In a new consultation on its proposals to put a formal process in place under which companies can apply for relief from complying with certain obligations in the new retail market, Ofwat has said that this should not confer a competitive advantage.
Introducing the consultation, Ofwat said that the extension of the business retail market for companies whose areas are wholly or mainly in England is a significant shift for the water sector and they must remain compliant with their obligations.
The water sector has worked with the regulator to develop the Wholesale-Retail Code (WRC) which sets out the processes that will govern the retail market for the supply of water and wastewater services to business customers. The statutory code will govern the operational arrangements between wholesalers and retailers, the requirements wholesalers and retailers have to follow in maintaining the central register at the Market Operator and the business terms which will apply to their relationship.
However, in order to ensure that compliance with the obligations and any consequent enforcement action remains proportionate, the regulator is now proposing to put a formal process in place under which companies can apply for relief from complying with certain obligations – known as a derogation.
A derogation is a direction from Ofwat which relieves a licensee or appointee from its obligation to comply with certain obligations in the market codes which will govern the new retail market.
The consultation paper sets out a number of occasions when a licensee or appointee is not in a position to comply with an obligation in the WRC, including:
where a company considers that compliance with is a disproportionate burden in its particular circumstances which may have an impact on its ability to run its business and provide services to customers.
to mitigate the consequences of non-compliance with obligations in the WRC due to unforeseen (short term) circumstances;
to mitigate the consequences of non-compliance with obligations in the WRC in the short term while a vital piece of water/sewerage infrastructure is being repaired or serviced;
to allow a small company time to ensure it meets the requirements of the market operator’s performance framework within the WRC ;and
to ensure proportionality for a company with a small number of eligible customers.
The paper says retrospective derogations will not be granted by Ofwat, that any derogation will generally be for a fixed period of time and will have an expiry date.
It also stipulates that a derogation should not provide a licensee or appointee with a competitive advantage and will only be granted where such an advantage is perceived following an assessment by Ofwat of measures that can be applied to offset that advantage.
Prior to the consultation, Ofwat engaged with small companies and Welsh companies over a period of approximately six months through a series of workshops to understand their concerns and any potential issues with compliance with the WRC and its subsidiary documents. This identified a number of points, including the need for the process not to be too over burdensome, issuing guidance and ensuring transparency . The regulator said all the issues had been considered whilst drafting the derogations guidance/process.
Deadline for responses is Monday 26 September 2016 – click here to download:
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