Firms to choose water suppliers

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When the water industry was opened to competition it did seem a bit spurious. After-all if you don't have a choice over who supplies your water, how is this supposed to constitute competition?

However, new proposals should shake things up nicely, because companies will be able to select their own water supplier.

Companies can switch

The government has issued a white paper that would mean that companies that get a deluge of bills from different companies from their sites across the UK will be able to select just one national provider.

At the moment only businesses that use a massive quantity of water on one site are allowed to choose their own supplier, so this would bring in a massive round of switching, which is likely to transform the industry.

It is part of a range of changes, which will also mean the way water is obtained and traded would change, and that rules on mergers would be relaxed.

The result is likely to mean new companies emerge to buy water wholesale and sell it onto customers. The new companies would be under pressure to cut costs, so there would be increased effort ploughed into business tariff competition across the board, which will bring a much-needed boost for British business.

Bad news for consumers

However, there is a serious potential downside.

Critics warn that the changes could mean prices go up for domestic customers. At the moment Ofwat enforces a 'cost principle' which sets wholesale prices to ensure they include the costs of repairing water infrastructure. One proposal in the paper is to remove this, and let Ofwat set a lower price.

The danger, however, is that the water companies would put up prices for domestic customers in order to pay for these infrastructure costs. The domestic customers don't have the power to switch, so would be sitting ducks for increased costs.

So what do you think? Is any increase in competition a good thing, or has the government failed to think through what this means for hard-pressed domestic customers? Let us know in the comments.
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