International Handbook on Economic Regulation
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International Handbook on Economic Regulation

Edited by Michael A. Crew and David Parker

Michael Crew and David Parker have compiled a comprehensive, up-to-date and detailed analytical work on leading research issues in the economics of regulation. With contributions from international specialists in economic regulation, the Handbook provides a comprehensive discussion of major developments in both the theory and practice of regulatory economics. This book will be an indispensable source for both students and practitioners of regulation.
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Chapter 17: Regulation of Water and Sewerage Services

Ian Byatt, Tony Ballance and Scott Reid


Ian Byatt, Tony Ballance and Scott Reid Introduction Effective regulatory oversight of utilities begins by making appropriate decisions on industry structure, competition and regulation. Where it is feasible competition provides a spur to good service and efficient provision and there are therefore strong arguments for developing structures that facilitate it wherever possible. But should water services be treated like other utilities (i.e. energy and telecoms) in terms of how the sector should be organized, how competition should work and how it should be regulated (see for example Robinson, 1998)? Or are they a natural monopoly, in which the potential for competition between multiple suppliers for the same group of customers (i.e. competition in the market) is limited and hence some form of regulation is required to protect the customer interest? In this chapter we examine these important questions by looking at two key themes in the regulation of water services: the regulation of structure and the regulation of conduct. Consideration of the regulation of structure provides the necessary context for understanding the scope for competition in the market for water services and approaches to the regulation of industry structure. It also provides a framework for understanding the structure of costs in water services. We review the evidence on economies of scale and scope in water services, focusing on the situation in England and Wales. We then address the public oversight of the conduct of the water sector where competition is limited, in particular the need for and the role of...

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