Outside the marginals

a commentary on the politics that followed the UK 2010 & 2015 elections

Is Water a Natural Monopoly?

Millions of householders in England could soon be given more choice over which company supplies part of their water services.

The government has announced that there could be limited competition between suppliers by the end of the parliament in 2020.

The choice will involve services such as billing and customer services, but not the water supply itself.
BBC News Website, 30 November 2015 : Consumers in England to get choice of water services

OK, so the story at the moment is lacking in detail but at first glance this strikes me as daft and possibly leading to some incongruities.

First, the case for marketisation of utilities that are “natural monopolies” is hard to make. A “natural monopoly” occurs when you are dealing with a commodity where because of the distribution network it is very hard (and probably prohibitively expensive) to provide alternative supplies.

To a degree this is acknowledged because we will not be getting a choice of water supply – so no duplication of water mains and reservoirs.

But by decoupling billing and customer services from the actual item being sold it is possible to get to a ludicrous situation. Imagine an organisation that is very good at billing attracts the vast majority of people within a supply region (say that of Northumbria Water). In theory Northumbria Water could end up “supplying” water to this billing entity and not to anyone in “its area”. Is such decoupling a good idea?

Billing and customer services are rarely the major grip for consumers. You sign a direct debit at the beginning of the year and that should be it. Even if you are on a metered supply, the meter is usually external to the property so “estimated readings” (due to you being out when the meter reader calls) rarely give rise to a problem.

The major gripes are matters such as water quality and interruptions in supply – that is matters relating to the water supply. A few years ago in floods our town lost its water supply for two weeks. It was hard enough getting the water company to come up with an effective plan to restore supply and to provide alternatives for water supply and sewage disposal (given that flushing was impossible). But under the proposed regime you – the consumer – will have a contractual relationship with a “billing and customer services company” not a “water supply company”. So would say “Virgin Water Billing” based say somewhere in the West Indies using call centre operatives in say India have been able to exert pressure on the water supplier to provide more effective alternatives and to motivate the water company to “pull its finger out” and restore supplies?

The costs of billing and customer services should be a minimal part of the costs of my water supply – the major cost should be the capital and running costs of the actual water supply network.

I want my water supply relationship to be with a water supplier. They are a natural monopoly; if they are inefficient the regulator should sort them out and if necessary take their licence of them and give either to a different company – or to a social enterprise.

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