Rival supplier offers to cut water bills in half

Ofwat, the water watchdog, will hear today of the most ambitious plan yet to achieve genuine water competition, with an application to take over supplies for a pounds 1bn "new town" development in north Kent.

The proposals, drawn up by the London-based consultancy group Enviro- Logic, would take over supplies to the Kings Hill development from its existing supplier, Mid Kent Water. Enviro-Logic, supported by the site's developer, Rouse Kent, will argue it can cut bills by at least 5 per cent above inflation each year, with potential savings of up to 50 per cent. It compared with the existing price formula which pegs bills to the retail price index.

The formal application will intensify pressure on Ofwat to approve other moves towards competition, four years after serious discussions first began with Enviro-Logic. So far Ofwat is considering 21 so-called "inset" applications, where a new operator takes over water or sewerage services from the incumbent company at wholesale rates agreed with the regulator.

The Kings Hill plans envisage creating a new water company which would buy bulk supplies of drinking water from Mid Kent and become responsible for installing new infrastructure as the development expanded.

So far 500 houses have been built on the former Second World War fighter base, with plans for a further 850. The development also includes office space for more than 10,000 workers, a hotel and a business school for the University of Greenwich.

The most innovative idea is to use recycled waste water, known as "grey water", for lavatories and watering gardens. Another plan is to capture rainwater supplies on the site and to arrange discounts for households to buy washing machines and dishwashers which used less water. Enviro- Logic would also aim to reduce leakage rates to zero.

David Easson, managing director of Rouse Kent, said the grey-water scheme would set an example for other developments. "We spend a lot of money greening the place up with trees and open spaces, but it all looks very tired by the end of the summer. We could do much more irrigation if we didn't have to use expensive drinking water."

Enviro-Logic's managing director, Jeremy Bryan, said the scheme would avoid having to take further scarce water resources from other parts of Mid Kent's area. "This would be a step change for the industry. It would show that the status quo isn't worth defending."

Geoff Baldwin, Mid Kent's chief executive, said he had not seen detailed projections from Enviro-Logic. "We'll have to wait and see before we make any response, but I'm not quite sure how they can do it. We looked at a grey-water scheme for Kings Hill and it didn't stack up in terms of cost outlay."

Though Ofwat has spent years considering inset appointments, mostly from large industrial users such as brewers, it has so far approved just one scheme. Anglian Water has recently taken over supplies for a Buxted chicken plant in Suffolk from Essex and Suffok Water, one of the smaller drinking water companies. However, the change is limited, since site is already in Anglian's sewerage area.

Concern over Ofwat's commitment to competition, enshrined in the 1991 Water Industry Act, has risen since the recent departure of Carole Begent as head of competition. Speaking last week Ian Byatt, the regulator, said he wanted to replace Ms Begent "as soon as possible", but could not say whether any other applications would be approved.

Mr Byatt said his preferred method of competition was for companies to seek new sources of water, including exploiting the rising water table in cities including Greater London.

"This is potential competition rather than actual competition. They are acting as a water broker," Mr Byatt said. He admitted Ofwat was taking longer to resolve Enviro-Logic's inset applications than he would have liked, but blamed the delay on the need to get further information.