In the run up to competitive retail market opening for business customers in 2017, Ofwat has concluded that current licence holders will be required to apply for either or both of the new retail licences that they wish to hold.

The regulator has rejected the idea of simply allowing existing licence holders to be “given” a modified water retail licence, saying this would mean that they had not been assessed against the obligations of the new licence and the revised application process, raising questions about customer protection.

The comments come in a new consultation launched by the water sector regulator inviting stakeholders to comment on the proposed process for applications for future retail water supply and sewerage licences.  The process is set out in three separate documents for the application notice, the application form and the application guidance respectively.

On the extent to which the application process for existing applicants can be streamlined, Ofwat has also concluded would be unsafe to place reliance on their original plans. The regulator said the need to ensure that applications were based on current business plans relevant to the new market had been foremost in its thinking.

Applicants must clearly demonstrate understanding of five market codes

The new market will rely on a new legal framework – ranging from legislation to non-statutory guidance - within which the licensing and application requirements sit.

The main detail of the new market arrangements is set out in two new market codes governing interactions in the market - the statutory Wholesale Retail Code and the non-statutory Market Arrangements Code. The codes are a key part of ensuring that retailers do not have to negotiate different access arrangements with each wholesaler.

Licence holders will need to comply with three further codes to be published by Ofwat :

• The statutory Interim Supply Code which will regulate what happens to the customers of a licensee which ceases to supply them in certain circumstances.
• The Retail Exit Code - a code which Ofwat expects to be required under Defra's proposed exit regulations
• The Customer Protection Code of Practice - expected to be established containing a range of customer protection obligations.

All applicants will need to demonstrate their understanding of the rules and codes in their responses to questions about the managerial, financial and technical competencies that form the core of the application assessment process.

Separate Defra consultation outcome may mean Ofwat has to re-issue new consultation

Ofwat said the consultation highlights some important limitations in the status and scope of the application process that it had not yet reached conclusions on.

Defra’s consultation on standard licence conditions for the WSSL (water supply and/ or sewerage licence) has not concluded -  meaning the regulator has not been able to review all the responses. Depending on the outcome, Ofwat may need to issue a revised version of this latest consultation and extend the consultation period,   although Ofwat says this is unlikely.

The application process set out in the new consultation also only covers retail and restricted retail authorisations – and will be extended once Ofwat reaches decisions about the approach for wholesale authorisations, supplementary authorisations and disposal authorisations as well as the combined supply element of the current WSL.

Self-supply is also not addressed in detail, with the current version of the application process documents providing only limited coverage of self-supply licences. Again, this is because the Defra consultation on standard licence conditions has not yet concluded.

Finally, the consultation also does not cover in detail the form, content and process for joint applications for a WSSL in England and/or Wales and the equivalent water services and sewerage services licences in Scotland.

All current licence holders must reapply for new retail licences

Ofwat has concluded that it is necessary to ask current licence holders to apply for either or both of the new retail licences that they wish to hold. The regulator has rejected the idea of simply allowing existing licence holders to be “given” a modified water retail licence, saying this would mean that they had not been assessed against the obligations of the new licence and the revised application process, raising questions about customer protection.

On the extent to which the application process for existing applicants can be streamlined,  Ofwat has also concluded would be unsafe to place reliance on their original plans, saying the need to ensure that applications were based on current business plans relevant to the new market had been foremost in its thinking.  A number of the current licence holders have held their licences for close to a decade.

With regards to other areas of the application, Ofwat is proposing that all applicants complete the same application form on the basis that this will deliver more robust and uniform customer protection. They will also be required to pay an application fee of £5,250, reflecting the costs incurred by Ofwat to undertake the necessary assessments and run the associated public consultation.

The consultation papers include three appendix documents setting out Ofwat’s proposed process for the application notice, the application form and the application guidance respectively.

As part of the consultation process, Ofwat is holding a workshop on 8th February in London to provide an opportunity for further discussion and questions.

The regulator is now inviting comments on all three documents – deadline for responses is 26th February.

With potential applicants able to apply for a licence from April 2016 and a proposal to formally issue the suite of documents in March, Ofwat is once more operating to a tight timetable.

Click here to access the consultation paper online.