Ofwat recommends opening water and sewerage markets to competition
Ofwat has published the second part of its review of competition in the water and sewerage sectors.
In it the organisation recommends that contestable water and sewerage markets are opened to competition where it will benefit consumers, and Ofwat describes the work it will be doing to enable this to happen.
Ofwat Chief Executive Regina Finn said: "We want to achieve an efficient and innovative sector which is able to respond to the challenges facing it, such as climate change, rising consumer expectations and growing population in water-scarce areas. Competition can help deliver that.
"The current scope for competition in the water and sewerage sectors is severely limited by legislation, is confined to a small number of business customers and has not developed successfully.
"We propose that more of the market is opened progressively, starting with all business customers. In time households could be able to choose their water supplier, when the market is ready and safeguards are in place.
"Competition will drive benefits such as greater responsiveness to customers' needs, innovative approaches to adapting to climate change and downward pressure on costs.
"Competition can also help respond to the environmental challenge of water scarcity, which the Government highlighted in its water strategy. Markets could spur innovation in developing and making better use of water resources and more water efficiency services, supporting sustainable water abstraction.
"As markets develop, we will look for opportunities to withdraw regulation. We will continue to robustly challenge companies on price and service delivery until competition is strong enough to protect consumers."
We recommend a step-by-step approach to developing markets, allowing competition to prove itself. Early priorities are the development of competitive retail services markets and tackling barriers to new entry to upstream water resources markets. Progressive vertical separation of companies, including separated accounts and price controls, will be important in enabling competition to develop.
The document we are publishing invites comments on our recommendations to Government for legislative change, and contributes to the independent Government-commissioned independent review of competition and innovation in water markets being led by Professor Martin Cave.
The Consumer Council for Water agrees with Ofwat that there is room to improve competition in the water industry, and that competition needs to work for business customers first, before being extended to domestic customers.
Sir James Perowne, Chair of the Consumer Council for Water Central and Eastern, said: “We have been pushing for Ofwat and the government to widen competition and are pleased that they are now looking at making changes to the system.
“Competition to date has not served business customers well. Business customers have told us that they want to be able to choose their water supplier, but are frustrated at the lack of progress.
“At the moment, competition for business customers is only open to those that use a lot of water. The high threshold of using at least 50 megalitres of water per year means that only about 2,200 business customers in England and Wales are eligible to switch suppliers, and there is no real incentive for those who are able to change their supplier because they are unlikely to save money by doing so.
“Ofwat is looking at domestic competition, but we would like to see competition working for business customers first. Our initial research has shown that roughly one quarter of domestic customers would switch if given the option, but the figures vary by area, with most customers wanting to switch in the south west of England, where water bills are the highest.
“We are working with Ofwat to carry out more detailed research on domestic consumers’ views of competition to make sure that we know what consumers want from competition in the water industry.
“We look forward to working alongside Ofwat and government on their reviews of competition, so that the views of consumers, business and domestic, are made clear and taken in to account.”
Ofwat’s review of competition will feed into the larger joint government review led by Professor Martin Cave.
