Scotland leads the world in water competition
March 04th 2008

On 1st April Scotland’s 130,000 businesses will be able to choose between three companies to supply their water.This is the first time that competition in its present form has been introduced into any water industry anywhere in the world.And it’s not an April Fools joke as Peter Roper explains

In a few weeks, all businesses in Scotland, irrespective of size or volumes of water consumed, will be able to choose their retailer. Since 2002, Scottish Water has provided water and sewerage services to all customers in Scotland. But under the Water Services etc. (Scotland) Act 2005) new competition arrangements from 1st April it will only provide services to its 1.5 million household customers. However, Scottish Water will retain control of the network of pipes, sewers and treatment works.

“The market will operate in much the same way as in the gas and electricity sectors. Although it is worth noting that wholesale charges will be regulated and hence there will not be the volatility in retail prices that have recently characterised the energy markets,” said Alan Sutherland, Chief Executive of Regulator, the Water Industry Commission for Scotland (WICS).

Speaking at meetings organised jointly by WICS and the Major Energy Users’Council (MEUC) held in Glasgow on 7th February and repeated in London a week later, he said:“We expect competition will benefit most business customers.The best deals are likely to be open to those who consider carefully what each licensed supplier is prepared to offer – both in terms of price and levels of service.

“However, to make sure customers’ interests are protected at all times, we have put a number of measures in place. Only licensed providers can compete. So far there are three – Aquavitae, Satec and Business Stream (Scottish Water’s retail arm) – but at least one other is expected to come on stream shortly.”

Mr. Sutherland said he believed the move could see English and Welsh companies looking to form partnerships with Scottish firms to tap into the £320 million market north of the border. The new providers will buy wholesale services. That is the physical supply of water and the removal of sewage from Scottish Water. They will also offer a standard ‘default’ level of service for a ‘default’ tariff.

“Until 2010, we have limited the increase in tariffs, on average, to less than the rate of retail price inflation.

That’s no more than the maximum charge customers would have paid, if competition were not introduced. However,we expect licensees to offer better prices and levels of service in order to win and/or retain customers,”added Mr. Sutherland.

David Simpson, Deputy Chairman of WICS said: “The new framework is designed to encourage price competition and the provision of value added services to the existing water supply system. We can only be encouraged by the early interest that the scheme is generating.”

Andrew Bainbridge,Director General of MEUC said:“It is important that utility users understand they can now use an alternative water supplier and the new framework should help to reduce their costs.”

Scotland’s pioneering approach to competition would appear to be better thought out than that proposed for England where competition has effectively been available since December 2005. Since that time not one large consumer has been able to switch, while in Scotland many businesses have already done so. It is understood that Regulator Ofwat is looking closely at Scotland’s model to see how it could be applied south of the border.

“The regulatory system devised by the WICS encourages competition and enables us to offer choice and power prices to Scottish business users. It’s a place where we can do business,” argued David Buckell, Business Development Manager of Aquavitae UK. “We were licensed to compete in Scotland in October and despite being the ‘new kid on the block’ have already begun signing new customers. The system has both clarity and appeal, that’s why Scotland’s water competition will work.”

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