LETTER : Powers of water regulator

Sir: Your leader "Byatt gets a second chance" (3 April) shows some misunderstanding of the powers of regulators.

You express surprise that regulator did not intervene to redirect to customers some of the cash savings arising from the North West/Norweb merger. It is only in relation to mergers between water companies that lower bills for customers can result as a condition for the clearance of the merger.

This is due to the provisions in the Water Industry Act. Stephen Littlechild has no such power under the Electricity Act for mergers between electricity companies and neither of us can extract up-front savings in the case of inter-utility mergers.

Ofwat has, however, argued that companies should share benefits, especially unexpected ones, with customers at an early stage. But I have no powers to demand this. To do so could damage incentives to efficiency. At the next Periodic Review I will, however, ensure that customers benefit from any cost savings.

As you say, the ring-fencing provisions will protect customers from cross- subsidisation. Other licence amendments I have put in place will give me the access needed to discover exactly what cost savings are being made and to ensure that customers receive their fair share of these.

I C R Byatt

Ofwat

Birmingham