DEPARTMENT FOR
ENVIRONMENT, FOOD AND RURAL AFFAIRS News Release (News Release ref:
89/09) issued by COI News Distribution Service on 22 April 2009
The final report
by Professor Martin Cave into competition and innovation in water
markets is published today. The report sets out the challenges and
opportunities facing the industry. It also recommends measures for
increasing competition and innovation to benefit customers and the
economy by up to £2.5 billion over 30 years and deliver
considerable environmental and service improvements.
The Review recommends that:
- after an initial threshold of five megalitres, the Government
should allow all non- household customers (1.5 million in England
and 110,000 in Wales) to choose their water and wastewater
retailer. The retail divisions of water companies should be made
legally independent from their network business, except in the
case of the smallest companies where it would not be in
customers' interests to do so;
- the Government should give the Environment Agency new powers to
tackle over-abstraction and to facilitate the trading of
abstraction and discharge licences. Licence conditions should also
be reformed to take greater account of the impacts of abstractions
and discharges on the environment;
- the Government should reform the special merger regime to allow
mergers where these would be in the customer's interest.
Retail only mergers should be removed from the regime. For other
mergers, the threshold should be raised to £70 million. In the
first instance, mergers above this level should be referred to the
Office of Fair Trading. To give the industry greater certainty,
Ofwat should publish a transparent methodology for assessing
mergers. Ofwat should also commission an independent review of the
scope for using alternative data sources and statistical techniques;
- the Government and Ofwat (with a duty to support innovation),
together with other stakeholders, should establish a research and
development body to agree priorities and coordinate action. The
body would be supported by funding from the industry and customers;
- Ofwat should give customers and their representatives a greater
role in determining the services provided by their water company
through "negotiated settlements;"
- water companies should have an obligation to ensure they supply
customers at best-value and Ofwat should enforce this obligation.
The Government should reduce barriers to entry into the market and
ensure that alternative suppliers are able to earn a return for
the services they provide;
- Ofwat should encourage greater innovation by increasing the
incentives for outperformance and addressing the potential bias to
capital expenditure. The Government and regulators should also
ensure that they give the water industry timely and consistent
signals about the outcomes required; and
- Ofwat should modernise and streamline the regime of inset
appointments. There should be regulated access and supply
frameworks, that are binding on participants. Charges should also
ensure that efficient companies are able to cover their costs.
These recommendations aim to reduce costs and increase service
levels for all customers; support the more efficient use of water;
and help companies to better meet the challenges facing the
industry including climate change, population growth, containing
costs, rising consumer expectations, and water efficiency.
Launching the final report, Professor Martin Cave said:
"The industry has achieved a great deal in the last 20
years, but climate change and population growth represents real
challenges to the current structure of the water sector -
challenges that the industry must meet. Extending competition and
supporting innovation will allow the sector to better meet these
demands and deliver real benefits for customers and the
environment through lower prices, more choice, higher service
levels and the better use of water. These changes could benefit
the economy by £2.5 billion over 30 years."
Notes to Editors:
1. In February 2008, the Chancellor, Secretary of State for
Environment, Food and Rural Affairs and the Welsh Minister for
Environment, Sustainability and Housing commissioned Professor
Martin Cave to undertake a Review of Competition and Innovation in
Water Markets in England and Wales. The Review issued an interim
report in November 2008 and a call for evidence in June 2008. The
Review has also held meetings with the industry and other
interested parties.
2. The Review aims to recommend changes to the legislative and
regulatory frameworks of the industry in order to deliver benefits
to consumers and the environment. As a result of the lack of
international experience of potential reform, the cumulative
nature of such reform and the need for the necessary contributory
factors to be in place, the Review has adopted a step-by-step
approach, starting where the risk-reward ratio is most favourable.
Recognising the range of circumstances prevalent across England
and Wales, including the varying nature of water and wastewater
markets and company structures, the Review has also avoided a
one-size-fits-all approach and proposed that the Review's
recommendations should be applied flexibly.
3. The report, including an executive summary, is available on
the Review's website: http://www.defra.gov.uk/environment/water/industry/cavereview
4. The main findings of the interim report were:
- the introduction of legislation to allow 28,000 then 162,000
large public and private sector organisations in England and Wales
to choose their water and sewerage retailer for the first time;
- retail divisions of water companies should be made legally
independent from their network business; and
- a series of changes to encourage new water and wastewater
suppliers to enter the market.
5. Martin Cave is Professor and Director of the Centre for
Management under Regulation at Warwick Business School. As well as
his academic work he has also undertaken studies for regulators in
the UK and throughout Europe. He is responsible for two
independent reviews of spectrum management and for an independent
review of the regulation of social housing.
6. For more
information on the Cave review contact Alex Whitmarsh on 0207 215 6467.
Public enquiries 08459 335577;
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