Ofwat recommends opening water and sewerage markets to competition

May 29, 2008

Ofwat has published the second part of its review of competition in the water and sewerage sectors. In it they recommend that contestable water and sewerage markets are opened to competition where it will benefit consumers, and describe the work they will be doing to enable this to happen.

Ofwat Chief Executive Regina Finn said:

"We want to achieve an efficient and innovative sector which is able to respond to the challenges facing it, such as climate change, rising consumer expectations and growing population in water-scarce areas. Competition can help deliver that.

"The current scope for competition in the water and sewerage sectors is severely limited by legislation, is confined to a small number of business customers and has not developed successfully.

"We propose that more of the market is opened progressively, starting with all business customers. In time households could be able to choose their water supplier, when the market is ready and safeguards are in place.

"Competition will drive benefits such as greater responsiveness to customers' needs, innovative approaches to adapting to climate change and downward pressure on costs.

"Competition can also help respond to the environmental challenge of water scarcity, which the Government highlighted in its water strategy. Markets could spur innovation in developing and making better use of water resources and more water efficiency services, supporting sustainable water abstraction.

"As markets develop, we will look for opportunities to withdraw regulation. We will continue to robustly challenge companies on price and service delivery until competition is strong enough to protect consumers."

Ofwat recommend a step-by-step approach to developing markets, allowing competition to prove itself. Early priorities are the development of competitive retail services markets and tackling barriers to new entry to upstream water resources markets. Progressive vertical separation of companies, including separated accounts and price controls, will be important in enabling competition to develop.

The document Ofwat are publishing invites comments on our recommendations to Government for legislative change, and contributes to the independent Government-commissioned independent review of competition and innovation in water markets being led by Professor Martin Cave.

The consultation paper 'Ofwat's review of competition in the water and sewerage industries: Part II' can be found on the website www.ofwat.gov.uk.

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