Six Midlands companies free to choose new water supplier

Ofwat is ready to grant a licence to Albion Water, to tender for sewerage contracts in direct competition with Severn Trent Water, should any one of six large industry customers in the Midlands choose to appoint it.

Severn Trent Spokesman Steve Hodgson said: “We have always welcomed the idea of competition and this is no exception. We have a good relationship with our customers in the area and we will continue to offer the best deal.”

Ofwat’s director general Ian Byatt approved the licence in principle as part of a programme to improve efficiency and customer choice through deregulation.

Albion Water, a wholly owned subsidiary of Enviro-Logic Ltd, would be the first new sewerage undertaker to be appointed since privatisation. The customers in this case are Bass Brewer Ltd, Bass Maltings Ltd, Marston, Thompson & Evershed Plc, and the former Carlsberg-Tetley site (owned by Bass) all in Burton-Upon-Trent; and Walker Snack Foods, Beaumont Leys, Leicester and Britvic Soft Drink, Rugby, Warwickshire.

Under the Competition and Service (Utilities) Act 1992. the scope for companies to apply for so-called ‘inset appointments’ – whereby a customer can change suppliers of water and sewerage treatment services – was extended. However, it was not until 1995, when Ofwat simplified the rules, that interest in applications for inset appointments grew.

Dr Jeremy Bryan, managing director of Albion Water’s parent Enviro-Logic Ltd, said: “We applied for the licence to tender for these contracts four years ago. Now these customers will be able to decide which company is offering them the best option.”

Brokerage agreement

In a brokerage agreement such as this one, a new supplier challenges the costs of the existing undertaker. Because the two parties rarely agree, Ofwat is asked to make a determination of cost which is then binding. “Historically, industry has cross-subsidised other industries,” said an Ofwat spokesman. “The inset appointment process allows an alternative supplier to propose new charges which must reflect the price of providing services, but may be more accurately based on the true cost to the customer.

“If the new supplier can justify its costs to Ofwat, it will make a determination on price. It will then be up to the customer to choose between service providers.”

Since the rules were streamlined, three inset appointments have been granted for the supply of water and/or water supply. They were to Anglian Water for the supply of water to Buxted Chicken, formerly an Essex and Suffolk Water customer; Anglian Water also took over the water supply to RAF Finningley, near Doncaster from Severn Trent Water; and the former Wessex Water customer, MoD Tidworth, Hampshire is now supplied by Thames Water. In March 1998, Ofwat agreed to grant Albion Water a licence to supply Shotton Paper, Teesside, should the company decide to take its business away from Welsh Water.

Albion’s Dr Bryan said: “We have now made around 30 applications to tender for contracts where customers have been sufficiently fed up with the standard of service they are getting to look for an alternative.”

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