Select Committee on Environment, Transport and Regional Affairs Memoranda



  Yorkshire Water is committed to complying fully with the Competition Act and will co-operate with any credible entrant applying for access to our networks. As demonstration of our open and transparent approach to common carriage we have placed our network access code and draft legal agreement on our website.

  However, we are concerned that competition is developing at an increasing pace without full consideration of the other policy implications and in the absence of a specific statutory framework for common carriage. Our key concerns include:

  Public Health and the environment—public health should not be jeopardised in any way by the introduction of competition. Under common carriage type arrangements the monitoring of water entering the public supply network will not be completely continuous. In the event of an incident it will be difficult to identify the supplier responsible for putting unfit water into the network and, because of our integrated grid network, to prevent contamination affecting large groups of customers. There is no legislative framework to ensure that any party other than a statutory undertaker is a "fit and proper" company to supply water and undue responsibilities are placed on the incumbent. In our view, the licensing of new entrants is an essential element, if competition and common carriage are to be progressed. Entrants should face standards and obligations that are no less onerous than those faced by current licenced undertakers.

  De-averaging of tariffs—another key issue is the social implications posed by widening the scope of competition. At present, certain "cross subsidies" exist between customer groups within the water industry because charges are based on regional averages. Market forces and the Competition Act will put pressure on these cross subsidies to be unwound and in particular for tariffs to be de-averaged leading to potentially significant differentials in tariffs between similar customers within a region eg urban v rural. It should be remembered that when Regional Water Authorities were established in 1974 the Government of the time required charges to be averaged across each region. Any move to de-averaging should be the result of a change in government policy and not an accidental consequence of incumbents responding to competitive forces. If de-averaging is considered to be undesirable then mechanisms will need to be put in place to avoid entrants "cherry picking" customers.

  Costs and benefits of competition—the experience of introducing competition in the electricity and gas industries has illustrated that there are significant and longer term costs associated with introducing competition. It is not clear that the process of introducing competition in the water industry has been subject to a full cost/benefit analysis.

  Stranded assets—there is no evidence that government or the regulator has thought through the consequences of competition and how investment in stranded assets, legitimately provided, will be funded. Failure to provide a return on stranded assets could threaten the financial viability of companies and conversely if such assets are funded then prices to the majority of customers would need to increase significantly (assuming entrants and their customers are not required to fund the assets through access charges).

  Network access code—the development of individual network access codes across the industry could act as a barrier to entry to the market. The regulator and/or government should play a greater role in assisting the development of an industry wide access code.

  Competition for provision of services—we would suggest that competition for provision of services, rather than competition for supply are likely to provide greater benefits for the majority of customers.

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Prepared 29 January 2001