Water industry regulator Ofwat has launched a new discussion paper on how new companies will have access to the systems and services provided by the current monopoly water and sewerage and water only companies when the non-household sector opens for competition in May 2017.
The detailed discussion document introduces some of the terminology, concepts and issues Ofwat will need to consider as it develops a new charging rules framework for access pricing for the water sector in England and Wales. It describes:
- what access pricing is and why it matters;
- some of the key issues Ofwat will need to consider around access pricing;
- which costs could be considered in setting access prices; and
- the lessons to be learnt from other sectors.
The Water Bill which is currently making its way through Parliament requires the regulator to prepare rules that monopoly companies will need to follow in setting the prices they will charge for providing access to new entrants into the marketplace.
Currently in England and Wales there are 19 licensed regional monopoly companies which customers receive their water supplies from, ten of whom also provide sewerage services. Each monopoly company currently provides a ‘source to tap’ business in its area to household and non-household customers i.e. it is ‘vertically integrated.’
New entrants providing wholesale services to the non-household sector when it opens for competition will need to access the existing monopoly companies’ water supply and sewerage infrastructure, including networks, storage facilities and treatment works. The discussion paper addresses the potential options which might be put in place with regard to prices the monopoly companies might charge the new entrants for accessing their infrastructure.
This could also extend to an application by a new entrant for a ‘wholesale authorisation’, which would enable it to introduce water into the supply system of an existing monopoly company who would then charge a price for moving the new entrant’s water through its pipe network.
Key issues the paper addresses include the prevention of monopoly abuse by the existing water companies and the selection of the appropriate level of cost information needed to establish prices. Looking beyond the current PR14 Price Review to the next price control period in 2019, the regulator is now planning the phased introduction of two new tools:
• network plus – designed to reveal information about costs and revenues related to companies’ network and treatment activities; and
• network management – designed to reveal information about companies’ network management policies, practices and cost drivers.
Ofwat said the new tools would reveal information about companies’ costs and could help enable effective access prices to be set.
Thr regulator is also looking at whether lessons can be learnt from other sectors’ work on access pricing frameworks, including the water industry in Scotland, airports in England, and the post, rail, telecoms, gas and electricity sectors in Great Britain.
Ofwat is now inviting responses and views on the proposals outlined in the paper - click here to download the paper in full.
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