JOINT COMMITTEE ON THE ENVIRONMENT, TRANSPORT, CULTURE AND THE GAELTACHT debate -
Tuesday, 22 Nov 2011

Supply, Storage and Disposal of Water: Discussion (Resumed) with Consumers Association of Ireland, IBEC and Chambers Ireland

Chairman

We are in public session to discuss the topic of costs to consumers for water supply and disposal. I welcome the following: Mr. Seán Murphy, deputy chief executive, and Ms Hilary Haydon, chair of Chambers Ireland local government and ratepayers council, on behalf of Chambers Ireland; Mr. Neil Walker, head of energy and environmental policy, Mr. Brendan Butler, director of policy and international affairs, and Mr. Conor Gouldsbury, policy executive, Irish Business and Employers Confederation; and Mr. Dermot Jewell, chief executive officer, and Ms Aisling Murtagh, food and health researcher, Consumers Association of Ireland. I thank them for their attendance.

I draw their attention to that the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give to this committee. If they are directed by the committee to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person or persons or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

I propose that we take opening statements in the following order: Chambers Ireland, IBEC and the Consumers Association of Ireland. Is that agreed? Agreed.

Before I call Mr. Murphy, I will make a few comments. As members are aware, we have met many people and organisations in recent weeks, including local authorities, Departments, Government agencies and various experts. Today we are focusing on the issue of customers, those to whom water is supplied in the commercial and domestic markets. Water metering forms part of the programme for Government and will be introduced. We are setting out a consultation process to deal with different stakeholders and parties, to consult those who will be affected by the changes and to try to work with them in devising proposals that will lead to the introduction of fair and efficient systems.

Water is a charge on business, but it is also an important business resource. In today's market, we need to be competitive in terms of cost and must ensure that whatever procedures are put in place do not impose unnecessary burdens.

The abundant availability of water in Ireland offers us a major economic advantage over the many countries that are much drier than us and are forced to consider expensive supply options such as desalination. Our advantage is becoming more important to maintaining our home industries and attracting foreign industry. However, just having water is not good enough. We need to utilise it as effectively and inexpensively as possible. We also need to be able to supply clean water when and where it is needed at the lowest possible cost. How we will do this best is what the committee will consider today.

The supply of water to the domestic market is another central element that I want the committee to consider. We must remember that, in the current climate, many households are looking forward with apprehension to the introduction of another charge on their home budgets. We need to address these matters and ensure that the public has the opportunity to know what the issues are and how they can be tackled. Everyone has a right to water and it cannot be impinged upon. Therefore, it is important that any charging system being introduced emphasises that the charges are imposed on supplying and treating the water and not on the water itself. This is a somewhat technical point, but we are considering it because it is an important one. Our debates to date have shown from where the expense of producing water, getting it to households and removing it from households arises.

I call on Mr. Murphy to address the committee. I welcome and thank the three agencies for appearing at today's meeting.

Mr. Seán Murphy

The Chair will have received our submission. I do not propose to go through every word. Instead, I will synopsise its core elements. I am joined by Mr. Hilary Haydon, chairman of our ratepayers and local government policy council.

We have always believed in the application of the polluter or user pays principle across all charges and water is a prime example of a resource for which the business community pays. It also pays rates and other local government charges. The revenue base needs to be broadened to secure the significant amount of money that has been invested in our water services programme in recent years and to ensure future delivery. The past two winters have shown how important this resource is. They have also shown that, despite the hundreds of millions of euro that have been invested, additional funds need to be provided during the coming years.

From a structural point of view, having 34 local authorities treating water and delivering it to users does not provide the ability to squeeze out cost and is not the optimum approach. It would be better to optimise the delivery of water through a shared service, back office infrastructure that delivered economies of scale. In the context of the proposed Irish Water, the best way to do this would be to lean towards a commercial semi-State entity regulated on a regulatory asset base model. This regulation would deliver cost benefits and determine prices. The ideal approach to household charges would be to provide free allowances via the Department of Social Protection. In the same way as obtains in respect of the electricity allowance, the billing arrangements for those who society believes are vulnerable users would be covered.

The case for universal metering within three years has not been proven. In the UK where the regime has been oriented towards metering for many years, significant numbers of consumers are happy to go with assessed charges, namely, fixed charges for the delivery of water to their homes. Given that 40% of our household stock is one-off ribbon development, the cost of delivering a metering arrangement to every house will be challenging.

Even were the 34 local authorities combined into one entity for the treatment and delivery of water, it would still be smaller than any of the UK's water companies. This gives members an idea of the current level of fragmentation. The amount of unaccounted for water remains high despite the hundreds of millions of euro invested annually in the water services programme in recent years.

We recommend that Irish Water be a commercial State body rather than a National Roads Authority-type model because the former would have access to bond market investment. The crucial element is unlocking a funding mechanism through which the charging regime can fund the ability to buy bonds or investments or borrow across multiple years. If the pricing regime is put in place, the implementation of the charging regime is kept simple and vulnerable users are covered by Department of Social Protection allowances. As is the case with the electricity market, we will have the basis on which we can get funding from the bond markets to deliver the multi-billion euro investment that will be required in the coming years.

A commercial semi-State entity that might be interested in facilitating Irish Water has made the point that we also need to quantify the value of our current water infrastructure. For example, County Limerick has upwards of 20 individual water treatment plants, in respect of each of which Environmental Protection Agency, EPA, licensing must be paid, yet the city of Paris has four reservoirs serving a population of 2.1 million people. There is an issue of scale.

The Irish Water process would have the advantage of being able to provide a regional or national perspective on how to optimise the delivery and treatment of water across the State. The chair of our policy council might wish to add something, if that is acceptable to the Chairman.

Mr. Hilary Haydon

Mr. Murphy has put it clearly. We must deliver a quality water service at an economic cost. We want the savings accruing from the transfer of costs from local authorities to be passed back to business. These are the add-on benefits to which we look forward.

Chairman

I invite Mr. Walker to make his opening statement.

Mr. Neil Walker

I have a short presentation. Mr. Brendan Butler was unable to remain for the meeting, so I will make the introduction and hand over to Mr. Conor Gouldsbury for the meat of the presentation, after which I will provide the dessert. For those who are not familiar with what IBEC does in the environmental policy space, I will outline need by businesses for water and waste services, Mr. Gouldsbury will discuss a number of concerns brought to our attention by our members and I will discuss Irish Water before concluding. Unsurprisingly, we will echo several of the points made by our colleagues in Chambers Ireland.

IBEC is the national voice of business and employers and has 7,500 members that employ approximately two thirds of the workforce in the private sector. We also represent the academic sector. Ours is a large, diverse organisation that is broken up into sectors, regions and approximately ten policy units, one of which I represent. Within the energy and environment policy unit, we have an energy policy committee, which has a number of working groups, and an environment policy committee, which also has a number of working groups. One of them is a water working group. We also have a green business executive, which is effectively funded by the Environmental Protection Agency, and it is, specifically, a full-time support for the national waste prevention programme. We periodically run water resource efficiency events not just for our members but also for any other businesses interested in doing it.

Mr. Conor Gouldsbury

We thought it might be useful at this point to reiterate the critical nature of water to business and employment in the country. Water has been and will continue to be critical for investment decisions. For example, it is significant in attracting foreign direct investment, as was indicated in opening comments, and a plentiful supply and well-managed resource can continue to attract such investment in future. Likewise, the availability of adequate treatment capacity is also crucial in investment location decisions.

As a raw material water is critical to business, especially industry and manufacturing processes, but also when it is embedded in products. We have seen with recent weather events how critical water is to business continuity, especially for consumption and sanitation purposes. It is very important for employment and growth in future.

