| ABSTRACTION LICENCING - INSETS AND THE COMPETITION ACT
OFWAT INFORMATION
The economic regulatory body (Ofwat) for the
privatised water utility companies in England & Wales recently updated its information
on Market Competition in the water & Sewerage Industry. The updated note reads as
follows:
The Director General of Water Services (the
Director) has a duty to facilitate effective competition in the water and sewerage
industry in England and Wales. He interprets his duty to include creating a framework in
which market competition can develop. The framework for competition was set out in the
Water Industry Act 1991 and the scope was extended by the Competition and Service
(Utilities) Act 1992 and the Competition Act 1998 that came into effect from 1 March 2000.
How can competition be achieved?
There are four main ways at present to achieve greater market competition: inset
appointments; cross-border supplies; unregulated supplies; and common carriage.
Inset Appointments
Inset appointments provide for the existing regulated water or sewerage supplier to be
replaced by another, for a specific site. Only a limited company or a statutory water
company can become a licensed supplier of water and/or sewerage services (a licensed
supplier) regulated by Ofwat.
An inset application must meet one of three
criteria: 1. The customer uses (or is likely to use) at least 100 megalitres(1) (about 22
million gallons) of water per year (a large user). 2. It is a site not currently being
served by a licensed supplier (greenfield). 3. The existing licensed supplier agrees to
the inset.
Cross-border Supplies
Companies have a duty to allow connections to their water mains from outside their areas.
This means that customers are entitled to receive water for domestic purposes from any
licensed supplier, irrespective of where they live. The company is entitled to recover the
costs of connecting the customer to its mains. Owners of private sewers and drains have a
similar entitlement to connect to the public sewer.
Unregulated Supplies
Most people in England and Wales receive their water and sewerage services from licensed
companies which are regulated by the Director. Some private operators exist, who are not
licensed or regulated by the Director, and customers are entitled to buy water and
sewerage services from them. The terms and conditions of supply to their customers are not
regulated, although private supplies are subject to quality standards, enforced by local
authorities. These customers are not represented by the local Ofwat Customer Service
Committees (independent water watchdogs).
Common Carriage
Common carriage occurs when one service provider shares the use of another’s assets,
such as its pipe network or treatment works. Common carriage between companies occurs now,
but is limited in scale. Some new entrants to the industry (and some existing licensed
suppliers) are interested in using others' networks to supply customers. To do so a
company needs access to a supply of water.
The Competition Act 1998 opened up the scope for
common carriage. If an incumbent supplier refuses without proper justification a request
for common carriage, or imposes unreasonable terms for access, such conduct might be an
abuse of a dominant position and thus infringe the Competition Act 1998. The Director will
investigate complaints and may also investigate suspected breaches on his own initiative.
The Director will use his powers under the Competition Act 1998 to deal with
anti-competitive conduct. Licensed suppliers have statements of principles setting out the
broad rules governing access to their networks and are developing detailed access codes.
Any enquiries about common carriage should be directed to the relevant supplier in the
first instance. A choice of supplier for domestic customers may be available in the
future. (1) Threshold reduced from 250 megalitres per year to 100 megalitres per year
on 17 August 2000.
What difference does the Competition Act
1998 make?
This Act brings UK law broadly into line with European law. It came into force on 1 March
2000. The Act applies to all businesses in the UK, including the water and sewerage
industry in England and Wales. The Act prohibits companies from entering into agreements
that are anti-competitive and prohibits abuse of a dominant market position. It
strengthens the Director’s powers to investigate complaints and to take action,
including imposing financial penalties, where behaviour is anti-competitive. The Act will
be enforced concurrently with the Director General of Fair Trading in the water and
sewerage sectors, although it is anticipated that the Director will normally deal with
these cases. Decisions under the Competition Act 1998 are subject to appeal to the
Competition Commission.
How can competition be developed?
There are other ways in which the scope for competition can be increased. The Secretary of
State for the Environment, Transport and the Regions (DETR) issued consultation papers in
April 2000 on competition in the water and sewerage industry and economic instruments in
relation to water abstraction. Proposals to increase competition include:
1. a revised system of licensing water abstraction, to allow greater trading of
abstraction licences, improving the scope for new entrants to secure new resources and to
make more efficient use of existing resources;
2. provision of cross-border supplies of water for non-domestic purposes;
3. allowing premises to be combined to meet the consumption limit for a large user inset;
4. increasing the scope for competition in providing new mains and making connections to
the water mains;
5. provision of a time limit for inset appointments.
As part of its review of competition, the DETR
announced its intention to reduce the threshold for inset appointments to 100 megalitres
of water per year, and this took place in August 2000. Over 1,000 additional customers are
now eligible for inset appointments.
What other information is available?
* Application details for inset appointments are
provided in Ofwat’s paper Inset appointments - Guidance for applicants (February
1999).
* Information note 45 Competition Act 1998 · The
Competition Act 1998 guideline The application in the water and sewerage sectors (OFT422)
* The Department of the Environment, Transport
and the Region's consultation paper Competition in the water industry in England and Wales
(April 2000) – Telephone 0870 1226236 for copies.
This and further information is available from
the Ofwat library telephone: +44 (0)121 625 1373 E-mail address: enquiries@ofwat.gsi.gov.uk Website: www.open.gov.uk/ofwat/ |
