Water industry regulator Ofwat has launched two further consultations on issues relating the opening of the non-household market to competition in 2017 - one on market readiness, the other on the removal of the in-area trading ban.

On readiness, Ofwat is proposing to modify all existing Instruments of Appointment (IoA) and Water Supply Licences (WSL) by the addition of a retail market opening readiness condition. The introduction of a readiness condition for companies to be ready for the opening of the new retail market in April 2017 creates a legally enforceable obligation, supporting the programme requirements around preparation and loading of data and other preparations for shadow operation as well as the Open Water Assurance Framework.

There are a number of steps that water companies need to take prior to market opening to ensure that new market will function effectively. Introducing the consultation, Ofwat said:

“While we recognise that companies, both individually and collectively, believe that there are already incentives in place to ensure those steps are taken, we believe that without a formal obligation there is a risk that a small number of companies rely on the actions of others, fail to take the necessary steps and thereby jeopardise the collective effort of the industry to date.”

"100% data accuracy may not be a realistic goal"

Commenting on the required level of readiness, the consultation paper says:

“We recognise that achievement of 100% data accuracy may not be a realistic goal. So we propose to modify the condition to ensure it is targeted at the outcome that must be achieved, specifically that data is sufficiently accurate to enable the effective
functioning of the competitive market.”

The consultation paper sets out the following benefits of the condition:

• It creates an obligation on industry participants to take preparatory steps to ensure that they are ready for the opening of the competitive market in April 2017;
• It helps create collective confidence amongst industry participants, sending important signals to companies that other companies are taking the steps they need to support effective market opening;
• It requires companies to support the Open Water assurance process and also allows Ofwat to introduce additional assurance on companies’ readiness; and
• It sends an important signal to customers about the industry’s collective commitment that the retail market will be ready on time.

The paper states:

“We are entering a critical phase of the market opening programme where companies need to provide their data to MOSL and prepare their systems ready for the start of shadow market operation in October 2016.”

Ofwat is intending to undertake a targeted review of company readiness between July and September 2016. To undertake the review the regulator will need to start collecting data in May 2016 - hence the importance of introducing the market readiness condition in a timely manner.

Deadline for comments on the proposals is 24th March. Subject to any additional evidence from the water companies, any other responses to the formal consultation and the views of both the Secretary of State and Welsh Ministers, Ofwat said it should be possible to introduce the condition in April 2016.

Removal of in-area trading ban

In a separate consultation, Ofwat is seeking comments on its proposal to modify company licences with the removal of the in-area trading ban.

The in-area trading ban (IATB) currently prevents licensed water suppliers (licensees) from trading with a related undertaker, or carrying out relevant activities in the area to which the water undertaker’s appointment relates. Licensees that are related to an undertaker may currently only supply business and other non-domestic customers outside that undertaker’s geographic area.

The ban was introduced in the Water Act 2003 to prevent incumbent water companies dominating the newly competitive sectors of the non-household retail market.The Water Act 2014 allows all eligible non-household customers to choose their supplier of water and wastewater retail services from April 2017. In this market, holders of the new Water and Sewerage Supply Licences (WSSL) will be able to provide nation-wide retail services.

To help ensure that wholesalers and retailers are ready for market opening, Ofwat intends to remove the IATB, allowing all licensees to provide national services leading up to April 2017. Deadline for responses is 5th April 2016.

Click here to download Consultation on Ofwat’s section 55 proposal to modify Instruments of Appointment and Water Supply Licences − market readiness

Click here to download Consultation on Ofwat’s section 13 and 17J proposal to modify company licences − removal of the in-area trading ban