From a business perspective, what do we look for from water and waste water services? There should be security of supply, as well as adequate and sufficient water supply and capacity. A high quality product is critical for key industry sectors, and there should be competitively priced water and waste water services, in line with international competitors and trading partners. It should be a sustainably managed resource, protecting the competitive advantage referred to at the beginning and which ties into the security of supply in the first place.

We can consider the current water services delivery system, and in deducing whether it was fit for purpose we did a brief analysis with members of the strengths, weaknesses, opportunities and threats that exist. Taking the model into account, we see strengths in local knowledge and involvement on the ground, with the expertise and commitment from staff that has been built up over years. There are a number of weaknesses in the current system nonetheless, as was referred to earlier. For example, structures are fragmented and there is duplication, with a potential lack of water security and continuity. That is a concern for business. There is also insufficient and uncertain funding, as well as the leaking and corroding network of which we are all aware.

There is an opportunity to rationalise the current structures to provide for greater integrated management of water as a resource and the ability to plan strategically in future. A threat exists from the possible failures of key supply assets and we have been aware of this, particularly in Dublin. Around the country in various regions the possible failure of key supply assets is a concern and potentially a disincentive to new manufacturing plants and investment in jobs. There is also a threat from retirement and non-replacement of skilled staff in the organisations looking after water now.

I will highlight some business concerns. The fragmentation in the current system unavoidably gives rise to duplication and has created an inefficient system. Therefore the system may be more costly to operate than it should be, and that is a consideration. We know from members that the charges paid for water services are poorly understood, with tariffs based on a water-in and water-out principle. There is very little transparency about how local authorities price their water and waste water services in the business sector. This is partly due to a lack of an appropriate accounting system but also the fact that external independent economic regulation is absent. It is difficult for commercial water users to know if these charges reflect efficient incurred capital and operating costs.

The charges are inconsistent across the country and there is a wide regional variation in the volumetric charges, ranging from €1.50 to €3 per cubic metre for a combined and consolidated water and waste water tariff. If tariff harmonisation could be considered in future, there would be winners and losers, so we caution about the need to ensure that competitiveness is taken into account at that point.

As I mentioned previously, funding is a critical issue in addressing the underinvestment legacy. Sufficient and affordable capital funding for future investment will be required and there is not complete confidence in the security of supply in the existing system. It coped quite well given the structure that it worked within, to a certain extent, but going forward we do not see any confidence in security of supply. Members fear that service levels can be quite inconsistent in different local authority areas around the country. Strategic planning is not currently facilitated. There is a need for current planning but the current water services investment programme has a short-term focus.

Mr. Neil Walker

That sets the scene for a specific discussion on the proposed establishment of an entity called Irish Water. I will report some of the views of our members in respect of that proposal. As everybody is probably aware, the Department commissioned an independent assessment of the proposed transfer in two stages, with the first stage being the choice of model; would this be a fully integrated utility or just an investment vehicle with much of the operating work being done by agents in the form of the local authorities? There was a brief consultation on that. IBEC, as the largest business organisation, was invited to make a collective submission on behalf of all the industry and one or two of the semi-State entities made separate submissions. As far as I know there was representation of the business sector and NGOs were also represented through other means.

We understand that the report from the first phase has been drafted and given to the Minister. It may have been shared with Cabinet colleagues, although we are not sure of that.

Chairman

Is this the PricewaterhouseCoopers report?

Mr. Neil Walker

Yes. We made a submission to PricewaterhouseCoopers and if anybody is interested we can provide a copy of that. We do not know whether there is likely to be a further consultation on the second phase or at the end of that phase but we hope there will be. It is very important to get this decision right first time, as it could have consequences for the next decade or longer. It is one of the biggest decisions that will be made for some time to come, and if we get it wrong, there could be long-term consequences. We are telling the Department and everybody else that there is a need for early engagement with IBEC and other organisations. Notwithstanding that there are external constraints imposed on us by the troika, we should make haste slowly, as it is too important to make a rushed decision that we will have ample time to regret at a later stage if it ends up costing more or delivering a lower quality service than should be there.

In our submission to the consultants we indicated that given the terms of reference for the study were fairly short at one or two pages, we did not feel we understood the two options of the utility versus the investment model well enough to opt firmly for one or the other. What we felt we could do was make a few observations in the round on the advantages and disadvantages of the proposals. If it is right, a utility model will deliver a better service and be less costly in the long run, but we should not underestimate the complexity of the transition. Hundreds of local authority employees may have to transfer to a different organisation and some may not be willing to do so. There could be a faster loss of skills that would result from simple natural wastage.

It could be quicker to establish the investment model and it may be easier to regulate, although it would not give as much of a benefit. There would still be duplication and inefficiencies, and most importantly, it would not be able to control revenue gathering. It would be a principle relying on agents to do the money gathering. Water rates collection is not as good as rates collection in general and varies significantly by area. There are a number of reasons for this but currently local authorities are struggling to collect when they get to keep the money and that will not improve when they will hand the money over. For this entity to be able to borrow money at low interest rates, have a low cost of capital and regulated asset base, it needs control of revenue generation. Although we did not say it in the submission, we would tend towards the utility model, provided we get it right and regulate it properly.

There are half a dozen principles to set out in the submission. There are efficiencies to be achieved but to get them we will need rationalisation. The cost of capital is key as this is a very capital intensive business. The decisions on tariff structures are economic decisions and they really should be left to the independent economic regulator that is to be appointed. That would not just regard tariff structures but also the way in which energy networks are currently regulated, as major capital decisions should be subject to some form of approval. Whether that is in the form of major supply side infrastructure or universal domestic metering in towns or the country, the economic analysis and cost benefit should be done independently.

The corollary of that is that if there is to be financial support for households that may be deemed to be in water poverty, the best way to achieve this is through the Department of Social Protection payments, as is the case with electricity and gas. Otherwise, we could end up with an untargeted benefit that would be less cost effective. There is also potential for distortion. For the sake of argument, the average cost of a cubic metre of water is €2, with a free allowance, which means that once the limit is reached, the house must be charged more than €2, possibly €2.50. Every cubic metre of water saved reduces the bill by €2.50 but that does not save Irish Water €2.50. It may only save that company 50 cent as many of its costs are fixed. There would be a strong incentive for consumers to reduce consumption but the net effect would be an under-recovery of revenues for the Irish Water entity. The tariffs would have to be raised the following year to keep the revenues going, which would send the strange signal that water conservation leads to higher water tariffs. We cannot prejudge what the tariff structure should be and that should be left to the regulator. I hope I have not overly laboured the point but it is very important.

A low cost of capital, approximately 5% real, which would be consistent with energy networks, would be consistent with the body remaining in public ownership. We could see a commercial semi-State company with a good reputation being a very feasible mechanism in that regard. It should be able to leverage private sector finance and access private sector expertise. That is a way of providing continuity of skills and it works well in the design and build model, which has been shown to work well around the country.

Environmental regulation would be very important and we see that being done on a river basin basis. The new entity will have to take a leading role in promoting demand side management and water and resource efficiency. We would see it even taking the lead from the EPA or working alongside it on the national waste prevention programme.

Business needs secure, reliable and affordable water services and this is critical not just for existing business but to attract the next Intel-type organisation. The system needs to be modernised end to end and must be made more efficient throughout the organisation. Forfás made these recommendations in 2008 and they remain true. Irish Water will have the capacity to make a difference and deliver provided we get it right, but there are serious risks associated with the full-blown utility solution. Those risks must be managed. If we get this right it could be self-financing and the business sector will pay its fair share. The worry is that we will end up with a system that does not achieve those efficiencies despite the fact that it must be self-financing. In principle, that could damage our international competitiveness and potentially affect jobs. We hope that can be avoided.

