In the case of Mid Kent, where the only way to tap new water sources is to dig another reservoir, it is a non-starter.But, as Kings Mill shows, there is an answer. In an industry where the word "drought" never seems far from anyone's lips, this is more easily said than done. In itself this is fine (even though history shows that regulators invariably underestimate the amount that privatised utilities can afford to hand back).In the meantime he only seems interested in competition that results from rival suppliers actually developing their own water resources. Instead Ofwat is working on its grand price review which promises to deliver one-off reductions in bills in 2000. In fact, he doesn't even regard it as proper competition but sees it merely as water brokering. It has 25 other schemes in the pipeline all still awaiting the go-ahead, none has yet been given the Ofwat seal of approval It is not alone. Since the necessary legislation was passed five years ago Ofwat has approved only one application to substitute an incumbent supplier - Anglian Water is now supplying a chicken farm in Suffolk which is outside its franchise area.The snag is that Mr Byatt does not really like this form of competition as a means of delivering better service and value to consumers.

Mr Byatt will be asked to approve a scheme that will allow nearly 2,000 homes and businesses on the Kings Mill development near Maidstone to get their water not from the local monopoly, Mid Kent Water, but from Envirologic, a rival supplier.Envirologic is promising all sorts of goodies such as zero leakage rates, a way of saving on consumption by flushing the toilet with "grey water" (don't ask) and, best of all, at least 5 per cent and perhaps as much as 50 per cent off the bills that householders in nearby Tonbridge pay. Even Mid Kent does not lose out since the water for Kings Mill will be bought from it at a commercial price which reflects the incumbent supplier's own cost base.This is not the first application that Mr Byatt has received from Envirologic. Instead they hit upon the concept of "comparative competition" - the idea that the most efficient suppliers would set the standard for the rest and so bring down prices for everyone. It never worked, as rising bills, leakage rates and water shortages have shown. Today, however, Ian Byatt, the industry regulator, has a golden opportunity to prove that where there is a will there is a way. When they privatised the water industry the Conservatives accepted that instilling real competition would be a bit like trying to push the stuff uphill. It is not a commodity that lends itself readily to market forces. For one thing, it is a natural monopoly, for another it is expensive and difficult to transport, as Yorkshire Water demonstrated during its little local difficulties two summers ago.

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.. 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. 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. 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. 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. 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. 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. 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.