Ofwat
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Ofwat recommends opening water and sewerage markets to competition
Ofwat today published the second part of its review of competition in the water and sewerage sectors. In it we recommend that contestable water and sewerage markets are opened to competition where it will benefit consumers, and we describe the work we will be doing to enable this to happen.
Ofwat Chief Executive Regina Finn said:
"We want to achieve an efficient and innovative sector which is able to respond to the challenges facing it, such as climate change, rising consumer expectations and growing population in water-scarce areas. Competition can help deliver that.
"The current scope for competition in the water and sewerage sectors is severely limited by legislation, is confined to a small number of business customers and has not developed successfully.
"We propose that more of the market is opened progressively, starting with all business customers. In time households could be able to choose their water supplier, when the market is ready and safeguards are in place.
"Competition will drive benefits such as greater responsiveness to customers' needs, innovative approaches to adapting to climate change and downward pressure on costs.
"Competition can also help respond to the environmental challenge of water scarcity, which the Government highlighted in its water strategy. Markets could spur innovation in developing and making better use of water resources and more water efficiency services, supporting sustainable water abstraction.
"As markets develop, we will look for opportunities to withdraw regulation. We will continue to robustly challenge companies on price and service delivery until competition is strong enough to protect consumers."
We recommend a step-by-step approach to developing markets, allowing competition to prove itself. Early priorities are the development of competitive retail services markets and tackling barriers to new entry to upstream water resources markets. Progressive vertical separation of companies, including separated accounts and price controls, will be important in enabling competition to develop.
The document we are publishing invites comments on our recommendations to Government for legislative change, and contributes to the independent Government-commissioned independent review of competition and innovation in water markets being led by Professor Martin Cave.
Notes to Editors:
1. The Water Services Regulation Authority (Ofwat) is the economic regulator of water and sewerage companies in England and Wales. It exercises its powers in a way that it judges will protect the interests of consumers, promote value and safeguard future water and sewerage services by allowing efficient companies to carry out their functions properly, and finance them.
2. The current competition regime (water supply licensing) is not working. In more than two years not one of the 2,200 eligible business customers using 50 megalitres a year have switched supplier. One megalitre = one million litres.
3. The Government's strategy on water, called 'Future Water', was published in February and can be found on http://www.defra.gov.uk
4. The consultation paper 'Ofwat's review of competition in the water and sewerage industries: Part II' can be found on our website http://www.ofwat.gov.uk
5. We invite comments on the recommendations and proposals in this document by 29 August 2008. Please e-mail responses to hayley.purcell@ofwat.gsi.gov.uk.
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