IAN BYATT, the water regulator, is to use his new powers under the Competition Act to force water companies to open their local monopolies to rival suppliers. Ofwat officials said yesterday that the legislation, which takes effect next March, had the potential to create much more competition in supplying industrial users and new housing estates.

Mr Byatt is expected to concentrate on two areas. First, rival suppliers will be encouraged to exploit unused water abstraction licences in other suppliers' territories. Second, they will be able to take advantage of "common carriage" rules to use an existing supplier's network of pipes.

Under the Competition Act, the regulator can fine companies up to 30 per cent of their UK turnover if he finds evidence that they are distorting competition or abusing their dominant position.

Although Ofwat is not setting up a task force to target anti-competitive behaviour, Ofwat officials said Mr Byatt would become much more pro-active in encouraging competition. Since privatisation in 1989 there has been virtually no competition in water because it is a natural monopoly. Only five "inset appointments" - where one water company supplies a customer in another supplier's franchise area - have been granted in the past 10 years.

Under the new legislation, Ofwat will be able to penalise suppliers if they refuse to allow rival water companies or new entrants to exploit unused abstraction licences. It wants to see a system introduced for the trading of abstraction licences.

Beryl Brown, head of competition at Ofwat, said that where someone already had access to a source of water but was refused permission to transport it using the local water grid, this could be an abuse of a dominant position.

The Act will also enable Ofwat to outlaw anti-competitive agreements whereby suppliers undertake not to compete in each other's areas. Companies could also be fined for overcharging "captive" customers or undercharging consumers who have a choice of supplier in a bid to freeze out competitors. But Ms Brown conceded it might not always be easy to find evidence of this.

Outlook, above