Ofwat has issued an update on its consultation with the water companies for a new temporary licence condition to ensure funding and membership of Open Water Market Limited.
Open Water Market Limited. (OWM Ltd ) is a company limited by guarantee that has been set up to enable companies to fund the development of the arrangementsfor the new non-household retail market.
The proposed licence condition would require all companies, including water supply licensees, to become members of OWM Ltd. It would also require companies appointed as water or water and sewerage undertakers to contribute towards OWM Ltd’s annual budget.
The only exceptions to this would be new appointments and variations, small companies and companies operating wholly or mainly in Wales.
The licence condition would be temporary as it is specifically intended to enable phase 2 of OWM Ltd, beginning when the new licence condition is in place which Ofwat said is likely to be by early August 2014. Phase 2 is the period when the detailed development of the new market arrangements set out in the Water Act 2014 will take place, and before the market operator – the company that will facilitate the retail market – is established.
The regulator is anticipating that the licence condition would be removed by April 2017. However, as a contingency measure, it could continue until 31 March 2018, to allow for any budget requirement in the 2017-18 financial year.
The funding which will be collected via the licence condition is to enable OWM Ltd to deliver the infrastructure and detailed arrangements for the new retail market. OWM Ltd’s annual budget will be agreed and managed by its Board.
The licence condition limits the total funding contributions to a maximum annual budget of £10.5 million in each financial year. Ofwat said this figure reflects the high point of OWM Ltd’s current budget estimates for phase 2, plus a 10% contingency, commenting:
“Clearly, for most years it is expected that the annual budget will be much lower than this. Expenditure on the central market arrangements that is efficiently incurred during phase 2 will be recoverable through each of the relevant company’s price and services package.
The water companies have agreed in principle to the proposal for the temporary licence condition, although it will be for their Boards to take a final view in response to the statutory consultation which Ofwat is planning to launch in late June.
Subject to the consultation, the regulator is hoping to have the licence condition in place by early August 2014.
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