UK water industry heads for most radical change since privatisation

Speaking at The Economist’s Tenth Annual Water Industry Conference in London, Byatt said that the introduction of the Competition Act and a Government review of the use of economic instruments for abstractions and discharges amounts to “an important milestone” in the evolution of the UK water industry.

Byatt also announced that he had approved the first inset appointment to cover new household customers.

“The time is ripe for a step forward in competition in water,” said Byatt. “The Competition Act 1998 strengthens the powers available to the regulator to ensure a level playing field and reduce barriers to entry. This has the potential to open up the monopoly industry to competitors for the benefit of customers.

“Much can be done now to bring the benefits of market competition to customers. Competition is here to stay, the pace of change is the question. It’s now up to the companies to get on with offering choices to customers – and up to customers to use those choices – they have the power.”

Byatt urged companies to view the Competition Act as an opportunity for new business. “Foresighted companies are looking for opportunities for growth and ways of reducing the unit costs of their operations. If networks and resources, become accessible, on reasonable and non-discriminatory terms, companies can look creatively at growth through competition. The new challenge is to see off the competition, not to see off the Competition Commission.”

These changes would, said Byatt, lead to a change in the regulator’s role. “My role is to see that competition can develop – and create the framework for it to happen. The future of competition is in the hands of entrepreneurs and innovators, not the regulator’s. I look forward to the day when the focus of the regulator can change from being a regulator to being a competition authority.”

Byatt said it will be the regulator’s job to support companies and to provide a framework which channels their initiative and entrepreneurship. This framework, says Byatt, will have four elements:

• to create a level playing field which favours neither entrants nor incumbents
• to develop scope for inset appointments and to administer them efficiently
• to encourage economic pricing to allow competition to work to the right ends
• to encourage competition for water resources

While expanding on these elements of the framework, Byatt announced that he had approved the first inset appointment to cover new household customers. Hartlepool Water are to supply water to nine residential and leisure industry sites at Wynyard, near Wolviston in Teeside in place of Northumbrian Water Both water companies’ licences have been changed to make Hartlepool Water the statutory water undertaker for the sites.

The Ofwat Northumbria Customer Service Committee will represent customers at Wynyard South, as if they were Northumbrian Water customers.

Byatt said: “These are the green shoots of competition. This appointment is the first to offer the benefits of competition to new households as well as to businesses.”

Byatt said that he hoped that, as a result of his forthcoming review of competition in water, John Prescott will agree to reduce the threshold for inset appointments from 250 Ml/d to 100 Ml/d. This, said Byatt, would add 1,500 major customers to those who can receive competitive supplies in this way.

On competition in water resources, Byatt said Ofwat is discussing with Ministers and the Environment Agency ways of improving the flexibility of the current regime of abstraction licences to allow market based access to resources.

Byatt said there was already scope within the existing legislation to improve the allocation of new supplies of water by allowing competing suppliers to bid for licences; by charging more where supplies are scarce or where there is a risk of environmental damage through over abstraction; and by simplifying the transfer of existing licences.

Ofwat would, said Byatt, use major new powers available under the Competition Act to investigate and, where necessary, to fine companies that act “anti-competitively.”

Ofwat, Byatt said, will shortly write formally to companies requiring them to set out the principles which would govern access to their infrastructure for common carriage. “This will include ensuring that the terms and charges for access are consistent with comparable components of a company’s charges.”

However, comparative competition will continue to have a role to play. After the price review, Ofwat plans to extend its comparators to take in comparable suppliers in other countries, including Scotland, Northern Ireland, France, Australia and the United States.

Byatt closed his speech by speculating on the future of the water industry. He said the development of common carriage could lead some water companies to specialise in network services. Others could specialise in the supply of water to customers, buying from network companies and providing billing and customer services.

Ultimately, Byatt foresees doing away with a threshold for insets entirely: “Then, any customer could change suppliers if he or she chose. The regulator’s role would then be to ensure the new undertakers met their obligations. This could allow competition to develop in a flexible way.”