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MD 177
TO ALL MANAGING DIRECTORS OF
WATER AND SEWERAGE COMPANIES
AND WATER ONLY COMPANIES
27 March 2002
Dear Managing Director
ACCESS CODES FOR COMMON CARRIAGE
I enclose copies of two reports we have published today:
1)
Access codes for common carriage - responses to the consultation. This summarises the views we received in response to our consultation paper 'Access code guidance', published in September 2001, and says where we have changed our view as a result.
2) Access codes for common carriage - guidance to water companies.
This revises the draft guidance as a result of responses to the consultation and sets out what companies should put in their access codes, to minimise the risk of infringing the Competition Act 1998 (CA98). It is meant to encourage adoption of best practice across the industry. It also sets out standards of behaviour for both incumbent companies and entrants, when making and implementing common carriage agreements. It indicates how we might deal with complaints about common carriage under CA98.
The main change from our draft guidance concerns our view on 'mandatory licensing'. We said in September 2001 that it might be reasonable in most cases for companies to insist they dealt only with licensed entrants, as long as they helped the licensing process. We strongly believe it is in the public interest that entrants should be licensed. The Chief Drinking Water Inspector wholly agrees. We do not want incumbents or entrants to compromise on health and safety and licensing is the most efficient and responsible way of achieving this objective. Other approaches would be more complex and necessarily require greater precautions to be put in place to ensure an equivalent level of protection for the public. But since the consultation, we have examined the issues in more detail as part of our on-going work on complaints under CA98.
We have concluded that it would not be justifiable for an incumbent company to refuse to enter into discussions with a potential entrant simply on the grounds that an unlicensed entrant might expose the incumbent to being charged with an offence under section 70 of the Water Industry Act 1991.
Incumbents who have acted fully in accordance with their duties under the Act would not be so exposed by the fault of an entrant. However, if an entrant insists on being unlicensed, it is reasonable for the incumbent company to insist that the entrant gives stringent assurances about its technical and operational ability and its managerial competence, before allowing access. These assurances may be more stringent than those the incumbent could reasonably expect from a licensed entrant. - Forum for developing common carriage
We are considering the usefulness of establishing a forum to encourage companies and entrants to work together in developing their access codes. This may be a working group, to review developments in common carriage and consider how companies should update their codes to implement best practice. We believe this forum could help facilitate common carriage. It should represent existing companies, potential competitors and customers. We welcome views on this idea, and suggestions on its formation, running and terms of reference. Please write to Phillip Dixon, Senior Economist in Competition Team, in the first instance, by 29 June 2002. We will review your comments and give feedback later in the year.Companies published their access codes in September 2000. Since then, several companies have been involved in common carriage negotiations. It is timely for them to update their codes, to incorporate their experience and our guidance. I would like you to update your code by 27 July 2002 and provide two copies to be placed in our library for reference. Please send these to Phillip Dixon.In the meantime, I expect companies and entrants to continue pursuing common carriage opportunities. The Government's recent announcement on competition supports our view that common carriage is an important part of competition. But the prospect of new legislation does not alter the current requirement on companies to comply with CA98. Unreasonable delays in the processing of applications for common carriage agreements, including the provision of access prices, are potential breaches of CA98.
I want to announce on 8 May that companies have their access prices available and ready to provide to applicants. We will place these in our library, for public inspection, by 8 May, and put them on our website by the end of May. Therefore, please provide Ofwat with a hard copy and an electronic copy (Word or pdf) of your access prices by Monday 6 May. Please send these to Phillip Dixon.
Where companies are intending to develop more sophisticated approaches to setting access prices, for instance using local rather than area-wide or regional costs, they should still provide me with their current access prices by 6 May. If you have any such intention, please also inform us about these plans and when you expect to have them available.
Yours sincerely
Philip Fletcher |
Letters to Managing Directors
