In a letter to the managing directors of all 28 water companies, Mr Byatt said that the introduction of the Competition Act from 1 March next year would open up the scope for "common carriage" - where one supplier can use another's network to supply customers inside their monopoly area.
Mr Byatt said that if any company refused unreasonably to share its infrastructure or imposed unreasonable terms for access, it could amount to abuse of a dominant position.
"If I find that a company has infringed the Act, I will direct it to change its conduct and, if appropriate, impose financial penalties," wrote the regulator. Companies can be fined 10 per cent of turnover for a period of three years.
Mr Byatt also said that companies would have to charge for common carriage in a way that reflected the costs of using the system.
Additional costs of connecting to the network or strengthening the network to handle increased volumes of water, would have to be borne by the new entrant.
But incumbent operators should not use this as an excuse to make new entrants pay for improvements that would have taken place anyway.
Mr Byatt has ordered each company to give a transparent breakdown of its costs and how it plans to implement common carriage before the 1 March deadline for the new Competition Act.Reuse content