Domestic water competition could end price-setting

The opening of the residential water market to competition would change the way the sector is regulated, and could allow Ofwat to stop setting “ex-ante” price controls.

But even if competition works effectively enough to protect customers, there will always be a place for a regulator to oversee the market, Ofwat chief executive Cathryn Ross has insisted.

“[Competition] would change the way that we regulate the sector, there’s no doubt about that,” she told Utility Week. 

She pointed to the non-household part of the market which will open to competition next year. In the new market, Ofwat will have a “completely different role than it had historically”, and Ross said the same wculd likely happen in the domestic market if the government decided to proceed.

“Whether we would continue to set price controls would very much depend on the sort of competition that emerged in the market,” she said.

“If competition was really vigorous and was protecting customers, then we might be able to move away from setting ex-ante price controls. That’s very much an empirical question, it depends how competition develops.”

Ofwat yesterday published the emerging findings of its cost-benefit review into the opening of the domestic water market.

Alongside the review, the regulator published a report carried out by KPMG looking at lessons from the residential energy market.

Ross said that there was a need for the regulator, even in a competitive market, to make sure that market delivers well for customers and society.

“Even if we do see competition in the residential part of the market in water, I don’t think we’ll see a retreat of regulation,” she argued. “Rather we’ll see the regulator taking a different role to make sure that customers are still getting what they expect.”

Ross has stated in the past that she wants Ofwat to completely deregulate the business retail market so it can stop setting prices once competition is able to keep costs down.