The issue of market reform continues to be on the agenda and was debated at the Water UK City Conference. But is it likely to happen or just a good talking point? The key will be the attitude of the next government. Certainly the Conservatives are ideologically wedded to competition but speeches by the Shadow Secretary of State for the Environment, Nick Herbert MP have been much more cautious.
Nick Herbert is more concerned about whether the water industry is sufficiently sensitive to consumer demands and the growing issue of affordability. Secondly in the electricity market where competition was seen to have been successful growing concerns are emerging. There is growing consumer anger over the failure of competition to close the gap between wholesale and retail electricity prices. Even Ofgem has expressed 'reasonable doubt' that the UK energy market is capable of providing the £200bn investment required to deliver guaranteed supplies in the period to 2020.
Market reform was the subject of debate at Ofwat recently. The idea of separating out retail activities into a separate legal entity as suggested in the Cave review was discussed. One of the big problems of this idea is the concern that the legal separation of retail activities would breach covenants for the securitised water utilities and therefore require consent from lenders.
So while competition and the need for change may be promoted by industry, government and the regulator. There is recognition that nothing must be done that will undermine the confidence of investors. This means slow evolution not revolution. There is too much to lose, so expect a lot more talking but little action!
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