Ofwat has launched a new consultation on a proposal to appoint Severn Trent Services as a sewerage undertake to replace Thames Water at a new Ministry of Defence site with 3,850 homes – the regulator has said it is “minded” to give the go-ahead.
Severn Trent Services has applied to be the sewerage company for a development consisting of 3,850 new household properties and an existing Ministry of Defence base at Wellesley, in Aldershot which is currently within the sewerage services area of Thames Water.
Ofwat proposes to:
- grant a sewerage only appointment to Severn Trent Services; and
- vary the appointment of Thames Water as a sewerage company by excluding the site from its sewerage services area.
The new appointment and variation mechanism provides an opportunity for entry and expansion into the water and sewerage sectors by allowing one company to replace the existing appointee as the provider of water and / or sewerage services for a specific area. The mechanism can be used both by new companies to enter the market and by existing appointees to expand their businesses.
The site has a private sewerage network owned by the MoD and no sewerage assets owned by Thames Water.
Severn Trent Services is proposing to operate an on-site sewage treatment works, charging customers an amount that is 2.5% less than the fixed and volumetric charge for sewerage services charged by Thames Water.
Ofwat said:
“Having considered Severn Trent Services' pricing proposals, we are satisfied that customers will be at least no worse off in terms of their annual bills than if they had been served by Thames Water.”
Customers on the site - levels of service
On customer service level requirements, following a review of Severn Trent Services’ proposed service levels and comparison with the performance commitments of Thames Water, Ofwat is satisfied that customers will be offered an appropriate level of service by Severn Trent Services. Overall customers will be ‘no worse off’ being served by Severn Trent Services instead of by Thames Water.
Other requirements also assessed include Severn Trent Services’ Guaranteed Standards Scheme (GSS) compliance and base service levels, Codes of Practice and voluntary standards. Ofwat has also taken into account proposals where Severn Trent Services will offer improved customer service compared with Thames Water, including:
- Severn Trent Services will take on responsibility for maintaining and repairing private pumping stations prior to 1/10/2016 - the date set for the transfer of ownership of private pumping stations to undertakers. Thames Water does not propose to take on responsibility before 1/10/2016.
- If there is sewer flooding from customer drains, Severn Trent Services and Thames Water will spend up to two hours investigating and clearing any blockages for a fixed-fee. If the problem recurs within 14 days, Severn Trent Services will clear it again for free, whereas Thames Water will only clear it again for free if the problem recurs within seven days.
- Severn Trent Services will provide an approval decision on new sewer connections within 12 days, whereas Thames Water takes 14 days.
- Customers requiring a new sewer connection are required to give Severn Trent Services five days’ notice of the day they want the connection to be made, whereas Thames Water requires 14 days’ notice.
However, Ofwat points out that Severn Trent Services does not propose to match Thames Water in some ways, for example:
- Severn Trent Services’ call centre opening hours are five hours per week shorter than those of Thames Water.
- Severn Trent Services does not offer a social tariff (except for Watersure) while Thames Water offers the WaterSure Plus tariff.
- Severn Trent Services does not have a charitable trust fund, while Thames Water does.
The regulator concluded:
“Having considered Severn Trent Services' overall proposed service levels, and compared them with those of Thames Water, we are satisfied that customers on the Site will receive a level of service that is comparable with the level of service they would have received had they been served by Thames Water.”
Ofwat has also taken into consideration the choices of the site developer - in this case, the developer has said that it wants Severn Trent Services to be the sewerage company for the site.
Wider benefits – “challenge can act as a spur for appointee to raise its game”
Ofwat said the new appointment and variation mechanism provides a means for companies from outside the water and sewerage sectors to enter the market and for existing water and sewerage appointees to expand their businesses, commenting:
"Entry and expansion (and even the threat of such by potential competitors) can lead to benefits for different customers in different ways (such as developers of new housing sites and household and non-household customers)."
"Examples of benefits delivered via the new appointment and variation mechanism include price discounts, better services, environmental improvements and innovation in the way services are delivered."
"Benefits can also accrue to the existing appointee's customers, because when that appointee faces a challenge to its business that challenge can act as a spur for it to raise its game."
Ofwat is separately planning to hold an industry-wide consultation later this year on licence condition changes that are considered necessary to give effect to retail market opening in 2017.
If Severn Trent Services’ application is granted and the appointment comes into effect prior to the consultation, Ofwat said the company would be consulted as part of the wider industry process with a view to amending its Conditions of Appointment to give effect to retail market opening.
Deadline for submission of responses to the consultation is 6 November 2015. Click here to download the consultation paper.