MD 225: Ofwat launches debate on market competition in the water and sewerage industries in England and Wales

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Ofwat home > Publications > Letters to Managing Directors

MD 225

To Managing Directors of all
water and sewerage companies
and water only companies

13 July 2007

OFWAT LAUNCHES DEBATE ON MARKET COMPETITION IN THE WATER AND SEWERAGE INDUSTRIES IN ENGLAND AND WALES

Today we are launching a debate on the development of competition in the water sector. Ofwat has a duty to promote competition in the interests of consumers and this consultation is about how we can deliver on that goal.

On 4 April 2007 we wrote to you about our internal review of market competition in the water and sewerage industries and published our "Outcomes paper" on the conclusions of that review. We explained that some small changes could be made quickly to refine our existing policy on WSL competition, and we are taking forward work based on the conclusions set out in that paper. For example, we have consulted on the areas that it is possible for Ofwat to change in the short term to improve the functioning of the current water supply licensing (WSL) regime, via changes to our WSL guidance.

In addition to these steps we are now starting a wider debate on competition in the water and sewerage sectors to enable us to look at other options for promoting the development of effective market competition. The attached paper "Consultation on market competition in the water and sewerage industries in England and Wales" does this in three stages:

First, we describe some background market analysis work that we will carry out over the coming months to provide a useful framework for potential changes and proposals.

Second, we consider some options based on developing the existing regime. Some of these can be taken forward by Ofwat and are developments of existing government policy as set out in the current legislative framework. Many, however, would require changes in primary or secondary legislation to implement and these would take longer.

Third, we consider some more substantial changes to the existing market structure and regulatory regime that we consider are worth further debate with a view to identifying what measures could promote effective competition in the interests of customers. Again, many of these would require changes to legislation as well as support of Government and other stakeholders and we are seeking stakeholders' views on these issues in the first instance.

We will work with the Department for Environment, Food and Rural Affairs (Defra), other Government agencies and the National Assembly for Wales ("the Assembly") while developing our approach. At this point the paper recommends:

adopting a new access pricing system that better reflects the costs of access for new companies entering the market, and
a significant one-off reduction in the current eligibility threshold of 50 million litres of water a year.

To encourage a productive and comprehensive debate we propose to hold an initial workshop on 20 July to launch the debate, and a second workshop in September to debate the issues further once stakeholders have reviewed the issues raised in the consultation. We will take account of these discussions, as well as considering formal responses to this consultation, in developing the next steps. However, as this is an initial consultation we expect to consult again on any specific policy proposals that we intend to promote.

All comments raised at both the workshops and submitted in response to this consultation will be considered in the work going forward in our wider review of market competition in the water and sewerage industries. Please send your comments to Clair Daniel by 28 September 2007. If you have any questions please contact Clair at our offices, by e-mail to clair.daniel@ofwat.gsi.gov.uk, or by telephone on 0121 625 1318.

Keith Mason

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