Ofwat reports no progress with water supply competition

Ofwat letter (2 pages, PDF) to the Government on the failure of the Water Act 2003 regime to introduce effective competition in water supply in England and Wales.

Ofwat states that "to date no customer has switched water supplier". In fact, some customers have switched supplier through inset appointments, and new entrant Aquavitae has also won customers by re-supplying water to them without relying on any bulk supply or common carriage agreement under the Water Act 2003.

Ofwat blames the 50Ml eligibility threshold and "the very small margin that we are seeing as a result of the application of the mechanism for calculating the access price for new entrants to use the incumbent's water network (the 'costs principle')" for the lack of competition. The very small margin in question results from the application of Ofwat's own guidance, which has given rise to criticism by new entrants. Claims that Ofwat's guidance is based on an incorrect interpretation of the Water Act 2003 were upheld in October 2006 by the Competition Appeal Tribunal's judgment in the Shotton case: see paragraphs 932-978 of the abridged judgment (209 pages, PDF). The Tribunal concluded that Ofwat's application of the Water Act 2003 pricing principle was "unsafe" because it was based on retail prices "not shown to have been reasonably cost-based" and because "[Ofwat's] interpretation of ARROW costs under section 66E(4) is open to serious question".

For further information or advice please contact Franck Latrémolière.

Filed under Defra, Ofwat, Water.

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