The water industry regulator, Ofwat, has taken two more steps in its bid to increase competition in the water industry.
It is asking its stakeholders – industry, organisations and government bodies with an interest in water issues – for their views on a series of measures which it wants to take to assist competition. The proposals are contained in two consultation papers published today.
The move follows the publication before Easter of Ofwat's internal review into why progress towards a more competitive market had been disappointingly slow.
This recognised that the two main barriers to competition are the Costs Principle and the size threshold. The Costs Principle requires companies to follow a very prescriptive method for setting prices for access to companies' networks. This produces margins that may be too low to allow retail competition to flourish. Ofwat is also required to follow the Costs Principle when giving guidance on access prices. The size threshold allows only commercial customers who use at least 50 million litres (50 Ml/y) of water a year to choose their water supplier – around 2,200 customers.
The first consultation proposes changes to the Water Supply Licensing (WSL) guidance to improve the way the current WSL regime works.
The second consultation, on secondary supplies, sets out how new entrants to the industry, known as water supply licensees can buy 'spare' water from an existing water company to supply their customers in a neighbouring water company's area.
Following these consultations, which end on 1 June, Ofwat aims to implement the guidance as quickly as possible.
Keith Mason, Director of Regulatory Finance and Competition said, "We have already recognised that the key barriers to competition are the Costs Principle and the size of the market. These require a change in the law but Ofwat is now proposing in these consultations to take some further steps under the current regime to promote competition."
Please visit the Ofwat website for more details on the consultation www.ofwat.gov.uk
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