Ofwat has moved one step closer to firing the starting gun on bioresources and water resources trading with a new consultation on the information needed to facilitate the launch of the new markets.

The regulator is seeking comments on its proposals about the information water companies in England will be required to provide to help develop the markets.

By promoting markets in bioresources and water resources in England, Ofwat expects to see increased trading between incumbent water companies and between incumbents and third party providers.

For bioresources, Ofwat is asking companies to publish information to enable potential market participants, including the water companies, to identify opportunities to supply services in the treatment, transportation and disposal of bioresources. The regulator is also asking companies to provide certain market information to Ofwat (rather than publishing it) to enable it to monitor how the bioresource market develops.

For water resources, Ofwat is asking companies to publish information to support the development and operation of markets in water resources, demand management and leakage services.

The consultation paper is accompanied by two separate draft documents covering bioresources market information guidance and water resources market information guidance.

Introducing the draft guidance, Ofwat emphasised that nothing should be read as requiring companies to act in a way that is inconsistent with competition law obligations. The paper says the draft guidance does not encourage companies to agree to share with each other commercial information, in particular information relating to future commercial policies, costs and their future pricing intentions. It is also not intended that they should make commercial decisions collectively or in agreement with each other, rather than individually/unilaterally. Both types of conduct might raise competition law concerns

The consultation paper says

“The market information we are asking companies to produce is required to stimulate a market in services that have until now been dominated by incumbents. The information required will drive commercial behaviour and decisions to deliver value to customers, shareholders and the environment.“

On bioresources, the paper says bioresources activities do not have the characteristics of a natural monopoly so there is opportunity for greater diversity of suppliers of bioresources services. Ofwat expects markets to develop, for example by organic waste firms or neighbouring water companies offering combined treatment and recycling services to the incumbent water company.

Location is is also flagged up as likely to be an important factor in bioresources trading – Ofwat is asking companies to publish granular local information about both their bioresources production sites (wastewater treatment works) and their bioresources treatment facilities (sludge treatment centres).

On water resources, Ofwat said market information will support the effective optimisation of water resources, including demand management and leakage services, across England and Wales. The regulator has previously pointed out that currently third parties, (either other incumbents or independent third parties) who are interested in identifying new opportunities face ‘search costs’ as well as information barriers compared to incumbent water companies, meaning trading is below its optimal level.

As a starting point Ofwat wants companies to provide greater visibility and accessibility to existing information over and above the information currently prepared for the water resources management plan (WRMP)process.

The draft bioresources and water trading guidance documents have been developed following extensive engagement and discussions with incumbent companies, potential market entrants and wider stakeholders.

On bioresources, Ofwat is proposing that the incumbent companies should publish at least annually:

• Information about the quantities and location of bioresources production and bioresources processing facilities, and some associated information about the quality of the bioresources at the various stages of its production and treatment; and
• Information about contracts that water companies enter into with other parties providing bioresources services to them.

On water resources,  the guidance sets out the detail of the market information Ofwat is proposing that the water companies should publish set out at the Water Resource Zone level, the level at which water resources are managed and new investment planned by the companies. The majority of the information Ofwat is proposing companies publish is already contained in companies’ Water Resource Management Plan data tables.

The data outside this is information companies collect as part of their water resource planning process to inform the planning process. Ofwat is asking for information on other planning considerations and constraints, like treatment capacity, for example, as this may influence the choice of solutions for the WRZ.

The consultation paper also sets out the provisional dates for the water companies to first publish market information on their websites subject to the responses to the consultation. The dates will be finalised when Ofwat  publishes the final guidance documents in October.

Bioresources:

• Autumn 2017 – Companies voluntarily publish their 2016-17 bioresources information.
• July 2018 – Companies publish their 2017-18 bioresources information and provide Ofwat with their market activity information.

Water resources:

• January/February 2018 - Companies wholly or mainly in England publish their water resources information alongside their draft WRMP
• March 2018 – Companies wholly or mainly in Wales publish their water resources information alongside their draft WRMP.

Ofwat is also asking companies to publish their market information for bioresources for the year 2016-17, on a voluntary basis before the formal requirement for information is in place. The regulator said this is because it knows that water companies are keen to have discussions with third parties about potential trading opportunities - one company has already taken the initiative to publish its information to encourage discussions on possible opportunities.

Ofwat is now seeking comments on the following questions:

1. Do you consider that the information we propose requiring companies to publish is helpful and will provide sufficient transparency in the (i) bioresources market and (ii) water resources, demand management and leakage services market to support their operation and development?

2. Is there any additional information which it would be helpful if companies published for (i) bioresources and (ii) water resources?

3. Do you agree with the proposed scope of the information on market activity to be provided to us for monitoring the development of the bioresources market?

4. Do you consider that the publication of any of the information that we propose water companies publish would (i) be contrary to the interests of national security or (ii) seriously and prejudicially affect the interests of any person?

5. Do you have any comments on the proposed timing of the publication and the frequency that the information should be updated for both the bioresources market and water resources market?

Deadline to submit responses to the consultation is 6 July 2017.

Click here to download the consultation paper

Click here to download the draft bioresources guidance

Click here to download the draft  water resources guidance