Case Study Intro
Your client is a large water utility company that has a license from the national government to provide water services to homes and businesses in a specific geographic region.
The client is concerned about a source of competition to its local monopoly: when a new housing development is constructed, the developer can choose to to obtain water services from either the incumbent water provider (client) or from another company able to build the water / sewage pipeline infrastructure. When another company supplies water to the new development, it is licensed by the government regulator as an “inset” in the existing licensee’s region.
An inset can be served in two ways
1.The traditional “own supply” inset where a water company relies on its own infrastructure to supply water. These insets may be awarded at border locations where it is economically feasible for water utility companies operating in an adjacent region to provide the water from their own supplies. There have been no insets of this type in the client region over the previous 5 years.
2.The recently developed “bulk supply” market where inset competitors can construct their own water supply / sewerage infrastructure between the development and the local water utility’s network. In this situation, the inset operator pays the water utility a “bulk” rate to supply water services to the inset, and this rate is determined by the regulator. The inset operator then bills the residents for their water services, which cannot cost more than the level for water services under the local water utility company.
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