Ofwat has said that more work is planned for this summer to identify the extent of understanding and coverage generally on matters to the creation of a level playing field ahead of retail market opening for competition in April 2017.

The water industry regulator said it is planning to carry out more work on the issue as part of its response to comments received  in its recent consultation on the removal of the in-area trading ban.

The in-area trading ban (IATB) currently prevents appointees from selling or otherwise making available water or other assets to a related licensed water supplier. It also prevents licensed water suppliers from selling water to a related undertaker, or carrying out relevant activities in the area to which that water undertaker’s appointment relates.

Ofwat said if the IATB were not removed, this would prevent the market design envisaged by the Water Act 2014 being realised. Any retailers associated with one of the existing companies would not be able to compete on a national basis, reducing the degree of competition in the new market.

The IATB was introduced in response to concerns that incumbent undertakers would dominate the newly competitive sectors of the non-household retail market. The Water Act 2003 placed a duty on both Ministers and Ofwat to ensure that licensees did not carry out activities in the area of undertakers with whom they were connected.

The Enterprise and Regulatory Reform Act subsequently repealed this statutory duty in 2013, while  DEFRA’s retail exit consultation in December 2014 set out the benefits of removing the IATB and stated that Ofwat would consult on the necessary changes in licences.

According to the regulator, removal of the IATB prior to the opening of the new market will help to ensure that wholesalers and retailers can complete the necessary preparations in time for market opening and avoids potential duplication of costs.

Ofwat received responses from all 19 regulated companies agreeing  to the proposed modification - Southern Water had stipulated that it would only support the proposal if all other appointees consented to ensure consistency.

Southern Water also separately raised concerns about the importance of a level playing field, saying that that lifting of the IATB was premature and  that even perceived undue preference towards an associated retailer would discourage entry.

Ofwat said in its response:

“Although we agree with the company about the importance of a level playing field, we are satisfied that the current arrangements do provide sufficient protections against inappropriate behaviour.”

“IN16/01 reminded companies that associated licensees must not receive preferential treatment and that information must only be used for the purposes for which it was obtained. So contract negotiations with customers that take place ahead of – or indeed after – market opening, should see any retailers who wish to do so competing on the merits of their own knowledge and  service offers.”

However, Ofwat said it agreed with the importance of the level playing field and that the situation needs to be kept under review as the preparations for the new market progress, commenting:

“As part of our targeted review of market participants’ readiness for retail market opening we plan to undertake some further work over the summer to identify the extent of understanding and coverage generally of matters relating to the creation of a level playing field.”