While the remit of Ofwat is currently to promote competition, which it has chosen to do through the mechanism of Water Supply Licenses, there is considerable debate about how successful they can potentially be. The contention is largely around the pricing mechanism supported by Ofwat and how this shields incumbent water utilities from potential efficiency advantages of entrants.
Scope of this report
- Outline of the mechanics of the WSLs and how they are designed to operate.
- Description of the pricing structures that Ofwat has introduced and how this will affect competition.
- Debate on some of the technical issues that this raises for the industry
- Coverage of the legal challenges that the WSLs and pricing structure currently face.
Research and analysis highlights
While Ofwat has introduced Water Supply Licences to allow entrant water retailers access to the UK market, there is considerable debate about how successful they can be.
The current pricing mechanism chosen by Ofwat protects incumbent water utilities from the potential greater efficiency of entrant suppliers as they can price on a "retail-minus" basis.
The WSL scheme is under considerable pressure from a court case involving a paper mill in Wales which is currently before the Competition Appeal Tribunal. The precedents set in this case are likely to be extremely important for the future direction of competition.
Key reasons to read this report
- Review progress of competition in the UK water industry
- Quantify the retail margins that entrant WSL holders currently have to work with
- Understand the technical issues that WSL holders face when entering this market
Outline of the mechanics of the WSLs and how they are designed to operate.
