Water industry regulator Ofwat has launched a new consultation on a proposed water trading Code for Thames Water.
In the 2014 price review Ofwat introduced water trading incentives to encourage water trading between incumbent water companies. Companies can only receive the water trading incentives if they produce, and are compliant with, an approved trading and procurement Code.
Introducing the Code, Thames Water said it is, in principle, “willing to trade with any party that either wishes to take from us, or offer to us, a reasonable volume of reliable, sustainable and cost-effective water resources.”
Thames currently has 20 bulk supply agreements with neighbouring water companies, both for the export and import of raw and treated water, together with 15 bulk export agreements with new appointees, to supply specific sites.
The utility shares borders with 9 other appointed companies: Southern Water, Anglian Water, Bristol Water, Northumbrian Water (Essex and Suffolk), Wessex Water, South East Water, Severn Trent, Sutton and East Surrey Water and Affinity Water.
The firm also belongs to the Water Resources in the South East Group (WRSE), an alliance of six South East England appointed water companies, the Environment Agency, Ofwat, Consumer Council for Water, Natural England, DWI and Defra.
The company’s area of operation sits almost entirely within the Thames River Basin District - the largest river basin in the South East of England. Almost half of the water bodies in the District have been artificially modified.
Average rainfall for the Thames catchment is 690mm in a year, substantially less than the average for England and Wales, 897mm. Of the rain that falls, about two thirds is either lost to evaporation or transpired by growing vegetation. Of the remaining ‘effective’ rainfall, approximately 55% is abstracted for use, making it one of the most intensively used water resource systems in the UK. Of all the water abstracted, 82% is for public supply. The catchment, as well as the wider South East region, is deemed to be under “serious water stress”.
"Water trading could be supported by more flexible abstraction licence management"
The Code says Thames Water also believes that water trading could be supported by the more flexible management of abstraction licences – the draft Code says a framework that allowed abstractors to share or ‘pool’ their abstraction entitlements such that a cooperative trading arrangement was possible, would enable them to alter their actual abstraction on a mutually-agreed basis.
Thames says water trading has an important role to play in tackling three significant challenges - the growing impacts of climate change on water availability, population growth and the need to reduce abstraction to protect the environment.
Preference is for contract terms of at least 20 years
Principles set out in the Code include a possible requirement for the potential trade partner to sign a confidentiality agreement, at the outset of negotiations. The Code also says that while Thames will consider short-term and long-term trades, in most cases it would prefer a contract term of at least 20 years with long duration notice periods linked to the time needed to find alternative sources of water.
To qualify for a trading incentive, the regulator has stipulated that a trade must have been agreed no earlier than July 2013. The Code says:
“We assure Ofwat and others that we will not manipulate any of our current trades in order to exploit the financial incentives for trading. We would look to our current trading partners to do the same. If we agreed a new trade, we would prepare an audit report of the process, to demonstrate compliance with our Code. This report would include evidence to show that the trade was genuinely new, not a current trade that had been artificially ended and restarted.”
On potential imports, Thames says its current and future resource position makes it likely that an import agreement could be a valid option for it to pursue. The company is currently investigating in detail two potential large raw water imports into the Thames catchment for supplying London in the long-term – the options were submitted by United Utilities and Severn Trent Water.
The Code must be read in conjunction with Thames Water’s Network Access Code, which sets out in detail the operational and commercial arrangements that govern applications for use of, and supply from, Thames Water’s supply system for the purposes of competition.
Following the conclusion of the consultation period Ofwat will either approve the Code or provide reasons for not approving it within six weeks.
Deadline for responses is 19th April - any representations should be sent in a single written submission to Peter Hetherington, Principal Associate, Ofwat, 21 Bloomsbury Street, London WC1B 3HF. Submissions can also be emailed to: This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Click here to download THAMES WATER’S TRADING AND PROCUREMENT CODE