Water industry shake up could lead to integration between the Great Britain and Scotland water markets
Posted: Wednesday 29th April 2009
Richard Laikin, a director in the power and utilities team at Ernst & Young, commenting on the outcome of the Cave Review of competition and innovation in the water industry announced in the recent Budget, says:
Foot shuffling will damage investor confidence
“If the government and OFWAT do not move decisively to implement Cave's recommendations it will damage investor confidence, driving up the water companies' cost of capital and ability to obtain finance on attractive terms. Implementation will be complex and will take several years of hard work by the industry, and some measures will only go ahead if they are incorporated into the government's Floods & Water Bill.”
Customers to benefit from opportunity to integrate British and Scottish water markets
“There will be more trading of water between water companies, especially in the south east, including increased transport of water across company boundaries from places of surplus to areas of deficit.
“And there is an opportunity to create a GB-wide water market integrated with Scotland, where there is already retail competition for all business customers.
“In aggregate this will enable improvements to products, customer service, culture and efficiency in parts of the business that have not previously been a focus. Business customers are likely to see the benefits first but, in particular as household water metering is rolled out more widely, competition could be extended to domestic customers just as it has been in electricity and gas.”
Restructuring of water companies inevitable
“Water companies currently do a great job of putting customers first in the physical supply and disposal of water and sewerage. In the medium term those that offer the best customer service will reap the benefits, while those that see it as a threat or distraction will get out. A restructuring of the industry is on the cards, with some companies likely to hive off their customer-facing retail activities to focus on network and asset management, with others growing their competitive retail businesses on a regional or national basis.”
What has the review covered?
§ Moves to open up retail competition in water services so that no longer monopoly providers;
§ Accounting, organisational and legal separation of the water companies retail activities from the rest of their business activities
§ Moves to encourage water trading and improved valuation of water at the point of extraction and treatment
§ Incentives to improve innovation in the sector
§ Relaxation of special merger regime for water companies