I attended a recent workshop at which the Minister indicated there might be scope for a very short, structured consultation and we very much welcome that. We hope that will include an early opportunity for us to talk about the second stage, which will be the implementation of whatever model that is decided on. If we are consulted at the end, it will be more of a referendum than consultation. Regardless of the timing of the consultation we will be seeking a bilateral meeting with members of the Department.

Mr. Dermot Jewell

We are grateful for the opportunity to address the joint committee. I will raise some points, queries and considerations on behalf of consumers before passing over to my colleague to discuss what we hope will be a consumer focus on management and cost efficiency processes when the system becomes operative.

The introduction of water charges raises significant concerns, as was indicated by the committee, for the average consumer. It has been pointed out that this is an expensive system to introduce on a metered basis, with estimates in excess of €600 million at a time when funds are scarce. We also have EU commitments and requirements and the solution suggested is the introduction of a small basic charge for every household. It is a one size fits all remedy that will do little except impose a charge on citizens as a means of raising further Exchequer funding. This is unacceptable as from a consumer perspective, the intention of water provision must be applied fairly. We accept that a fair system must be through a metered, pay per use basis and water charges should only be introduced where meters are in place and inefficiencies or concerns in the existing system are addressed. For example, there are the issues of leakage and fluoridation, and consumers paying for a service have a right to receive it efficiently, with a consumer focus in the provision of management of the service. As water is a basic human need, it should come at a reasonable cost. There must be incentives in the system for consumers to reduce consumption proactively and benefit directly from such actions.

If we are to discuss a consumer-friendly system, a flat rate charge at the household level would provide a poor option, as it would require single person households to pay the same fee as a family unit. It would punish exceptionally cost-conscious and efficiently astute users while allowing those who waste or use excessive quantities of water to burden efficient consumers through lack of consideration. It would present Ireland's legislators as being less concerned with equality, efficiency, conservation and consideration for the population and more concerned with opportunities for a revenue raising initiative.

Water charges introduced via a metered system reflect a considered option. It would not make the system fairer but it would help to monitor the water network where usage is monitored. There are also considerations when it comes to installation. The Consumers Authority of Ireland holds the view that the cost of smart meters should not be borne by consumers and neither should the cost of water meters. We understand the integration smart energy and water meters has been considered. With this in mind, consumers need an opportunity to avoid a proportion of the charge through efficiencies and a change of lifestyle by reducing wastage, overuse and, most importantly, overdependence. If such a system can be introduced it would allow citizens to be proactive in how they manage their usage and prevent wastage. There would be a degree of pressure from their equals, neighbours and families to reduce wastage.

With regard to financial costs, we have read reports that a free allocation could be between 40 litres and 60 litres per day. As we indicated, estimates suggest the average consumer in Ireland, like the average consumer in the UK, uses 150 litres of water per day. Therefore, the suggestion of a 40 litre to 60 litre per day allocation needs to be examined for its reasonableness and its effectiveness when it comes to cost determination. A free water allocation should be based on real usage data and give consumers a fair and reasonable allocation. At present, it is not clear whether this allowance would be per individual, per household or per unit. It is not explained. How will the limit be determined as reasonable or fair? We are concerned this appears to be an ad hoc back of the envelope type calculation.

Has it been determined, as we believe it must, that water charges will be zero rated for VAT? Bottled water attracts the standard 21% rate of VAT but, as the Chairman pointed out, if the charge is not to be for the water but for its supply and treatment then perhaps the lower rate of 13.5% or 9% might apply. This may help to resolve this element of consideration.

I will now pass over to Ms Aisling Murtagh.

Ms Aisling Murtagh

I will make some points on the water supply system being consumer focused and on costs and efficiencies. Consumers of services are entitled to receive a service fit for purpose. A water provision system in Ireland should be accompanied by a strong consumer protection system. In recent times consumers have experienced disruptions in water supply because of bad weather. This leads to a risk of disruption in water supply which makes this consumer-focused system even more essential.

We understand that Government has plans to establish Irish water as the national water authority. In the UK the water regulator is the Water Services Regulation Authority but there is another body which deals with consumer issues for domestic and non-domestic customers, which is the UK Consumer Council for Water. Consumers can approach this body if they have queries relating to their bills. Irish water would also need to have a consumer information and queries role. If consumers have difficulties paying their bills, how will the arrears be managed? Is there a risk of consumers with significant arrears being cut off? Given that our neighbour, the UK, has a separate body to deal with consumer issues, significant attention for this will also be required in the remit of Irish water. Consumers themselves also have responsibilities so a consumer education campaign on water use and conservation and consumer rights would benefit the fair and efficient operation of a paid-for water supply in Ireland.

Efficient resource management must precede any charges being imposed. If consumers must pay for their water supply, they must not pay for the costs associated with an inefficient system or for one which has in the past led to public health issues with unsafe drinking water. It must also be borne in mind that many consumers already spend significant sums of money on water filtering systems because of a lack of confidence in their water supply. These systems are expensive to maintain on an annual basis. A metered system of supply must be efficient before it is rolled out, with infrastructure investment to reduce water loss from leakage to a minimum. The only effect of wastage in the system would be to increase the cost of water charges to the consumer. Over time, the cost should reduce as the system becomes more efficient. The technology for water meters can have the capacity to detect leaks. Perhaps in the long term this could contribute to a more efficient water supply if such meters are put in place.

Consumers are not given the choice to consume water that is not fluoridated. Water fluoridation does not happen widely in Europe. Parts of the UK have fluoridated water as does Spain. If consumers must pay for water, will they be given the choice on whether the water is fluoridated?

Deputy Catherine Murphy

Chambers Ireland spoke about vulnerable users. What is its opinion on the stated aims of the Government that a certain amount of water will be free and payment will not be at the point of delivery?

I agree with IBEC that water is essential for industrial development. I live near Intel and Intel consumes an amount of water equal to that consumed by the population of the 20,000 people in the town. The water supply was essential to the industry locating there and it is a very good example. We have a circular argument here and I am interested to hear the witnesses' opinion on it. We already have reasonably low corporate tax rates and a commitment to keep them at this level. If this tax, which I consider water charges to be, is shifted towards the consumer it in turn drives demand for wage increases. What is the delegation's view on a significant burden being shifted onto that side of the balance sheet, in other words onto a different group of people who in turn will create demands?

These systems must be paid for and they are very expensive. I agree the system is very fragmented at present. A point was made about the skilled staff in local authorities throughout the country and the one thing we do not have generally is a question mark over the quality of the water, except perhaps in very small schemes. From this perspective, an issue is how the new utility will be populated.

With regard to the point made by the Consumers Association of Ireland, I completely agree that a flat charge is the most inequitable and I can say with certainty that it will be resisted, if that approach is to be taken. If a certain amount is free, and people have the ability to minimise usage, there is potential for some acceptance, if that type of model is introduced. A flat charge would draw huge resistance. There is already routine seasonal interruptions and it will be quite difficult, in the first instance, to persuade people to pay a charge for a service where there will be potential interruptions in that service in winter and summer. It is a chicken and egg situation already. I would not minimise the difficulty.

Fluoridation has been debated on numerous occasions but how would one deliver a water service where one person wants a fluoridated water supply and the next one does not?

Chairman

Thank you Deputy Murphy.

