Common carriage as a way of introducing competition in the water sector - PowerPoint PPT Presentation

Loading...

PPT – Common carriage as a way of introducing competition in the water sector PowerPoint presentation | free to view - id: 650b9-ZDc1Z



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Common carriage as a way of introducing competition in the water sector

Description:

Canary Islands common carriage. England & Wales: common carriage looming ... In cases like the Canary Islands, where raw water is priced through the market ... – PowerPoint PPT presentation

Number of Views:20
Avg rating:3.0/5.0
Slides: 40
Provided by: Coop4
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Common carriage as a way of introducing competition in the water sector


1
Common carriage as a way of introducing
competition in the water sector
  • Presentation to the IADB workshop
  • Second generation issues in the reform of Public
    Services
  • 4 and 5 October 1999
  • Energy and Utilities
  • PricewaterhouseCoopers
  • Sylvia Wenyon

2
Agenda
  • Common carriage the policy context
  • Issues to resolve
  • Canary Islands common carriage
  • England Wales common carriage looming
  • Summary Conclusions

3
What is Common Carriage?
Common carriage is the use of distribution
networks of incumbent water companies to
transport water or sewerage by third parties
4
Common carriage and the policy context
Policy objectives in water sewerage
  • Efficiency low costs/ low prices and adequate
    quality
  • Security of supply
  • Protect the water environment
  • Health, coverage (access to urban rural
    population)

.Regulated monopoly v market forces?
5
Common carriage and the policy context
Possible role of market forces
  • substituting competition for economic regulation
  • overcoming in built tendencies for inertia in
    monopolies
  • challenging resource self sufficiency where
    company has limited geographical coverage

6
Common carriage and the policy context
  • Options for introducing market forces
  • competition for the market
  • concessions for whole service
  • BOTs for treatment, storage (reservoirs)
  • competition in the market
  • supply from local source
  • bulk supply
  • common carriage

7
Customer Scope large users small
developments (unless common carriage available)
Options for introducing competition in the
market supply from local source
Newcomer or companies from other areas competing
via
Supply from local source
8
Options for introducing competition in the market
Non-common carriage supply from bulk supply
Newcomer or companies from other areas competing
via
Source 4
Company A
Company B
bulk supply from incumbent
Source 1
Town
Customer Scope large users small
developments(unless common carriage is
available)
Town
Source 2
Water Source
Source 3
Town
Key to map
100mm water main
500mm water main
9
Options for introducing competition in the market
Common carriage small network
section
Newcomer or companies from other areas competing
via
Source 4
small Common carriage
(abstraction licence or bulk supply)
Source 5
Customer scopelarge users developments
areas accessed via link
10
Options for introducing competition in the market
Common carriage across tow companies networks

Town
11
Options for introducing competition in the
marketCommon carriage across national/ state
links
Unlinked networks
12
Potential links
Options for introducing competition in the market
Common carriage across national/ state links
13
Options for introducing competition in the market
Common carriage across national/ state links
PotentialIntegrated networks
14
Options for introducing competition in the market
Common carriage across national/ state links
All Incumbents competing in each others areas
Plus newcomers with abstraction licences
competing via
Common carriage across national/state networks
Customer scopemost customers in country if
links feasible
Common carriage
15
Options for introducing competition in the
market Conclusion
Rationale for pursuing common carriage route over
other options
  • enhances other options
  • enables access by more newcomers to
  • more customers
  • cheapest raw water
  • treatment more likely to be economical given the
    large number of customers (unlike onsite
    abstraction without cc)
  • potential for savings not only in supply, but
    also in abstraction, storage and treatment
    (unlike bulk supplies)

16
Common carriage underlying economics

For cc to develop and links to be establish
competitor needs good prospects for business
  • likely costs favourable
  • proportion of transport costs other network
    charges relatively low in relation to all costs
  • abstraction charges in other locations
  • lower
  • newcomer potential for further efficiency in
    treatment, storage retail high

17
Common carriage underlying economics
  • Costs favourable
  • Proportion of transport costs other network
    charges relatively low in relation to all costs

