Tiffany Cloynes 29 June 2018

Managing utilities in-house

Managing utilities in-house image

The pressure on local authorities to deliver efficient and effective services whilst managing resources effectively means that they are constantly seeking innovative ways of working. One area which has seen interesting and innovative approaches from local authorities recently is the management of utility services.

The granting by the Water Services Regulation Authority (Ofwat) of a licence to Blackpool Council, which will enable the council to manage and monitor its own water supply was a particularly radical development.

Other local authorities have explored opportunities to find more effective ways of sourcing energy, including becoming involved in arrangements for provision of energy.

Such arrangements can bring advantages to local authorities and the areas they serve – when Blackpool Borough Council applied for a licence it was reported that it expected to make considerable cost savings through its involvement in water supply – but there are several issues that local authorities will need to address in order to use such arrangements lawfully.

Powers

Any local authority will need to ensure that it can identify a power which will allow it to make its proposed arrangements. Local authorities have a wide range of powers but these can be subject to limitations and constraints. The introduction of regulations in 2010 to provide an exception to the restriction on the power in section 11 of the Local Government (Miscellaneous Provisions) Act 1976 in 2010 and so to allow local authorities to sell electricity produced from renewable sources, rather than just electricity produced in association with heat, showed how local authorities can find themselves constrained by restrictions contained in legislation made at a time when arrangements that are considered appropriate now would not have been considered.

Local authorities will also need to ensure that any action that they undertake amounts to a reasonable exercise of their powers. They will need to take account of all relevant matters, disregard irrelevant matters, act for proper purposes, not act in bad faith, observe procedural requirements and not take a decision that is so unreasonable that no reasonable local authority could have taken it.

It will therefore be very important for local authorities to analyse thoroughly the basis of the arrangements they are pursuing and their reasons for pursuing these.

Regulatory Requirements

There will be detailed regulatory requirements associated with the provision of utility services – as illustrated by the need for Blackpool to apply for a water and sewerage licence. Before any local authority takes steps to become involved in the provision of utility services, it will need to ensure that it is aware of any regulatory requirements and the implications these will have on the local authority’s proposed arrangements. The local authority will need to have in place appropriate resources and procedures to allow it to comply with its obligations and to monitor its compliance.

Resources

Local authorities might be attracted to consider arrangements for the provision of utility services by the prospect of savings which might be made. However, resources would be needed for the delivery of any such arrangements. The local authorities would therefore need to assess the scope comprehensively to identify what resources would be needed and how it will make the required resources available.

A local authority might decide that it needs to involve external service providers and product suppliers to enable them to deliver particular arrangements. It will be important for it to identify and comply with any legal requirements associated with this. It is likely that any such requirements will need to be procured in compliance with relevant public procurement legislation unless contracts are below the threshold at which the legislation applies or are covered by exclusions. Procurement obligations could have a significant impact on the resources and timescales required to introduce particular arrangements, so it is important that local authorities should take account of this and plan accordingly from the outset of considering particular initiatives.

Some local authorities might consider that they would gain advantages and achieve more effective arrangements if they work together on particular initiatives. They would need to be clear about the basis on which they would be doing this and the process they would need to follow in order to put such arrangements in place. For example, would one authority be delegating functions to another or awarding a contract to it? Would the authorities intend to establish a new separate entity such as a company?

Each local authority would need to be satisfied that it would be acting within its powers in making any such arrangements and complying with any legal obligations, including any statutory requirements and any requirements within its own constitution.

It can be seen then that there will be a range of important issues for a local authority to address before it pursues arrangements to become involved in the delivery of utility services. It will therefore be of fundamental importance for any local authority to identify at the outset its purpose and objectives and to establish a business case to confirm that the proposed arrangements have the potential to meet the purpose and objectives.

A business case should set out the objectives, provide details of the resources required, assess the risks involved and how these could be addressed, identify any legal obligations and how the local authority would ensure that it complies with them, and identify the expected outcomes. An effective business case can be an effective tool in helping a local authority to take a reasonable decision as to whether it would be appropriate to proceed with proposed arrangements, as well as a useful source of reference when the local authority plans and implements arrangements.

Conversely, if a local authority enters into arrangements without giving adequate attention to its purpose and objectives and the legal basis for achieving these, it could put itself at risk of failing to address important issues and to comply with legal requirements.

Tiffany Cloynes is partner and head of the regeneration and public services team in England for Geldards

This feature first appeared in Local Government News magazine. Click here to register for your own free copy.

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