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158 MARKET LIBERALISATION & REGULATION IN SCOTTISH WATER SERVICES – HENDRY 16[2006/2007]4 ULR ARTICLE

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entity in legal as well as accounting terms. SW is a wholesale of companies in receipt of ‘hundreds’ of water bills per year, 80
provider to Business Stream and any other licensed providers 72 so there are certainly opportunities for such customers. When
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and is also a provider of last resort. In April, when the new multi-utility entrants come into the market, there will be further
regime began, there were five licensed suppliers entering the scope to rationalise bills for both large and small users, and
market: Business Stream, along with Satec Ltd, Aquavitae, perhaps to take other services. The WICS accepts that the
Osprey Water Services (part of the Anglian Group), and most margins are small – small but not insignificant; currently the
recently Ondeo Industrial Solutions (part of Suez gross retail margin is at least 5 per cent, and on average 10 to
Environment). (Since then, Aquavitae has gone into 11 per cent, for business customers, and this may increase still
administration; its customer licences were reallocated on 21 further if continued improved performance by SW lowers
June, and the WICS issued a letter of intention to revoke the wholesale prices further. Even before the new market opened,
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licence on 2 July, as this article went to press. It seems that the Business Stream had made savings of £10 million, and the
new system has managed to cope with its first market shock). separation is also encouraging further efficiency gains within
It is also possible for a business to acquire a wholesale ‘self- SW. 82
supply’ direct from SW, but in such a case it will have no A further feature meriting some comment is the provision
assistance from a supplier in managing its water use or in the in the 2005 Act that allows customers to benefit if the customer
event of any difficulties. has reduced SW’s costs. The WICS has suggested that such
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New entrants are subject to a fitness test and the WICS might arise where a business plans to use water, or discharge
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has powers of monitoring, investigation and enforcement, 75 waste water, at particular times of day, where developers work
including the serving of enforcement notices, financial penalties with SW in planning new developments, or where a business
and the potential revocation of licences. The licensing with access to its own supply operates in an area where
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framework has been laid out in detail in regulation and abstraction restrictions are in force. Proposals for how this
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following various consultations, the WICS has issued standard will work in practice will be published by the WICS in the near
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licence terms and conditions along with a set of default future.
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standards and tariffs. The default tariff is the maximum that The WICS sees the published default tariffs as an
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SW would have been able to charge for a predetermined basic important component of the new regime. As these charges
service in the absence of competition, and licensed competitors are in the public domain, there is no secrecy, no hidden
are required to offer this default tariff to potential customers negotiation between the new entrant and SW. Further, as SW
so that they can be assured that they are benefiting from making is not operating in retail services in the business sector, there is
the switch. A Central Market Agency has been established to no incentive to squeeze out competitors as has been the case
administer the switches, using the model developed for the in England with inset appointments; we note the judgment of
electricity industry. the Court of Appeal confirming the Competition Appeals
The WICS has naturally been promoting the benefits of Tribunal decisions in the Albion Water litigation. The Court
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the new regime, and has taken opportunities to set out what it of Appeal has confirmed the existence of a dominant position
considers to be the advantages. These include better advice on and an anti-competitive pricing squeeze, and upheld almost
water efficiency measures, such as leakage management or grey every aspect of the tribunal’s decisions insofar as relevant to
water reuse, as the new entrants will not be concerned about the appeal.
whether SW is using its system to capacity. There may well be In its most recent consultation on competition in water
efficiencies in billing for some users – businesses with either services in England and Wales, the Water Services Regulation
multiple sites, or complex systems. Alan Sutherland has spoken Authority recognises that the approach in England has been
unsuccessful. The introduction of common carriage under
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the Water Act 2003 has not resulted in any licensed suppliers
entering the market. This is in part due to the ‘costs principle’,
71 The Water Services (Intra-Group Regulation) Direction 2006 specifies
the ‘ring-fencing’ requirements for SW. This is no longer posted on the
WICS site but is available from their office.
72 The 2005 Act section 16. 80 Alan Sutherland, Chief Executive WICS 2008 Competition Comes to
73 Ibid. section 17. Scotland MEUC Event, Glasgow 7/2/08, London 13/2/08, available at
74 Ibid. section 7; fitness comprises knowledge and ability, financial http://www.watercommissioner.co.uk/view_Speeches.aspx last accessed
competence and ‘any other factors’ specified by the Ministers. 19 May 2008.
75 The 2005 Act schedule 2; and WICS (undated) Monitoring and 81 WICS Press Release, April 11 2008, WICS to hold Competition Seminars,
Enforcement Policy available at http://www.watercommissioner.co.uk/ available at http://www.watercommissioner.co.uk/view_Press_Releases_
view_Market_Documents_Comp.aspx last accessed 16 May 2008. 2008.aspx last accessed 12 June 2008.
76 Water Services and Sewerage Services (Scotland) Order 2006, SSI 82 Alan Sutherland, Turning the Tide, Note 5 above.
2006/464. 83 The 2005 Act, Note 4 above, section 21, inserting a new section 29E
77 See especially WIC 2005 Implications of the Water Services etc (Scotland) into WISA to allow a departure from SW’s charging scheme in respect
Act: Consultation on the Principles of Licensing and Responses to the same; of ‘charges to be paid for services provided to a
WIC 2005 The Licensing Regime under the Water Services etc (Scotland) Act water services or sewerage services provider.’ Such departures may operate
2005: A Consultation and Responses to the same. These are no longer in the opposite direction where a customer of a new entrant has increased
posted on the WICS site but are available from their office; see http:// costs for SW.
www.watercommissioner.co.uk/view_Consultations_comp.aspx last 84 Alan Sutherland, Note 78 above.
accessed 16 May 2008. 85 Du´r Cymru Cyfyngedig v Albion Water Limited [2008] EWCA Civ 536;
78 Available, with supporting documentation, at http:// also [2006] CAT 23 and [2006] CAT 36.
www.watercommissioner.co.uk/view_Market_Documents_Comp.aspx 86 OFWAT 2008 OFWAT’s Review of Competition in the Water and Sewerage
last accessed 16 May 2008. Industries Part 2 available at http://www.ofwat.gov.uk/aptrix/ofwat/
79 WICS 2007 Default Services, Standards and Maximum Tariffs for Water and publish.nsf/Content/pap_rsh_reviewmrktcomp last accessed 10 June
Sewerage Service Providers available at http://www.watercommissioner.co.uk/ 2008.
view_Default_Standards.aspx last accessed 16 May 2008. 87 Water Act 2003, Note 48 above.

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