MD 158

TO THE MANAGING DIRECTORS OF
WATER AND SEWERAGE COMPANIES
AND WATER ONLY COMPANIES

28 January 2000

COMMON CARRIAGE

1. Introduction

MD 154was issued on 12 November 1999. It set out my views on the important issues which companies should address in developing common carriage. I asked companies to make the principles that would govern access to their networks available to potential competitors, by 1 March 2000.

We have had a number of responses from companies. This letter examines the main point raised by companies, that new entrants should be licensed. It also sets out my views on the related issue of specific legislation for common carriage.

2. Specific legislation

Some companies have argued that specific legislation is necessary to introduce common carriage. I do not subscribe to this view. I believe the Competition Act 1998 opens up the scope for common carriage and most of the companies have not questioned this view.

Experience of common carriage would allow us to identify, at a later stage, how specific legislation might improve matters.

3. Licensing new entrants

Most companies in their comments on MD 154stated that new entrants to common carriage should be licensed. Licensing was necessary, companies argued, to give new entrants the same rights and obligations as incumbent companies. In this respect, they would be subject to:

• the same standards of quality and level of service;
• the same regulatory regime (including enforcement action and the provision of information);
• Ofwat scrutiny to ensure technical and financial viability; and
• DWI monitoring and control.

If licensing were thought to be the most desirable or sensible approach, this is already possible within current legislation. The rules for granting inset appointments could be used to license new entrants to the industry. Licences can be granted for greenfield sites and large users, and we expect the threshold for large users to be lowered. For companies outside these groups, the incumbent operator can simply consent to an inset application within its region, with no other qualifying criteria needing to be met. The inset appointee would then be licensed in the same way as existing companies.

4. Confidentiality

We intend to place replies to MD 154 (and any replies to this letter) in the Ofwat library. If you wish your reply to be kept confidential, you must inform Ofwat by Monday 7 February, stating your reasons for confidentiality.

I may, nevertheless, decide that publication is necessary in order to fulfil my regulatory duties. If so, Ofwat will tell the company seeking confidentiality and give an opportunity for further representations to be made, before finally deciding what to publish.

5. Way forward

Companies have told me that they welcome competition. Many of them are working together to agree a common set of principles governing access to networks. We would welcome the opportunity to discuss these principles, as they develop.

The Competition Act 1998 will be in force in a matter of weeks. Companies have assured me that they will meet the 1 March deadline. Each company should continue to transform its statement of principles into an access code. The companies need to lead this work and ensure that their approach does not conflict with the prohibition on abuse of a dominant market position.

I would like to be able to announce publicly on 1 March that all companies have their statements of principles in place and are progressing the development of access codes. Therefore, please provide me with a copy of your principles by Friday 27 February. You should also confirm that you are developing your access code and be able to estimate when this will be completed.

I C R BYATT