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There is no evidence of general economies of scale in the water industry, according to an independent report published today. The report, commissioned by Ofwat and produced by Stone and Webster Consultants, examined the data collected by Ofwat from the industry over the last ten years. Its aim is to help the water regulator understand how costs have varied with company size and the range of activities undertaken in the industry. Stone and Webster found there was no clear evidence of economies of scale for the water service companies. They also found significant diseconomies of scale – unit costs rising as companies get bigger - for water and sewerage companies, although these are now declining. The consultants found no evidence of overall costs savings from the same company providing both water supply and sewerage services. But the current structures of water companies which integrate water production and distribution were seen as offering efficiency benefits. The report's findings will be used by Ofwat to help inform its approach to issues relating to industry structures. Welcoming the report, Philip Fletcher, Director General of Water Services, said: "This is a useful contribution to our understanding of economies of scale in the water industry. Our own comparative work has shown that bigger is not necessarily better. We will continue to look with an open mind at proposals for new and revised industry structures in terms of the potential long-term benefits for customers of what remains at present very largely a monopolistic sector." Notes to Editors: 1. The Director General of Water Services is the economic regulator of the water and sewerage companies in England and Wales. He exercises his powers in a way that he judges will allow them to carry out their functions properly, and finance them. WaterVoice represents customers' interests. 2. Copies of the report, 'Investigation into evidence for economies of scale in the water and sewerage industry in England and Wales', will be available from the Ofwat Library on 0121 625 1373 and on Ofwat's website www.ofwat.gov.uk 3. Under the Water Industry Act 1991, the Secretary of State is obliged to refer to the Competition Commission proposed mergers of regulated water companies whose assets exceed £30 million. Revisions to the water merger regime as set out in the Enterprise Act 2003 are expected to be commenced later this year. 4. The Enterprise Act changes the qualification threshold for automatic references of proposed mergers to the Competition Commission from minimum assets to minimum turnover. But the overall effect is that all mergers between water undertakers will continue to be referred automatically to the Commission. However, once the provisions are commenced it will be for the Director General of Fair Trading to make the reference and the Competition Commission to take the decision rather than the Secretary of State. MEDIA ENQUIRIES TO OFWAT PRESS OFFICE ON: 0121 625 1416/1496/1442 Out of hours enquiries to pager: 08700 555 500 water 503/509. Ofwat publications and press notices can be found on Ofwat's website at: www.ofwat.gov.uk  | ||||||
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