Ofwat is proposing to issue Devon-based water retailer Tor Water with Final Enforcement Orders following months of failures to comply with requests for information and problems with invoice payments to wholesale water companies South West Water and Wessex Water.

Tor Water was granted retail water supply and sewerage licences by the water sector regulator in June 2018.

A detailed 42 page consultation paper on the proposal published by Ofwat on 9 January sets out evidence of persistent breaches by Tor Water, ongoing breaches of its licence and past breaches which have only been rectified following intervention by the regulator.

According to Ofwat, Tor Water has defaulted on almost all of its Wholesale Charges with South West Water since entering the market, most recently on 12 December 2019.

To date these amounts have eventually been settled, but in the last seven months only after South West Water has served Tor Water with a termination notice and in some instances after the relevant notice period had passed. “This is not sustainable,” the paper says.

According to Ofwat, the evidence also indicates that Tor Water “has not had and does not have the necessary arrangements in place required …. to meet its Licence and statutory obligations.”

The latest move from Ofwat follows on from efforts by the water sector regulator last year to step up the pressure on Tor Water to deliver on its obligations as a retail water and sewerage provider in relation to contracts and outstanding payments due.

A consultation paper on Ofwat’s first proposal in July 2019 to issue a Final Enforcement Order to Tor Water listed a catalogue of failures by the retailer to comply with Ofwat’s requests for information and calls for it to pay outstanding bills.

The new consultation paper also flags up ongoing failures by Tor Water to notify market operator MOSL of its Defaulting Trading Party status, The retailer informed MOSL of its status on 12 August 2019 – Ofwat says it has “failed to notify MOSL in any other month since then.” and “it is concerning that Tor Water has failed to be transparent with MOSL.”

The paper also says:

“By the beginning of 2019, (Ofwat) was becoming increasingly concerned about Tor Water’s persisting status as a Defaulting Trading Party, and what that might indicate about its underlying financial adequacy and how it was being managed. (Ofwat) was aware that Tor Water’s customers paid in advance, and was particularly concerned that these payments might be in jeopardy if a Wholesaler did exercise its right to terminate its Wholesale Contract.”

Tor Water licence application “envisaged most of its working capital coming from Crowdfunding”

The paper also sets out Tor Water’s own response to Ofwat ‘s original proposal in July 2019 to issue a Final Enforcement Order , saying:

“Tor Water told the Authority (Ofwat) that it had changed its management structure and support staff from that envisaged in its licence application. Its financing sources had also changed. In the application it had envisaged most of its working capital coming from Crowdfunding. It told the Authority that this was no longer being pursued as it “was not suitable”. Instead Tor Water was in the process of obtaining a new shareholder investor, the remaining shortfall being met from existing shareholders through the proceeds of a property sale and a bank loan.

“It said that it had “identified that the original plan [in its licence application] with a capital of [redacted] as a bank balance was not enough to allow a business to survive in this market.“ 

Ofwat said Tor Water had explained that "it had reduced overheads by moving to smaller offices and reducing staffing levels to one paid headcount, with three personnel working unpaid and the IT manager role reduced to an ad hoc basis."  The paper says Tor Water had also stated that “it expected a bank facility of [redacted] to be in place by the third week of March (this transpired to be a corporate creditcard).”

Tor Water explained that it had “shelved” its Crowdfunding plans as “it would introduce too many shareholders into a business that is still trying to get to grips with the oddities and peculiarities of the non-household market…”

According to Ofwat, the water retailer has also accused it of destroying “several avenues of investment and adversely impact(ing) others” by its recent enforcement actions.

The consultation paper goes on to point out that Tor Water had acknowledged its failings in terms of prompt payment and compliance, The retailer had asked Ofwat to recognise Tor Water’s recent actions to stabilise its business and meet its obligations and also to provide Tor Water with enough time for the measures to deliver results, the paper says. It argued that this “would probably enable Wholesalers to receive full payments and be better for Tor Water’s customers.”

Tor Water - Ofwat was “considering forcing a viable retailer out of business”

The paper says Tor Water had also registered concern that the Authority was “considering forcing a viable retailer out of business, especially a niche business providing regionally based services as surely these are the type of business the market was supposed to promote”. It also claimed that South West Water was exacerbating cash flow issues for smaller licensees by offering them an inadequate range of credit support facilities.

However, Ofwat says in the paper that Tor Water does not currently have arrangements in place sufficient to secure that it is and continues to be able to meet its obligations under its Licence and any statutory requirement, commenting:

“There are currently shortcomings in both its financial arrangements and its management’s approach to regulatory understanding and compliance.”

The deadline to submit comments to Ofwat’s proposal to issue a Final Enforcement Order is Friday 31st January 2020 – click here to download the paper.

Ofwat tells Tor Water to tighten up on insurance cover

Ofwat has also told the water retailer to strengthen its public liability insurance provision and increase its level of cover .

The water services regulator has issued a direction under the Water Industry Act 1991 telling Tor Water to comply with the provisions in the Wholesale Retail Code which set out the insurance cover retailers are required to maintain.

All retailers are required to maintain public liability insurance of not less that £5,000,000 for any one incident and unlimited as to the number of incidents.

On 9 October 2019 Ofwat asked Tor Water to provide details of its product and public liability insurance. On 15 October 2019, the retailer provided the regulator with its Public Professional and Employers liability insurance statement for the period from 15 October 2019 to 14 October 2020.

According to the insurance statement, Tor is only insured for public liability up to £1,000,000 in total - iin addition, the statement describes Tor’s business as telemarketing / telesales.

The Direction issued by Emma Kelso, Ofwat’s Senior Director of Markets and Enforcement says the statement does not provide sufficient evidence that the policy covers its public liability in relation to the full range of its activities as a Licensee, e.g. visiting third party premises for sales, marketing and meter reading purposes.

Ofwat has now instructed the retailer to provide it with evidence by no later than 17 January 2020 that it has both obtained and will continue to maintain the required type and level of insurance, and ensure that all future insurance policies comply.