Mr. Sean Murphy

It is worth noting that our free water supply costs a significant amount of money. Professor Frank Convery from UCD estimates that it costs taxpayers more than €1.2 billion to deliver our so-called free supply at present. In terms of vulnerable users, our view would be just like the TV licence model or the provision of electricity, another utility where there is a regulatory asset model from the Commission for Energy Regulation, CER, and to scale. It can provide bill and consumer complaints feedback in that area, that determine the price of the electricity supply and investment programme needed but also can determine, with governmental support, the free electricity allowance for vulnerable users via the Department of Social Protection. We would think the water regime should be the same.

We echo what our colleagues in IBEC have said, we would argue that the provision of a clean guaranteed water supply is every bit as important as our corporation tax rate. While the point is made that it is a challenge in terms of the circular argument, we think the issue is too urgent not to need to be fixed. We are investing upwards of €400 million per annum in our water services investment programme. We still need to maintain that investment in the coming years. The other part of the debate from a consumer's perspective is that people do not engage, as they need to, with the water supply run off from households. That is another issue that needs to be priced in.

Deputy Catherine Murphy

Mr. Murphy described a vulnerable user but how is that determined?

Mr. Sean Murphy

It is a decision of Government but clearly it would tend to be social welfare recipients, the elderly and other types of people who would qualify for the free electricity allowance. That is a political determination by legislators and the wider Government. That is a societal decision on that side and we say the same issues should apply in terms of water supply. In terms of setting up a bill collection payment system that works this is a cleaner way of proceeding and is much more sellable to bond market investors than giving significant number of caveats, which means that one has major difficulty in hitting collection rates, which is vitally important to the setting up a commercial State enterprise, such as Irish Water.

Mr. Neil Walker

I would add a couple of points. In terms of the cost shifting, at present the funding of local authorities is somewhat messy. The local authorities receive money from central Government. There used to be money from development levies, business rates and so on but the funding needs to be more consistent. It is not creating incremental cost, it is collecting in a different way. I am not sufficiently au fait to know the impact on different strata of society but to the extent there is water poverty, one treats it in the same way as one would deal with fuel poverty, through the social protection system.

In terms of the tariff structure, I wish to reiterate the previous point I made, that is, that it ought to be left to the regulator to figure out what is the best way to charge. I used to advise CER on electricity and gas networks and the principle it applied at the time is that in order to have stable tariffs, if one is trying to recover a fixed cost, one passes it through as a fixed charge and in the case of a variable cost, one passes it on as a variable charge. If that is applied simplistically, then since 75% of the costs of delivering water and taking away waste water are fixed, it might imply that one would want to get three quarters of the money through a very big standing charge and the remainder from a relatively small low tariff. That is not how it is done for business water rates at the moment and I do not suggest they should proceed in that way. If the same mode of collection as applied it will be a volumetric charge but the problem is that rolling out 1.5 million litres raises the question of supplying every house in every remote location. It could take decades. Certainly from the experience of the UK, it would take a very long time to put it in place. I do not have the answers, but one should trust a regulator who has experience of managing publicly owned networks. I concur that the CER is an obvious candidate for doing that.

Mr. Dermot Jewell

Deputy Catherine Murphy asked one of the most difficult questions on fluoridation, and she is entirely correct. We have investigated this issue over 12 years and taken on board the views of both sides, for and against fluoridation of water. Both sides are deeply passionate about their case, in the absence of a nationwide vote on whether to fluoridate water, and we know that a number of those who are against fluoridation choose to purchase water and use it for cooking and drinking. Our immediate solution could only be a metered system and that would work where an individual could avoid usage. If it is a flat fee per household there will be problems as payment cannot be avoided and consumers are being denied their choice not to have to pay a fee for something they do not use when they can spend a great deal of money on an alternative product. That is where we see the difficulty. It is a small way of trying to provide a resolution, but that is the best we can come up with at present.

Deputy Brian Stanley

I wish to raise the issue of fluoridation. It would be very unfair to those who do not want to be inflicted with self-poisoning to be forced to pay two charges. Do IBEC, Chambers Ireland and the Consumers Association of Ireland have a view on whether vested interests in Ireland or outside it, are promoting fluoridation for economic reasons?

One of the IBEC representatives, I think it was Mr. Walker, said there was a report that was shared with Cabinet. Has he been privy to it?

Mr. Neil Walker

No.

Deputy Brian Stanley

Mr. Walker made a statement that it is more costly to operate through local authorities. What is the source of that information? My concern is that local authorities would have a substantial body of local information on local water sources, on protection of sources and the quality of various different sources. A great deal of work has been done on that over the years. I wonder how it would be married to a national body or a State wide body?

My question to Chambers Ireland concerns the reference in its presentation to the requirement for guaranteed funding for capital and operational purposes. The jury is out on the expense of installing meters, but the cost ranges from €600 million to €1 billion. In my calculations it would take decades to get a return from that investment. Would that money not be better spent on the network because we are all agreed that a leaking network is the main problem? Currently, local authorities have the ability to identify leaks accurately. They can and do monitor housing estates, streets and parts of streets via localised water meters and can demonstrate where there is unusually high consumption. They can identify this quickly through a computerised system which I have seen working and can quickly pin down that consumption to an individual household. Therefore, I am at a bit of a loss to understand why, if that system can be operated with such low funding, we need to change it.

My final question relates to water harvesting. This is an issue I and many others have raised over the years. To some extent we missed an opportunity during the development boom over the past 15 years. Would the witnesses support water harvesting? There is huge scope for it, in rural areas in particular. There is also significant scope for it in urban areas in industrial estates. Another benefit to water harvesting relates to the huge issue of flash flooding. An industrial estate in Santry or out on the Naas Road was a green field that soaked up water 20 or 30 years ago. Now that water hits a hard roof and runs straight to the drainage system, which causes huge problems. We saw this happen on the motorway a couple of weeks ago when we had very heavy rain. Engineers would say that much of this problem is caused by water hitting hard surfaces and running off quickly. Should we not find some ways to capture some of that water to use as a secondary water source for houses?

Mr. Hilary Haydon

I will start with the water harvesting side of things. I agree there is great potential within Ireland to look at this issue, but we need to look at what happens in other countries, such as hot countries like Australia, where water harvesting is an enormous part of what happens. Ultimately, water harvesting will happen here, but the value of water must be fully appreciated before water harvesting takes off. We have looked at a number of companies here that are very interested in getting into this area, but which are finding that very difficult because the cost and value of water has not been fully appreciated. Water harvesting and its benefits for areas, particularly rural areas, will only follow after people start appreciating the value and cost of water and the supply required.

Mr. Sean Murphy

In terms of the local authority issue, the local government efficiency review counted the budgeted current expenditure on water services by local authorities at approximately €722 million in 2010 and estimated that approximately one in ten of all workers in the local authority sector work on water services. If we compare our size, 34 different local authority water companies and the management thereof, versus the water utilities in the United Kingdom, there must be economies of scale to be driven out in terms of prioritising front line services and investments and delivering for end users. The other issue is that in achieving scale, we are much more likely to separate plants and machinery from water delivery to the water maintenance department, thereby reducing the potential for contamination, particularly in smaller local authority regions. We have done a great job so far in maintaining and ensuring we have the relevant equipment, gear and staff for those two very distinct jobs, but it is a risk we should mitigate.

With regard to local authority know-how, the local authorities clearly have a role as guardians of the water supply. However, when we have a smaller local authority, such as in Limerick with 20 different local water supply areas to be maintained, monitored, watched, assessed and licensed with the EPA, vis-à-vis the city of Paris with four reservoirs serving 2.1 million people with a significant amount of headroom in water supply, we see the advantages of scale in that area.

