BEECHER - NAWC

Water ComparedStructural ChangerUnbundling in the natural gas industry involves disaggregating a number of functionsprovided by local gas distribution systems, including? 1o Providing retail distributiono Arranging pipeline transportationo Arranging storageo Procuring gaso Providing balancing serviceso Offering financial instruments to "hedge"o Forecasting loads and nominationso Providing on-system peakingo Providing back-up services and interruptionmsuranceo Conducting metering, accounting, and billingo Providing maintenance contractsCompetition is slower to come to the water industry.The industry remains largely monopolistic in terms ofownership and operations. Even the very smallestwater utilities are monopolies if the customers theyserve do not have feasible supply alternatives, whichoften is the case. However, water utilities increasinglyare expected to behave less like monopolies in termsof responding to customer needs. Many observersbelieve that the water industry will be pressured tounbundle certain services, particularly metering andbilling.Competition in watero Extending service to unservedor underserved areas.o Engaging in acquisitions andmergers (voluntary).o Bidding for operationscontracts (involving utilities aswell as private contractors).o Bypassing the utility Oargevolumecustomers, includingself-supply).o Purchasing water on wholesalemarkets.o Trading water rights (includingalternative water uses).o Competing with bottled waterand home treatment methodsfor service quality and image.o Promoting public versusprivate ownership.o Contesting markets or utilityownership (includinginvoluntary acquisitions).o Participating in convergenceacquisitions.In some areas of water supply, competition can bedetected. For water utilities, the competition betweenthe public and private ownership forms (both of which are monopolistic) and the very relatedidea of contestable markets are perhaps the most significant manifestation of competition forthe industry. Overall, the competition has had positive effects in terms of focusing attentionon opportunities for efficiency, innovation, and structural change. Emotions continue to runhigh on which ownership form is best suited to providing water service.Some water service territories are contestable to the extent that an alternative provider is ableand willing to enter the market. Many water utilities do not have exclusive service territories,which would limit market entry by competitors. Contestibility has been proven in caseswhere publicly owned utilities have been privatized and, perhaps more dramatically, whenprivately owned utilities have been condenmed and operations have been assumed by local21Indiana Utility Regulatory Commission, Regulatory Flexibility Report (Chapter 8).http://www .ai .orgiiurc/reoort/regflex!gas/ -8 .html#FNAWC 64 September 1998