Consultation paper suggests new inset threshold
Environment minister Michael Meacher has launched the government's consultation paper on Competition in the Water Industry.
The paper sets out the Government’s current view on the state of competition and asks water companies to submit their views on a number of issues.
The aim of the government and regulator Ofwat is to introduce ‘common carriage’, whereby water companies are forced to share their networks so that customers can choose their supplier. Competition has so far been limited to a few large inset appointments where water companies have been granted licences by Ofwat to supply water to a major customer (using over 250Ml/yr) on another water company’s territory.
The government has now suggested a reduction in the water use threshold for inset appointments from 250 to 100Ml/yr: “The government believes the threshold for inset appointments should be lowered, so that customers using at least 100Ml of water per year are able to change their supplier.” In practice this means there may be more inset appointments of an industrial or commercial nature, but not at an individual domestic level.
Mr Meacher could not give any indication of when individual domestic customers could expect to choose between water suppliers, but said: “This change is planned as part of the gradual roll-out of competition in the water industry.” As far as the individual is concerned, he said “we could be looking at several years.”
However, it is quite possible, for instance, that water companies could start negotiating with developers over the rights to supply new houses – over 4M new houses have been proposed by the government for the south-east.
If following the consultation period, the government gives approval to the 100Ml/d threshold, a new wave of medium-size users such as hospitals or hotels may be tempted to opt out of their existing supply by a cheaper offer from another water company.
Mr Meacher was keen to emphasise any such changes would be subject to close scrutiny in order to protect customer rights, water quality and prevent water companies targeting and “cherry picking” areas where profits could easily be made.
How such regulation would take place is not clear, but as Mr Meacher argued: “That is the whole point of this consultation, it is a genuine consultation to get views on how competition should be regulated.”
Water companies, customer service committees and other interested parties now have just under two months to respond to the consultation document, which highlights a number of issues of concern.
For competition to take off on a major scale, water companies need to agree to common carriage. According to the document: “At present private suppliers do not have the right to use the existing infrastructure owned by the existing statutory undertakers, who have considerable market advantage arising from ownership and little incentive to co-operate with potential competitors. The Government believes the promotion of more common carriage arrangements is desirable.”
Whether the Government will ever make common carriage law remains uncertain, but if not, the Government will remain subject to accusations of running a “phoney war” over water monopolies.
Mr Meacher said separate licences for the construction and ownership of infrastructure and network operation were a possibility. Some water companies, such as Kelda (formerly Yorkshire Water) have already undergone management re-structuring in line with such a division.
The consultation paper also does not rule out the possibility of Ofwat issuing separate licences for the operation of sewers, as well as supply networks.
Another issue of concern is the setting up of new water companies. Mr Meacher said “New water companies should be subject to the same liabilities and restrictions as existing water companies and adequate regulation must be in place to prevent over-abstraction and damage to the environment,” in the event of a scramble to find cheaper supplies. He added that: “Any legislation which we decide upon will be incorporated in the new Water Bill.”
The Water Bill was due to be published as part of the Utility Bill in March (see related story), but instead provisions relating to water were taken out of the Utility Bill following a power struggle between the Department of the Environment, Transport and the Regions (DETR) and the Department of Trade and Industry (DTI). According to Mr Meacher, the new Water Bill should be published later this year.
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