Finally, in terms of optimisation of investment, in our opinion the 80/20 rule applies across everything. If we are able to budget, plan and roll out infrastructure without seeking upwards of 40 different levels of approval, as the Irish Academy of Engineering has indicated is the case for a local authority working with its colleagues in the Department of the Environment, Community and Local Government, we get speed and get to optimise where the investment goes to provide a greater return for everybody in society.

Mr. Neil Walker

On the issue of fluoridation, I have no idea who makes or sells fluoride. As a policy unit, we represent providers and users of services, in energy or water and we try to take a balanced view. I would not question the dedication of the people working in the local authorities. We have a very good relationship with the CCMA and at the most recent water resource efficiency event IBEC held, we invited Tom Leahy of Dublin City Council to come and talk to us, specifically about the amazing work that had been done in reducing the leakage rate. At an operational level, local authorities are doing a fantastic job. The inefficiencies arise simply arise because of the duplication of management structures. If we can get rid of the duplication, by definition the system will be more efficient. However, we must guard against creating an extra layer of management. Without wanting to criticise or name an organisation, instead of doing away with one structure the health system created a new one and as a result it has been criticised as not having achieved some of the efficiencies it should have achieved. We would not want to repeat that exercise.

Rain water harvesting is a brilliant proposal and if it can be done for toilet systems, it makes obvious sense. Many of our members are looking at this. One of the services provided through the Green Business initiative is a couple of days free consultation. If a company has a big flat roof, harvesting the water on the roof will save the company a fortune and the system would pay for itself in a few months. We are very supportive of that.

Mr. Dermot Jewell

We do not have proof of the promotion of fluoridation for commercial purposes, but it is an area we are investigating. From my experience, I would not be surprised if it was the case. A resolution to the issue must be found. Due to the situation in which we find ourselves, the question will be investigated in the near future and will require a definitive answer.

We would certainly support water harvesting. The capture of rain water for secondary use makes perfect sense, provided it can be done cost effectively and that storage and treatment is safe and well managed. With regard to the comment on water authorities, the key word is "efficiency". For too long we have suffered inefficiencies which cost the nation quite a significant amount of money. The waste of water is extraordinary and has not been tackled up to now. This presents a challenge for whatever water board takes responsibility and for the water authorities already in the system who are already doing their best. The impression coming from this meeting is that what is missing from what is being done is money or funding. We have concerns with regard to there being sufficient funding.

Deputy Kevin Humphreys

I thank all of those who have made a presentation today. Chambers Ireland remarked we should "Value what is there already", and I wonder if there is anything further behind that remark. Does it refer to a valuation of what exists and suggest that a transfer to the commercial sector would pay back costs of the initial investment over a period of time to the State or taxpayer? How is the security of service rated as against the cost of supply as far as foreign direct investment is concerned? We have, for example, a kind of list of the top ten items a foreign direct investment company considers. Where do the witnesses see security of service on that list? I am aware that the position of security of service would relate more to particular industries, such as pharmaceuticals, but can we have a picture of where witnesses see it with regard to water supply? Have any of the agencies here carried out any studies on the cost of water across Europe and in that regard, where do we fit in?

Many of the issues have been covered already and I do not want to go over them. Some €400 million is to be spent on rehabilitation and the laying of new water mains.

It is a huge investment, but digging up roads is also a huge disturbance to local communities. What about the idea of laying an additional main pipe and enacting legislation so that the other pipe would contain broadband and other telecommunications services, which everyone else would have to use? That road would not have to be dug again for another ten to 15 years because the pipeline and the service would be there. Is the business sector generally in favour of that? There is a certain amount of costs, but the local authority would also gain revenue because it could rent the space within that to the various telecommunications or gas companies. In urban areas, it is very annoying for residents and the business sector to see a road dug up, and to see the same thing again six months or a year later. It is not currently possible to force the business sector to use it, but it would provide a certain amount of savings when digging up the road.

In respect of the transfer of staff, if there is a water mains breach in a smaller local authority area, a roadwork team could treat it. Do the delegates think the commercial State sector would purchase that team from the local authority, or do they think the commercial State sector would provide designated crews?

Do the delegates from the Consumer Association of Ireland have any feedback from its members or from the general public on security of supply? In recent years, security of supply has become more and more of an issue across the country. Deputy Catherine Murphy has covered this.

Mr. Sean Murphy

The valuations already there tie in with the need for a robust, agreed transition plan for implementation if we go for Irish Water. It cannot be done overnight. Part of that agreed implementation plan must be an audit of all the water facilities and a valuation to be applied to them. A valuation of what is there in all the local authorities could be north of €3 billion, and that cannot be done overnight. That is what we are really saying. It needs to be audited and set up.

While I will not name locations, a number of locations around the country would be very grateful to be assured of supply. There were major tourist towns in Ireland that were down completely on their water supply for Christmas week. This caused massive angst. Even though they paid for the service, they did not get it. Assurance of supply is incredibly important, not to mind from a foreign direct investment, FDI, perspective. The sense one gets from biopharmaceutical companies and some ICT companies is that water is as important as the skill set and the corporation tax rate.

The issue with the additional pipe is an intriguing concept. I have to consult further to get some feedback for Deputy Humphreys, but there is an ongoing challenge. Accessing some of the ducting available in places like the NRA motorways is an ongoing challenge. Even if the infrastructure is rolled out, some agencies can be more flexible and open to accessing the pipe than others. There is an institutional problem here.

In respect of the issue of smaller local authorities, it is worth noting that some of the infrastructure goes back to the 19th century. There are obscure pipes, cables and coils that we need to have on hand. In a national water supply and on an enlarged scale, one or two pipes might be needed for use per year, yet one has the concept of these being "left in depots" for years on end across the country. Again, that is an issue of scale in respect of where one would store these things.

The flat rate change applies in group water schemes, with no quibbles, for up to 14% of the population in rural Ireland, and it is not necessarily metered. My point is that we have a flat charge in place that delivers a clean water supply and has much lower rates of unaccounted for water than is in situ right now. That is worth noting.

Mr. Neil Walker

There were some very interesting questions which I will attempt to answer.

When trying to prioritise the volumetric charge versus the perceived security of supply, I would say that it depends on who one asks. Small shopkeepers would be much more worried about the cost, because they are under a huge amount of pressure. People would have a different view on things if they wanted to make a major infrastructure investment where it was absolutely critical to have a continuous supply of clean water and the ability to dispose of it in some way, and where losing a day's production means the loss of half a billion euro worth of production. They are both important, but the priority would depend on the perspective of the individual business.

The issue of the international league table also depends on who one asks. There is a twofold or more than twofold variation in local charges, but when taking the average, we compare reasonably favourably. The fear is that this is partly because there has been chronic under investment and when that is rectified, we will not compare so favourably. When we undertake a major investment campaign, we feel that it will have to be done in the best possible way to preserve our current position. Ireland is not a water-stressed country. Dublin has a problem because it has seen a very large population growth relative to the rest of the country.

Trying to get shared services and conduits is an interesting idea. It has been raised several times over the years. Nobody likes having their road dug up repeatedly for cable television, water and so on. It is an interesting proposition for new builds, but I am not sure I would want someone to dig up the road yet again for a retrofit solution.

Deputy Kevin Humphreys

If we are looking at digging up the road to put in modern water pipes, the next logical thing is to put it in at the same time. I am not talking about retrofitting. If we are to carry out a continuous investment of €400 million over the next few years-----

Mr. Neil Walker

I beg your pardon.

Deputy Kevin Humphreys

I definitely do not want a retrofit. The roads have been dug up far too often already. This was tried by one local authority and it was found that the private sector would not go for it. They still wanted to dig it up and put their own pipe down.

