What is competition? 

Competition drives companies to reflect consumers’ needs and deliver more choice, efficiency and innovation over the long term. We are committed to introducing competition into the water and sewerage sectors where it will benefit consumers. As markets open, we will look for opportunities to withdraw regulation where competitive pressures can protect consumers.  Effective competition has the potential to bring benefits in a range of water and sewerage services.

• It is a key driver of efficiency and innovation, which will enable the water and sewerage sectors meet future challenges.
• It can help deliver the Governments strategy, as set out in, ‘Future water’, for sustainable and secure water supplies and improving the water environment.
• It has brought benefits in other utility sectors, including improved service and more choice for customers.
• Regulation can be gradually withdrawn as markets become more competitive.

How can we harness market forces? 

We believe that market mechanisms have a significant role to play in the future regulation of the water and sewerage sectors. Through these mechanisms we can:

• move closer to understanding the true value of water, which in turn
• will enable more sustainable investment choices (that is sustainable service provision) and
• give consumers more sustainable consumption choices.

Water is a significant part of the production costs of UK businesses. We believe that introducing retail competition for businesses would help to support the competitiveness of the economy in both England and Wales.

Aim of market reform

Some text thinking about market reform in the future

Publications and further information

We have published several papers as part of our review of competition. 

In April 2007, we published our outcomes paper on the findings of our internal review of competition in the sectors. This paper highlighted the need for further work.

In July 2007, we published the first of a series of consultation papers to start a wider debate on the options for promoting the development of effective market competition in the water and sewerage sectors. The ‘Consultation on market competition in the water and sewerage industries in England and Wales’ considered:

• options for developing the existing water supply licensing regime; and
• the potential for more substantial changes to the existing structure and regulatory regime, for example introducing household competition and separating water companies’ activities.

In December 2007, we published the first of a two-part consultation on the recommendations from our competition review. ‘Market competition in the water and sewerage industries in England and Wales – Part one: Water Supply Licensing’ set out our recommendations for changes to the existing WSL regime.

In May 2008, ‘Ofwat’s review of competition in the water and sewerage industries: Part II’ set out our recommendations for wider reform of the competition framework, looking beyond the assumptions of the WSL regime. This also contributes to the Government’s independent review of competition, led by Professor Martin Cave, which will report by spring 2009.

In January 2009, we responded to the Cave review's interim report on competition and innovation in water and sewerage markets. We also responded jointly with the Environment Agency to the review. This responds focuses on the value of water and abstraction rights trading.

In February 2009, we published a report, commissioned by us, on our competition proposals and financing issues.

In February 2009, we completed a project on abstraction rights trading. This project was carried out together with the Environment Agency. The final project summarises the main outcomes of the study. As part of the project we commissioned a study to explore options for more active water rights trading.

In March 2009, we published the Accounting separation - consultation on June return reporting requirements 2009-10.

In June 2009 we published our response to the Cave review.

In July 2009 we published advice to the UK government on the question of a threshold value for legal separation.

The Market Reform and Finance forum was established in November 2009 to exchange information and views to make sure that the sector as a whole retains the necessary confidence and support of debt providers and capital markets, while legislative and regulatory change to introduce greater competition is being considered and introduced. 

The UK government and Welsh Assembly government announced a joint consultation of the Cave review of competition and innovation in water markets. In December 2009 we published our response to this review.