Transport unit costs are high in proportion to
total unit costs in low densely populated
countries
Less consumers to share costs
Large Link High construction and Transport costs
(water is heavy)
15
Typical Americas
Typical Europe
18
Common carriage underlying economics
Proportion of transport costs low
33 network
7
Generation 52
4
Distribution 29
Transmission
Other 9
Electricity
Transport costs are important in water in the UK,
In less densely populated areas such as the
Americas they are likely to be even more
important. Therefore Competition has less scope
than in other utilities to reduce costs/prices
30 network
Storage Transmission
Production Exploration 43
7
Distribution 23
Other 14
Supply 13
Gas
37 network including pumping
bulk transmission
Abstraction, Treatment storage 40
7?
Distribution 30
Supply 17
5
Clean Water
Pure natural monopoly
21 network
More potential for savings in wastewater This
depends on the extent of economies of scale in
treatment (i.e., whether treatment is part of the
pure monopoly element)
Sewage Sludge Treatment 55
Sewerage 21
Supply 18
5
Waste Water
Source Ofwat, Offer, Ofgas
19
Common carriage underlying economics
  • Costs favourable
  • Abstraction charges important in relation to
    total costs
  • raw water rights available (new, traded or
    leased)

20
Common carriage in the policy context
Policy objectives
  • Bring down prices to consumers/ adequate quality
    ?
  • Ensure security of supply
    ?
  • Protect the water environment
    ?
  • Health, coverage (access to urban rural
    population) ?
  • Requirements for common carriage to meet the
    policy objectives
  • adequate abstraction pricing or management
  • mechanisms to release raw water or water rights
  • policies to address loss of incumbent cross
    subsidies that were supporting universal service
    obligation

21
Issues to resolve
  • Network issues
  • Industry structure
  • Externalities, universal service stranded
    assets

22
Issues to resolve (network issues)
  • Requirements of CC in any sector
  • 1 rules for network operation and interface with
    water traders (notice, information requirements,
    rights of network operator to refuse access when
    risk to network)
  • 2 settlement regime to account for differences
    in inputs and outputs
  • 3 charging regime for use of the network

23
Issues to resolve (network issues)
Requirements of CC in any sector (continues)
  • common carriage to be made statutory
  • information to be made available on
  • position of network
  • characteristics
  • position of available sources

24
Issues to resolve (network issues)
  • problems of introducing different waters, even
    when water complies with national standards
    effect of mixing effect on pipes (quality,
    hardness, colour, taste)
  • new water negative effect in the network and thus
    in network maintenance
  • how do we establish who is responsible for the
    changes in quality, the negative effects on the
    network and on the service
  • Water quality and hydraulics
  • Liability allocation for poor quality supply
    for network damage

25
Issues to resolve (network issues)
  • Liability for other levels of service
  • Allowances for leakage
  • pressure and interruptions to supply are likely
    to be affected
  • leakage can be affected due to the changes in
    pressure and the increase in the number of
    connections
  • newcomers will have to accept certain levels of
    leakage and input more water (how much leakage
    should they accept?)

26
Issues to resolve (choice of industry
structure)
Water
Bulk imports
Impounding Reservoir
SURFACE WATER
Supply Pipes
Treatment works
Bulk exports
(diurnal) storage
GROUND WATER
bore holes
Distribution network
WHOLESALE NETWORK
aquifer
Licensed abstractions
Transmission
?
? Treatment
Storage
Storage Raw Water Reservoirs
Distribution
Supply
Waste Water
NETWORK
Supply to large users
Trade effluent treatment Disposal
Sludgetreatment disposal
Sewerage/drainage
Sewagetreatment
27
Issues to resolve
(externalities, cross subsidies stranded assets)
  • benefits questionable if
  • abstraction prices do not reflect environmental
    externalities, though quantitative controls are
    an option and
  • if there is no mechanism to release abstraction
    rights
  • abstractions and externalities
  • competition will highlight undermine current
    cross subsidies. Incumbents would need to be
    protected in order to be able to deliver service
    to to high cost of supply users
  • cross subsidies and universal service obligation
  • stranded assets
  • should the incumbent be protected for stranded
    assets?

