Cathryn Ross, Chief Executive of Ofwat, has reassured water company Chief Executives that Ofwat’s work on assessing the benefits of extending competition to domestic customers in England will not compromise the timescales for non-household retail market opening and its work on the policy framework and methodology for PR19.

The comments come in a letter to the Chief Executives setting out some of the overarching principles Ofwat will be using in its assessment of the costs and benefits of extending retail competition in England to household customers.

Ofwat is currently scoping the work required for the assessment which the Government has asked it to provide - target date for the water regulator to  provide this is summer 2016.

Setting out the approach Ofwat is planning to take, Cathryn Ross said Ofwat now has a better understanding of what competition in water and waste water retail could mean, together with more evidence from the water sector and elsewhere of how market dynamics work, of the benefits they bring and the challenges they present.

“Now is also a good time to look again at the costs and benefits of competition for household customers, because it will enable us to factor the UK Government’s conclusions into our next price review in 2019, and to consider how any move to household competition might follow on from the work currently being undertaken to deliver non-household retail market opening in April 2017”, the letter says.

The three principles which will govern Ofwat’s assessment are:

1. The decision on whether, in what form and on what timeline the household retail market in England will be opened to competition is a matter for the UK Government.
2. Ofwat’s assessment of the costs and benefits of extending retail competition to households will be evidence based. It will include evidence from the process of opening up the non-household market in England to competition, and evidence from the sector and its stakeholders on the costs and benefits that would be expected from opening up the household market. But it will also include evidence from other sectors and internationally.
3. Ofwat  will follow an open and transparent process, seeking evidence and ideas from those in the sector and beyond.

On the scope and timing of the review, Cathryn Ross said this would consider the costs and benefits of competition for household customers in England taking into account:

• Different models of household customer competition;
• Different options for implementation (including timescales); and
• Identification of further policy choices that may be useful in maximising benefits and/or reducing costs.

Ofwat will publish terms of reference for the review early in the New Year with more detail about the workstreams the regulator intends to undertake, how these will  be progressed and key milestones.

Delivery of the report in summer next year would enable the Government to take its decision in time for the transition to a competitive retail market in England to begin by the end of this Parliament, Cathryn Ross said.

The letter concludes by acknowledging the additional workload and demand on resources the assessment will impose on Ofwat -  

“ I recognise that this is a considerable additional piece of work at a time when we are already working hard to deliver across our portfolio and in particular our commitment to deliver the policy framework and methodology for PR19 in good time, and earlier in the cycle than we did before PR14.”

“I want to reassure you that our work on this review will not compromise the timescales for our work on non-household retail market opening or on Water2020 and in particular our work on the policy framework and methodology for PR19. Beyond this, as we develop our thinking on scope and timing, we are considering how best to resource the review.”