Ofwat is consulting on its proposed arrangements to ensure that, where an appointed company decides to exit the non-household retail market, eligible customers in an exit area can secure a retail supplier – something it anticipates will “happen on a frequent basis” where it will need to allocate single customers to a supplier.

Once the new retail market opens for business in April 2017, water companies whose areas are wholly or mainly in England will be able to exit the business, charity and public sector retail market. This will mean that they will no longer be able to provide retail services to customers in their area and so, for example cannot automatically be allocated new or gap site customers.

The direction to supply arrangements are intended to ensure that all eligible customers in an exit area will have access to a retail supplier regardless of whether they have engaged with the market.

Under existing arrangements, new eligible customers who request a supply of water or provision of sewerage services receive these services directly from the appointed company. Where the company decides to exit the business, charity and public sector retail market, it will no longer be able to provide retail services.

Although it is expected that in most cases eligible customers will choose their own retailer in the competitive market, Ofwat there may be instances where this is not the case. To ensure that all eligible customers in an exit area can continue to be provided with retail water supply and or sewerage services, new direction to supply arrangements need to be put in place.

The regulator has considered two broad approaches to the allocation of customers to retailers:

• Administrative approach: an administrative process which takes account of a scenario where there are a number of eligible suppliers. Customers are allocated on a sequential basis from a list of eligible suppliers. This may involve discretion in some limited circumstances e.g. when the next licensee on the list is only authorised to supply water only but the customer needs water supply and sewerage services and so the allocation will go to the next licensee on the list who can offer both services. The approach could apply to all scenarios where Ofwat can issue a Direction to Supply, rather than just gap sites.
• Market mechanism: This could entail prospective retailers being given an opportunity to offer different terms and conditions from the schemes of terms and conditions. The customers would then be allocated to the retailer(s) which offered the best price and non-price terms of supply for customers.

Ofwat is proposing to take an administrative approach for the allocation of customers, commenting:

“The objective of our policy is to allocate single customers that arise in an exit area to retailers. We anticipate that this would happen on a frequent basis. “

“As it is a random process, we consider that it is fair and non-discriminatory and incentivises customers to engage with the market.”

Following on from the consultation, Ofwat will issue a conclusions document and publish its Guidance on Direction to Supply in autumn 2016.

Deadline for submission of responses is 31^st August 2016 – click here to download the consultation paper.