28
Issues to resolve significance in different
cases
Network issues more difficult to resolve in case
1
2. Sources owned by different parties far away
form demand
1. Sources are dispersed and demand centres
intermeshed
Wet area
Dry area
England Wales several links points of entry
and exit
Canary Islands (Tenerife) cc over trunk transport
Demand areas
Sources
29
Issues to resolve
Would the transaction costs of setting contracts
and going into litigation around liabilities
outweigh the benefits of competition?
30
Canary Islands Common Carriage already exists
  • Common carriage in Tenerife for many years
  • abstraction rights were individually owned and
    tradeable since the 16th century
  • market signals provided an incentive to transport
    water from places where it was relatively
    abundant (the north) to places where it was
    scarce (the south).
  • common carriage exercised through
  • pipes owned by individuals who charge a network
    toll (pase) for access
  • maintenance responsibility an issue some water
    rights owners have built a parallel network to
    ensure better maintenance

31
England and Wales Main Developments in
Competition
  • Supply competition has relied only on on site
    abstractions or bulk supplies (no common
    carriage)
  • 1989 Act
  • only new customers
  • more than 30 meters to the existing distribution
    main or sewer
  • greenfield sites and those
  • under private supplies
  • in 1992 Act
  • large users and
  • 30 m rule abolished
  • powers to regulator to determine bulk supplies
    sewer connection charges
  • cross border domestic if incumbent agreed
  • customers request it and were prepared to pay
    for the pipelines needed

32
England and Wales Main Developments Competition
  • Results
  • since 1989, only 5 insets granted (only 2 large
    users)
  • however large user tariffs have declined
  • Main problems
  • limited scope for entrants without cc
  • Inset has to agree with incumbent on bulk supply
    or sewer connection charges (difficult to agree
    incumbent has greater bargaining power).
  • inset companies and newcomers say there are no
    rules,

33
England and Wales Common Carriage looming
  • New legislation
  • The 1998 Competition Act with effect on April
    2000
  • it could be an abuse of dominant position to deny
    access to a facility, when this is essential


34
England and Wales water resources 2002
indication of sources of savings on costs of raw
water
Provided transport costs, hydraulics and
population densities allow and water is priced
appropriately, cheaper water will be transported
via common carriage from places where it is
abundant (Wales and the north) to places where it
is less abundant (East)
Key Tight Marginal Adequate
35
England Wales benefits of common
carriage price differentials? Need to explore
reasons
Key Below 51 p/m3 51 -60 p/m3
61-70 p/m3 71-80 p/m3
Above 80 p/m3
4
3
17
10
27
14
  • But are the differentials due to factors that can
    be addressed with competition
  • differences in efficiency or
  • availability/prices of raw water?
  • Not always prices are higher in some regions
    because of
  • areas being hilly or
  • of low population density

5
23
1
2
15
13
26
25
8
15
12
8
20
19
24
8
8
16
9
18
6
11
22
21
price of retail water in England and Wales 1997-98
36
Summary conclusions
  • Compared to other alternatives, common carriage
    enhances the scope for introducing effective
    competition
  • In relation to the objectives of water policy
    common carriage is able to deliver
  • lower consumer prices,
  • with introduction of other mechanisms
  • lower environmental damage
  • greater security of supply
  • Scope for benefits greatest in countries with
  • high population densities
  • differences in raw water availability between
    companies areas reflected in raw water prices
  • great differences in efficiency

37
Summary conclusions
  • Issues to resolve
  • rules for network operation charges
  • water quality and hydraulics
  • liability allocation for poor quality, levels of
    service and network effects
  • abstraction allocation and pricing to reflect
    externalities
  • cross subsidies and universal service obligation

38
Summary conclusions
  • Benefits and issues to resolve are more
    significant in specific circumstances
  • In cases like the Canary Islands, where raw water
    is priced through the market sources are owned
    by different parties far away from demand, issues
    likely to be solvable cc carriage competition
    likely to be beneficial
  • in cases where supply and demand are more
    intermeshed, the economics may be favourable but
    network issues may be more difficult to solve
  • Allowing it to happen will let the market
    identify favourable cases expose significance
    of issues to resolve

39
Summary conclusions
  • Whether benefits outweigh costs remains to be
    seen Jury is out in England and Wales it is
    about to be tested
  • However early introduction of competition may
    conflict with PSP interest in traditional
    concessions
About PowerShow.com