Water regulator Ofwat has published an open letter challenging incumbent water companies operating wholly or mainly in England to do more to support the development of competititive markets.
Writing to water company Chief Executives, Rachel Fletcher, Ofwat’s Chief Executive says:
“We see numerous, persistent examples of incumbent water companies failing to support the development of effective markets – in particular the markets for business retail and developer services.”
“If we do not see a significant improvement by the autumn we will increase the pace and extent of pressure we exert on incumbent water companies, considering the full range of regulatory tools we have at our disposal.”
According to the Ofwat Chief, the overall level of incumbent water company support for markets is unacceptable - in some cases they are giving insufficient thought to the potential impact that their actions (or inaction) can have on the effective functioning of markets for customers.
In other cases “we see companies’ actively opposing or delaying initiatives that are aimed at improving these markets”, she says, and “large unexplained differences” in the extent of competition for developer services in different companies’ areas.
The letter says Ofwat is taking action on a number of fronts to reiterate its expectations of the role that incumbent water companies have in supporting the development of effective markets.
The regulator will now be monitoring incumbent water companies over the next few months and will review progress in the autumn, including whether particular companies are holding up progress overall.
The water companies will be required to respond by the end of October 2019 setting out progress. Examples of the types of areas Ofwat will be looking at include:
- Effective engagement in and support for initiatives aimed at driving improvements to the business retail market;
- Supporting a vibrant competitive market for developer services; and
- Effective support for the development of new markets.
Rachel Fletcher also says that Ofwat’s initial assessment of company business plans indicated that incumbent water companies have made some progress towards using and facilitating wholesale markets (for water resources and bioresources), although the rate of progress is mixed.
Similarly the quality of the bid assessment frameworks for water resources developed by incumbent water companies are mixed.
Ofwat wants to see a step-change in progress across the sector, including by the adoption of best practice where this emerges. “We expect companies to exhibit positive market behaviours,” she says.
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