Chairman

Mr. Murphy wants to come back in, and then I will go to Mr. Jewell.

Mr. Sean Murphy

In answer to the question on where we compare, having spoken to experts in our network, the sense one gets is that Denmark and Germany would be lower than us on water charges, but we compare well with northern Europe on our price for water delivery.

Deputy Kevin Humphreys

Mr. Murphy referred several times to Paris in his contribution. The network in Paris has been taken back under control by the city, whereas it was previously controlled by a private company.

Mr. Sean Murphy

Comparing French engineering culture with our own is a different concept. The French are very good at ensuring good headroom quality in everything they deliver. That is what we were comparing. Paris has scale by definition, as it is a city of 2.1 million people. This country is not far off a population of 2.1 million, so the issue we are talking about is extra bandwidth. It is not just Dublin; the east coast capacity issue is a real problem that we need to confront. Paradoxically, the downturn gives us a bit of leeway that we did not have four years ago when making crucial decisions in that area.

Mr. Dermot Jewell

Ireland, the UK and Finland have similar usage statistics, with 150 litres per person per week, and this figure is reduced in Denmark, the Netherlands and goes down to Belgium at 100 litres per person per week.

We have much catching up to do on the cost side. In the UK, a single consumer will pay an average equivalent of €160 annually. A family of five will pay about €450 annually. They have learned to use efficient methods in other states, such as timers for showers, shorter flushing mechanism for toilets and so on. This is how cost is brought down. Our limited research has shown that this has happened in certain member states where consumers became proactive and concerned about the cost to them, along with having important environmental concerns.

There is no question that security of supply tops the list. Even those who took the water supply in cities for granted learned, either through family or friends or just by being concerned in the last horrible winter, how difficult it was and how realistic was the prospect that they could be without a supply. There is a concern that has not been stated as strongly or vehemently as it might be by those who have not yet suffered a loss, but if it were to happen, we would have a significant problem on our hands.

I will give a limited reply on the new main facility. Anything that could bring an element of reasonableness and affordability to the change in structure that we need to move towards would make perfect sense.

Deputy Patrick O’Donovan

I thank those who made the presentation. Mr. Murphy made one of the comments I was intending to make: there is a temptation, when one talks about water, to exclude a huge proportion of people who do pay for water, although they are not in business, commercial rate payers or employers of any description. There are people living in rural communities who pay huge charges year in, year out for being members of group water schemes. They do so because they have two choices: either they pay for water or they do not get it, end of story. Some of the group schemes have been extremely successful, while others are struggling massively, because there is a realisation that water is an expensive commodity and to treat it properly is expensive. Those who are part of what I would call the flat-earth brigade who think water is not an expensive commodity should talk to the people running group water schemes and they would quickly get a fair indication of the cost of producing a cubic metre of water. It is not cheap. Just because it rains a lot in this country does not mean we can pump water around the country free; we cannot.

There is a lot of talk about how we should put all the money into fixing leaks and then we would have no problem. However, I have yet to hear anybody make a presentation in which they identify how much it will cost to fix the leaks. Let us suppose the Government were to take the advice of some and just go out and fix the leaks; we would have no idea or clue what we were getting ourselves into. It is said we cannot go down the flat charge route for a couple of years because it would be unfair; naturally it would be. However, the alternative is that the Government ventures off on a leak-fixing scheme without any idea whatsoever of how much it will cost. In some parts of the country there are pumps that are about to burn out without anybody ever switching on a tap because the leaks are so bad that water is being pumped into the ground faster than the pump can work. We are not talking about a pinhole here and there; in some places there is no water main and essentially the water is being pumped through the ground in the hope some of it will re-enter the main at the other side. To be realistic, we have massive sections of water main that need to be replaced. I am totally opposed to the idea of the Government initiating a scheme without knowing the true cost. We should put in place an integrated water system under which we would start by finding out what the scale of the problem was and bring all the local authorities together, because some are better than others, as we have seen in terms of efficiencies. I have major concerns about wildly going off and saying, "We are totally opposed to a flat charge and metering."

Chairman

Does the Deputy have questions for the delegates? He can keep the Second Stage debate until he gets back to the Chamber.

Deputy Patrick O’Donovan

The questions are coming. What would be the cost of adopting a policy of avoiding a flat charge and what would be the cost of replacing the country's water main, if we know it?

I ask Ms Murtagh to expand a little more on what she was talking about. People should have a right to appeal, to question their invoices and so on. Any of us who has served on a local authority knows that there is no mechanism whereby people can question how much they are being charged or what they are being charged for. People are paying a €200 flat charge for a water meter, even though they might be in an office in which they boil the kettle once a day, while a private house two doors up the road might have ten people living in it, yet they are paying nothing. There is an inequality that needs to be addressed.

What do the delegates consider to be the future of group water schemes? Has any consideration been given to the cost of bringing some group water schemes up to a standard at which the local authorities would take them over? Many local authorities refuse to take on group water schemes because they are not at a high enough standard in terms of maintenance to be run efficiently.

Mr. Hilary Haydon

The Deputy has raised many good questions. With regard to leaks, some of the biggest challenges for any water authority are presented by the leaks in the system and the water main, but there also leaks on people's properties. There is a view that water metering is one way of dealing with such challenges because consumers would be responsible once the service reached them. That would take care of many of the leaks, leaving the water authority to focus on the quality of service and other leaks in the water main.

The Deputy raised a couple of other questions about the cost of metering and so on. It will come down to whether the roll-out of the metering programme is Government or consumer-led, that is, whether there is an incentive for consumers to save money by introducing water meters themselves. These are some of the challenges water authorities will need to consider: whether meters are provided by a water authority, the Government or the consumer and whether they will be provided by approved installers, which could provide much needed employment. There are a number of challenges involved in keeping costs down and bringing competition into the provision of water meters to keep costs under control.

Mr. Neil Walker

These are very good questions. The cost of fixing a leak depends on how big the leak is. A representative of Dublin City Council said in a presentation at a recent event that there were three kinds of leaks. The large ones find us. In the case of small ones, one goes and finds them. Then there are the tiny ones. It sounds as though the Deputy is talking about a major one, but not one in which the water forms a geyser up onto the street. There is certainly a point beyond which it is not worth it, as one can never get the leakage rate down to zero. A leakage rate of 40% is high; 20% would be good. If we can get it down to 20%, we will probably get to the economic boundary. There are some parts of the country where the rate is more than 40%. However, it cannot be a case of fixing the leaks first and then improving the water supply. In the Dublin region money will have to be spent on both in parallel.

With regard to a household that might use two or three times more water than another premises because it has more people in it who like to wash more or use the water for something else, I would not like to prejudge how a regulator might approach it, but I will ask the Chairman to indulge me for one minute. In the case of electricity, gas and so on, the question is not how much it delivers - that is, the energy cost - rather, it concerns the import capacity. In other words, how much could one conceivably use in one day in the case of gas, or how much could one conceivably use in one half-hour period in the case of electricity? Large electricity users can have a tariff such that the network charges they pay are not related to volumetric usage but to their peak usage using whatever timescale is appropriate. Whether that could ever be applied in the case of water to small businesses or households, I really cannot say, but I am not aware of an affordable technology that could be used to achieve this. One simply could not get the necessary real time data. Anyway, I have no wish to prejudge what a regulator might say about the best tariff regime.

