Business customers in England and Scotland will be able to choose their water supplier from a common market, according to last week’s Water White Paper.
The Department for Environment, Food and Rural Affairs (Defra) proposes scrapping England’s minimum usage threshold eligibility for non-domestic customers to switch supplier.
Ofwat and Wics will be expected to mutually recognise each other’s licences and produce a joint market code.
Wics chief executive Alan Sutherland said he had been “quite hopeful” of such a step since Alex Neil MSP wrote to Westminster on the subject in September.
The government stopped short of requiring water companies to legally separate their retail businesses, saying it would risk unsettling investor confidence.
Bill Easton, utilities director at Ernst & Young, said this was a “sensible balance”. He added: “Both industry and customers should welcome the recognition that forced separation of the retail businesses is both risky and unnecessary for competition to develop.”
The current “costs principle” to determine wholesale prices will be ditched in favour of a more transparent system.
Deloitte vice chairman Doug King questioned where the retail margin would come from, however. “Buried in the impact assessment is an acceptance that there needs to be upstream efficiencies as well,” he said. This could undermine the regulatory asset value, she added.
The government also proposes loosening the merger regime and raising the threshold for automatic referral to the Competition Commission. Clive Mottram, senior associate in competition law at Eversheds, said consolidation could be “an important driver for efficiency and innovation”.
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Firms likely to stick in the mud over abstraction
The abstraction regime must be reformed to protect the environment and give clear signals on the availability of water, government and regulators agree.
The Water White Paper proposes a new licence system that links volumes permitted to water availability. Individual abstractors will not be compensated for any losses they incur as a result.
Mike Woolgar, managing director of environmental and water management at Atkins, said there could be a tension between reducing abstraction and encouraging new entrants to trade licences.
He said: “Revising the abstraction regime is a necessary precursor to more efficient water allocation but will be complicated by the unwillingness of many incumbents to be disadvantaged, especially if some of their spare water, which otherwise might be tradable, is removed without compensation.”
Detailed proposals are due in 2013.
by Megan Darby