Ofwat has set out the reasons for its decision to modify the licences of five water companies to give effect to its Direct Procurement for Customers (DPC) initiative.
The modifications to the licence conditions for Affinity Water, Anglian Water, Southern Water and United Utilities came into effect on 1 February 2021. The modifications to Welsh Water’s licence conditions came into effect on 12 February 2021.
DPC enables a water or wastewater company to go out to competitive tendering for services in relation to the delivery of certain large infrastructure projects, including financing for the project, resulting in the selection of a third-party competitively appointed provider (CAP).
The water sector regulator believes that by outsourcing the delivery of infrastructure projects using DPC, water companies can achieve significant benefits for customers. This includes both through innovation and lower whole life costs of the project.
The new licence conditions are as follows:
- Licence Change 1 – new Condition U is a new condition which will establish the framework for the regulation of DPC projects. Amongst other things, the new condition will specify the process which companies must follow in carrying out a DPC procurement.
- Licence Change 2 – Amendments to Condition B for recovery of CAP Charge The second proposed licence change will allow a water company to recover from its customers, outside of price controls, the designated charges that the water company must pay to the CAP for services.
- Licence Change 3 – Amendment to Condition B for DPC Interim Determination The third licence change will be an amendment to the interim determination provisions in Condition B of companies’ licences. This will facilitate, in specified circumstances, the return of the project to delivery by the company rather than by the CAP.
Responses to the statutory consultation which closed on 4th January were supportive of the licence changes.
The new Condition U puts appropriate controls in place to protect customers, giving Ofwat oversight over the delivery of a DPC project. The regulator’s consent will be required at various points in a DPC project, to check that best value for customers is being achieved.
The licence amendment which introduces a new interim determination is intended to provide companies with certainty that they will be funded if a DPC project is brought back in-house – either in full or part.
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