Mr. Dermot Jewell

The Deputy has painted a picture of a system in crisis with serious inefficiencies. The difficulty with maintaining the system at a flat rate of contribution is that it will stay in that state for the foreseeable future and therein lies the dilemma. If this is to work and if it is ever to take off in a fair way then money must be injected to try to kill some of the inefficiencies in place. This filters through to the other points raised by the Deputy because if one believes one is being charged unfairly, the difficulty is that without a meter to challenge it or a reading of some description, one is left in a position whereby one has no opportunity to challenge it and one is simply suggesting without being able to prove that one only uses a certain amount. It is difficult to do so and therein lies one of the problems with the group water schemes. Difficulties arise because they have inefficiencies and they require an input of money to address these.

Concerns were raised some time ago by the Food Safety Authority of Ireland with regard to the safety and quality of supply. It was pointed out that this required an investment of funds. All of this is difficult and the reality is, whether we like it or not, this will require investment of funds. As I stated at the beginning of our presentation, this presents a significant difficulty for the country, especially at this time.

Deputy Patrick O’Donovan

For a country that is essentially broke and that must upgrade its water system, in the absence of introducing a charge where does the money come from?

Mr. Dermot Jewell

The difficulty is that taxpayers are contributing everything they possibly can to every system to try to make it efficient. There is a real difficulty if one continues to ask them for more money for no other reason but that they can pay it and for reasons not based on usage or the value they place on usage. I acknowledge the difficulty but to continue to ask people to pay money because they must or because they can does not address a difficulty with what is an important resource. This is especially the case in this situation, more so than others.

Deputy Patrick O’Donovan

What recourse is available to the 14% of people, many of whom live in my constituency, who pay a considerable amount already?

Mr. Dermot Jewell

We do not maintain that no one should pay. The point is that if one is legally required to pay into a system for a supply of water then, at least, there should be an efficient system providing the resource in some shape or form that matches at a minimum what those paying already must contribute. If those who are paying already are unhappy with the system provided for the amount of money they pay then they should row in behind everyone else at this stage and make the point that if this system is to work then it should be a one-size-fits-all system and it should be moved to a point where we have a system that is actively in place to support the nation.

Chairman

I wish to ask six or seven questions each of which is targeted at the various responders. My first question is for IBEC and Chambers Ireland. We are due to introduce water charges for domestic householders. Water has been metered at a business level for some time. What roll-out difficulties arose when metering was first introduced for businesses and what can we expect for householders when this is introduced? For example, a situation arose whereby one continuous pipe was running through a business park and one meter accounted for it but there were various sub-divisions. What has been the experience for IBEC and Chambers Ireland in these areas and what advice can you offer to the committee this afternoon?

What is the view of Chambers Ireland and IBEC on the domestic rate versus the business rate? Should they be charged the same price per cubic metre or should there be a different rate for a household receiving water as against the business rate? For example, if the cost is €2 per cubic metre for businesses at the moment, then should households pay €2 per cubic metre as well?

My next question is for the Consumers Association of Ireland. One of the perceived difficulties with the roll-out for the water programme is the placement of the meter. Where will the meter be situated? Will it be out on the road or in the household like the ESB meter or a gas meter? In the case of the sewage difficulties at the moment, the household is responsible for sewage difficulties from its property to the mains. There are already piping difficulties in the system at present not only in the mains but in the connection places behind the house. If, for example, I had a meter installed in my house tomorrow morning, it would only measure the water coming into my household. However, if the water is measured at the mains point and if there is a loss of water between the mains and my house I would be billed for water that does not reach my property. Two questions arise. Is this fair? Whose responsibility is it to repair any damage and who is the responsible party? Naturally, the local authorities will maintain that it is the responsibility of the householder and that the householder would be responsible for the mains connection to the house. This will be a difficulty as we roll out the programme.

My next question is for Chambers Ireland, which has had a strong relationship with local government throughout the years, exemplified by the annual local government awards. In addition, local chamber organisations have developed a strong working relationship with local authorities. Is it the view of Chambers Ireland that the creation of an Irish water company is a better approach to deal with national water supply than the local authority model? This would appear to be the judgment of Chambers Ireland today. Despite its strong relationship with local government, does Chambers Ireland believe that water provision would be served best through a national utility as opposed to the 34 authorities in place?

All the delegations appear to recognise the need for a household allowance or some derogation or system with regard to rolling out a fair and equitable provision of water. I will not question the views held and I agree with the views of Mr. Walker and Mr. Murphy to the effect that it is a decision for Government and not for the delegations to decide. However, will the delegations offer a view on a related matter? An allowance system must be created and one must quantify such a system and set down the structural methodology with regard to how one develops that allowance system. I am keen to hear the views of the delegation on this. It is easy to measure in the case of television systems in that the question is whether a pensioner lives in a given house.

However, the case of quantifying water in a domestic household situation is rather different. Beamish or Guinness may take in one litre of water and make a litre of stout from it. However, let us consider a household with elderly people, children and someone with a specific illness who many require a different level of water consumption. For example, someone with a prostate difficulty may have significant water consumption needs. If the delegations are to feed into PricewaterhouseCoopers' report, do they have a view on the suggestion that we should convert to a personal public service, PPS, number-based household registry system? At present the register of electors is based on the household system. However, if we moved to a PPS number-based system, which exists in Northern Ireland, we could get a better quantification of who is living in a given house because it would be tied to the PPS number register and there would be a better understanding of the social welfare status, illness status and so on as well. Is this something to which the delegations would give consideration?

The ultimate question is one we must all ask ourselves. Does the delegation believe the proposed Irish water company can be a profitable operating company which can provide a competitive rate or tariff to households and for this to take place, what is the key, critical factor?

Mr. Sean Murphy

We will answer several of the questions but we will share them out if that is okay.

Mr. Hilary Haydon

I will take the questions in the order I have them. One question referred to the domestic rate charge versus the business rate charge. How to approach this is a tough question. Ultimately it will be the role of the regulator to set it. I am not trying to cop out of the answer but whatever rates are charged have to be fair.

Consumers and business users must be encouraged to make savings through conservation and possibly water harvesting. Whether it is local authority based or there is a water authority, the responsibility will rest with it to recover the full cost of the supply of water. That will have major implications for cost.

On the business sector, I would ask the regulator to consider savings which could be applied to businesses operating in specific trades such as tourism or which have a strong community basis. There may be a higher level of water charges. At a certain level of conservation a reduction in water charges might be applied because of the nature of the supply.

We work very closely with local authorities and are proud of our excellence in local government awards and the achievements made in local authorities throughout the country. With 34 local authorities, we need to consider how we can roll out a quality water service and put the national interest first. The national interest suggests a water authority that is able to have control over the supply and delivery of a water service. That seems to be a better model, based on our study and research.

Chambers Ireland has closely examined a PPS-based system versus a household charge. Many households comprise retired couples, unemployed people, families with children or families where everyone is working. The question of whether everybody should be contributing towards the cost of water in a PPS-based system requires further study to determine whether it could result in a better and fairer system of charges across the country.

Mr. Sean Murphy

On domestic versus industrial customers, it is worth noting when water charges were rolled out as individual charges for businesses a circular from the Department of the Environment, Community and Local Government was issued. It contained a statement that rates should fall in line with water service charges but that did not happen. It is worth keeping in mind in terms of determining water price.

On local government, the issue is to what extent we can minimise costs. It can be done through consolidating back offices while maintaining front-line services. If a relatively small number of water companies in the UK serve a population of approximately 70 million, why would we require 34 individual entities in Ireland, which is less than the size of greater Manchester, to provide the service? It is worth noting that.25 years after water services were rolled out in the UK the average rate of metering per household is 30%. It seems the vast majority of UK residents are happy with an assessed or individual flat rate charge. It is an issue we should seriously consider in terms of reviews in Ireland.

