Competition and access pricing in the UK water industry

Following the passing of the Competition Act 1998 which came into force in March 2000, the context for competition in the UK water industry changed. This paper is concerned with the issue of access charging in light of the requirement under the Competition Act 1998 that incumbent water undertakers must grant entrants access to certain parts of their infrastructure on reasonable terms. Beginning with a review of the regulatory and structural features of the current water industry relevant to the issue of access pricing, this paper then undertakes a detailed examination of alternative access pricing rules including the Efficient Component Pricing Rule (ECPR), Long Run Marginal Cost Pricing (LRMC), and Fully Allocated Cost Pricing (FAC). The opinion presented in this paper is that ECPR is more likely to lead to the development of efficient competition in the specific circumstamcs of the UK Water Industry than the alternative pricing rules. © 2003 Elsevier Science Ltd. All rights reserved.