water and the Scottish Ministers and to publish the notice, once it comes into effect.

Paragraph 9: Penalties for contravention of licence

C100. Paragraph 9 gives the Commissioner the power to impose financial penalties on water or sewerage service providers if they contravene the terms and conditions of their licence. The Commissioner is required to prepare and publish a policy with respect to the imposition of penalties.

C101. Sub-paragraph (1) empowers the Commissioner to impose penalties for contravention of licence terms and conditions. In the interests of transparency, sub-paragraph (2) requires the Commissioner to develop and to publish, and to keep under review and revise, a statement of his policy for imposing penalties on providers who contravene the terms and conditions of their licences. The Executive expects the Commissioner to consult publicly on the basis of a draft policy statement prior to a final statement being published.

C102. Sub-paragraph (3) requires the Commissioner to notify a provider of his intention to impose a penalty. Sub-paragraph (4) requires the Commissioner to have regard to any policy statement and any representations from a provider in respect of a notice before determining the penalty to be imposed on the provider. Sub-paragraph (5) enables a provider to appeal to the sheriff within 14 days against any penalty imposed by the Commissioner and the penalty is not recoverable until the appeal is withdrawn or finally determined. Sub-paragraph (6) empowers the sheriff to make any order in respect of such an appeal that he considers necessary and provides that the sheriff's decision in such cases is final.

C103. Sub-paragraph (7) ensures that the Commissioner will be able to recover any penalties that he imposes by using general debt recovery procedures and remedies. It ensures too that a former provider can be pursued for any penalty, even where it no longer holds a licence. In terms of sub-paragraph (8), the proceeds of penalties recovered must be paid into the Scottish Consolidated Fund.

Paragraph 10: Register of licences

C104. Paragraph 10 requires the Commissioner to keep a register of water and sewerage services licences and sets out a list of the information which must be included in the register.

C105. Sub-paragraph (1) empowers the Scottish Ministers to prescribe, by order, the manner of the register, which the Commissioner must keep. Sub-paragraph (2) specifies certain information, which must be included in the register and gives Ministers the power to prescribe by order any additional information which must be contained in the register. Sub-paragraph (3) provides that the register must be available for inspection by any person at any reasonable time.

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