There is definitely scope for an efficient Irish water utility generating dividends for the State when run as a commercial enterprise regulated by an existing regulator, rather than introducing new infrastructure, such as an adjunct to CER. The wider asset base of water in Ireland is worth more than €3 billion. It is not recognised on the books of the State and something could be done with it which would be of benefit at a time when the country is under massive financial pressure.

Mr. Neil Walker

With regard to the roll-out of domestic water meters and potential difficulties, the first question is whether meters would be located at front gates or in kitchens. In terms of ease of installation it is probably cheaper to put them in kitchens because roads would not have to be dug up. On the other hand, I have heard it said a lot of water is leaking from pipes running from front gates to kitchens and they will not be found if meters are in kitchens. It is an economic trade-off and an issue for the regulator to decide which will be better for society as whole.

On domestic versus business rates, I understand the calculation of charges to business is on the basis of a fair share. The problem with ascertaining a fair share is that the cost of the chemicals and running the pumps is only 25% of the total cost. Trying to figure out a fair share is an accounting exercise because one is trying to allocate shared fixed costs. I am not qualified to answer that question.

On the idea of a household allowance and whether a PPS system is a better way of delivering that, if it was done through the social welfare system, as already operates for electricity and gas computer systems, one would not need investment in a computer system to deliver it. Having said that, I cannot comment without having looked at the numbers.

Can it be profitable for a monopoly to operate? Generally monopolies can make a profit.

Chairman

It is not always the case in Ireland.

Mr. Neil Walker

Not always, no. The question is whether an efficiently run monopoly keeps down the cost of services and returns a dividend to the taxpayer. I would hope so, particularly if it is given the flexibility to access private sector finance and expertise.

Mr. Dermot Jewell

On the placement of meters, in our presentation we noted having them in households would make sense in terms of monitoring and ensuring consumers can be proactive about reducing usage when and where they can. However, if there is a leakage at the point of delivery the household allowance might play a factor. As was already pointed out, it is possible to determine and detect leakages and perhaps the quantity of same could be inbuilt to the household allowance. It might address problems which could not be solved immediately.

On a PPS-based system, we would need to go a little bit further and consider what other initiatives have been brought into play in other jurisdictions which have proven to be the most realistic and fairest. If something works in Northern Ireland we should go that route. There may be other opportunities which we are not currently aware of, but we will try to find out what they are.

Profitability will be determined by the cost of service and the ability to pay. I hope it will become a profitable solution and business, provided there is a credible provider.

Mr. Sean Murphy

Consolidated Irish water will probably be the biggest single user of electricity in the country, something a lot of people might not realise. There are massive economies of scale to be had purely in terms of purchasing that one resource.

In its consolidation of networks the ESB consolidated its depot units into ever more consolidated and specialised units on a smaller scale which resulted in significant cost savings. The Bord Gáis Éireann model originally comprised seven city gas companies and when they were consolidated into one company significant back-office savings were achieved of which the State has reaped the benefits.

Chairman

It is one of the tenderers for the Irish water concept.

Mr. Sean Murphy

There are a number of entities in that area. We have done it before and wrung out profitable revenues which the State desperately needs.

Senator Cáit Keane

I welcome the delegates and apologise for being late. I need the facility of bilocation.

This is an important subject and an optimum time to deal with it. If we are to change the system, we need to ensure we get it as right as we can. I was a member of a local authority for a long time and have seen inefficiencies. I was a member of a Dublin local authority and the combined regional effort worked better than in a single entity. Comparing the population of Ireland to that of England, our national water authority will be smaller than any water authority there. It is proposed that the water authority be a semi-State rather than a private body. This would make a big difference and it should be said loud and clear.

When the body is set up, we must ensure we do not throw the baby out with the bath water. There is considerable expertise at local authority level and it should be used. We must not try to reinvent the wheel. We should not seek new expertise when we have experts in local authorities. I hope to see this point stressed in the submissions, some of which have been made.

I have heard many people say we should not pay for water. Are we unique in Europe? I believe this is the only country in Europe in which there is not a charge for water. Why are we so different or special?

Chairman

Does the Senator have a question for the delegates?

Senator Cáit Keane

Water is a finite commodity and we should respect it. Every household should have a water meter. We need education, less usage. I hope recommendations will be made in that regard. I know metering will be expensive, which is why there should be an initial flat charge until the system has been built. People will not be encouraged be preserve water if it is not their own responsibility. We saw the effect the plastic bag levy had. It is expensive to treat and provide water.

Chairman

Does the Senator have a question for the delegates?

Senator Cáit Keane

Yes, I do. I want to get to the issue of fluoridation and how it will be monitored when the water authority takes over. There should be independent monitoring in this regard. Fluoridation was mentioned by the Consumers Association of Ireland and I am not against it. However, we have had only one study of fluoridation in Ireland which was conducted by the Department of Health in the 1960s. This committee should seek expert analysis and views on fluoridation, as there there are many views on it. Even among dentists there are two views. A forum has been established by the Department of Health. We could collect information on this subject and put it to that forum. A contract has been placed with the Oral Health Services Research Centre in University College Cork on behalf of the Department and the Health Service Executive to investigate all aspects of fluoride use and intake, including water fluoridation. Can we get the results of that investigation, if it has been completed? The outcome of the project was supposed to result in guidelines for fluoride use in Ireland. The committee should make recommendations based on scientific studies.

Chairman

We have delegates before us. The committee will be considering the submissions made and structure a report on that basis. Members may then present further ideas. Does the Senator have a specific question for the delegates?

Senator Cáit Keane

Yes, I do. I will return to the issue of water fluoridation which I was addressing and which was raised by the Consumers Association of Ireland which represents those consumers who drink fluoridated water.

Chairman

That question has been answered. We have dealt with the water fluoridation issue.

Senator Cáit Keane

We did not. All I heard was that there were many views on the matter. We have a duty of care to consumers and should seek expert advice. I may not have another opportunity to make this point, as it may be too late when we debate Committee Stage of the water services Bill. We should be availing of the expertise available in the universities and the Department of Health for the next meeting.

Chairman

This meeting is a finding-out exercise. Does the Senator have a question for the delegates?

Senator Cáit Keane

Will they, particularly the Consumers Association of Ireland, send us any information they have on water fluoridation? I am not taking one side or the other. Neither did the Environmental Protection Agency when the matter was discussed previously. We should know what we are doing.

Chairman

I thank the delegates. If they wish to make any final comments, I would like to hear them.

Mr. Neil Walker

I thank the committee for giving us this opportunity to talk about the matter. We are very keen to see a water authority established on a timely basis, with the maximum consultation allowable within the time constraints. If there is anything we can do to facilitate this, or anything the committee can do to help us, we will be delighted to talk to anyone.

Mr. Hilary Haydon

On behalf of Chambers Ireland, I express our gratitude for the opportunity to talk to the committee. Our doors are completely open to assist in every way possible. We study and do a lot of work on the issue of water charges. Our resources are available to the committee, as required. If anything further is needed, we will be delighted to help.

Mr. Dermot Jewell

As the Chairman knows, we represent the ordinary consumer. We are delighted to have been invited to contribute to this meeting. We will provide any information we have on water fluoridation for Senator Keane and the committee. If we can help in providing any other information or can make any other contribution, we will be glad to do so.

Chairman

I thank Mr. Murphy, Mr. Haydon, Mr. Walker, Mr. Gouldsbury, Mr. Jewell and Ms Murtagh for their attendance and assisting us in our deliberations. The extent of their answers and the depth of their presentations are appreciated by the committee in the project it has taken on as part of its work programme.

The joint committee adjourned at 4.50 p.m. until 2.15 p.m. on Tuesday, 29 November 2011.