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Opening up the water market

Source: Public Sector Executive May/June 2013

The Government confirmed in the Queen’s Speech in May that it is to introduce a Water Bill, which will increase competition across the sector, improve the management of water supplied, encourage more sustainable water abstraction, and perhaps change flood insurance arrangements. The Bill is likely to be published this summer, according to environment secretary Owen Paterson. Adam Hewitt reports.

A more competitive water market will bring more choice for businesses and other consumers, and thus improve the service they receive, the Government says – and indeed this element of its draft Water Bill has received a broad welcome from across the sector, consumer groups and MPs.

The Government hopes that changes in the Water Bill, due to be published this summer after being included in the Queen’s Speech and having gone through pre-legislative scrutiny in draft form already, will encourage new entrants to the market and so prompt innovative practices and more competition. A recent change in the law removed a ban on subsidiaries and companies in the same group as a water company competing in the area of that water company.

Many business customers want to choose one supplier to serve them in different geographic areas where they operate, and there is now a much-reduced threshold of how much water a business must use to be able to change suppliers (from 50 million litres down to just five). It is expected that the threshold will be removed entirely under the new legislation, allowing any business, charity or public sector body to switch their water and sewerage supplier.

Speaking to MPs on the Environment, Food and Rural Affairs Committee who suggested the Government has not acted with enough urgency in introducing its new legislation for the water industry and on flood defences, environment secretary Owen Paterson MP said: “I would dispute the fact there is not any urgency. We spend a huge amount of time on this, and we have a proud record of having achieved a lot. On the specific question of the Water Bill, we are hoping to bring it to Parliament at the end of the summer, before the recess. The committee made some very helpful proposals on how we could improve the Bill. We are studying those and I hope we will certainly introduce some of them and amalgamate them in the existing Bill.”

The need for legislation was included in the May 2010 Coalition Agreement, which also made reference to the reviews of the sector by Anna Walker and Professor Martin Cave, and the 2011 white paper, Water for Life, set out the general policy direction before the draft Bill was published.

The Government says its proposals will make it much easier for new entrants to provide new sources of water and to treat waste water (‘upstream’ services), and will also help join up the national network, making it easier for water companies to buy and sell water from each other and manage drought conditions. The lack of a ‘national grid’ analogous to that which exists for electricity, and the inherent expense of transporting water, is one of the reasons the water sector was privatised in the form of regional monopolies in the first place.

The proposals in the draft Bill should help water companies make better use of resources through the use of bulk supplies and water trading, as well as giving sector regulator Ofwat more power. This was welcomed by the Consumer Council for Water (CCW), though the Environment, Food and Rural Affairs Committee has warned that the proposals contain “only a broad framework [that] leaves too much of the important detail to be decided by the regulator, Ofwat, or to be introduced through secondary legislation that receives less parliamentary scrutiny.”

The EFRA committee’s most serious concern was with ‘upstream services’ competition.

It said in its report earlier this year that it could increase costs for some customers, harm water supply resilience, and dent investor confidence. It urged the Government to “revisit” its plans.

The CCW itself also raised some issues with the draft Bill, saying it wanted a system “that ensures household customers aren’t paying the ongoing costs of competition…We have concerns that the current draft Bill could lead to some household customers paying more, when any spin off benefits for householders will be difficult for them to see.”

Defra has suggested that the proposed changes in the law will take effect from 2017.


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