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Competition ‘vital at all levels’

Competition in the water industry could become a “costly pretence” unless it is extended throughout the supply chain, according to a report published by the independent Regulatory Policy Institute and sponsored by Water UK. The primary benefit of competition, the report contests, is that it is the most effective way of discovering the economic value of water and disaggregating the costs of abstracting, transporting, treating and retailing it. If competition is largely limited to the retail end of water supply, the benefits of competition will be restricted to billing and customer service. The report said there were still huge opportunities for innovation in water resource management and in the treatment and transport of water. The report’s authors said they suspected that some stakeholders were comfortable with “central planning” and wary of the compromises of competition. They may therefore favour a focus on retail competition to keep competitive pressures “in their box”. The authors also agreed with water companies that Ofwat could introduce further reform – particularly of the problematic use-of-network charging – without legislative change. They said legal changes were desirable, but progress could be made under the current regime. The report highlighted competition in water resources, saying that there was scope for competition, but it was limited by the Environmental Agency’s policy on trading abstraction licences. Trading proposals are treated as new applications and new licensees are typically told to abstract less water than the previous licence holder. This, according to the report, was a “tax” on abstraction trading that limited competition and innovation.

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