MD 215: Delays in WSL regime

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Ofwat home > Publications > Letters to Managing Directors

MD 215

TO THE MANAGING DIRECTORS OF
WATER AND SEWERAGE COMPANIES AND
WATER ONLY COMPANIES

20 April 2006

DELAYS IN WSL REGIME

As you are aware, the new water supply licensing (WSL) regime began on 1 December 2005. However, since 'go-live' nearly 5 months ago, progress has been disappointing. This is despite forewarning and repeated encouragement to water companies to prepare for and embrace the new regime.

Even where progress has been made, for the most part this has only resulted from Ofwat actively intervening in negotiations. Whilst some companies' discussions with licensees are more advanced than others, we have concerns about progress as a whole. Added to this, CCWater advise that numerous business customers who are keen to switch supplier are becoming increasingly frustrated by the delays.

The new WSL regime will take time to bed down, but that does not excuse delays that frustrate the smooth operation of the market. The successful negotiation of access agreements requires co-operation by water companies and licensees, and both parties must work together. It is in all stakeholders' interests for the regime to work successfully. Going forward there must be significant improvement in the pace of companies' negotiations.

Quality of access codes and negotiations with licensees
Overall, the quality of incumbent companies' access codes is poor. Companies' negotiations with licensees have in general been too slow. Some companies have failed to meet the timescales in our guidance. There has been time for companies to clarify with us any points of doubt. We would be extremely concerned if there were further delays going forward.

We have specific concerns with every company and will be writing to each of you in more detail over the next few months as practice develops further. However, companies should not wait for these further letters. It is each company's obligation to comply with the legislation from the outset. Compliance with our Access Code Guidance is required by the legislation (as regards the terms and conditions of an access agreement) and is a condition of your company's appointment.
Examples of where companies' codes and practices present significant concerns and need to be improved urgently are as follows.

Providing draft confidentiality and wholesale master agreements
Water companies are taking too long to provide draft confidentiality and wholesale master agreements. Companies were warned in MD 201 (28 February 2005) to be ready to deal with access applications from Autumn 2005 as a condition of your appointment. At least one licensee was actively requesting agreements before the WSL regime commenced, and to date only one wholesale master agreement has been signed. It seems that many water companies were not ready to provide copies of their draft agreements when the regime went live and have taken a long time since then to reach the point of readiness.

Customer specific applications and wholesale master agreements
We understand that some companies are refusing to conclude and sign wholesale master agreements before any formal customer-specific application has been made. Our view is that companies should have in place wholesale master agreements that can be negotiated and signed without the licensee needing to specify its customers or to make a formal customer specific application.

Recovering the costs of negotiating wholesale master agreements
We made it clear to companies at the workshop we hosted on 3 February 2006 that they should not normally seek to recover from licensees the costs of negotiating wholesale master agreements. An exception might be where an undertaker provides reasonable documents, which a licensee rejects or significantly amends. We understand, however, that licensees have in most cases had little choice but to provide companies with their own draft wholesale master agreements because companies have not had robust drafts available. In those circumstances, the companies may not in our view recover from those licensees the costs of reviewing that document.

Operational issues
In general, companies' access codes in areas such as "confirming eligibility", "control and balancing of supply system" and "supply system maintenance and emergency procedures" do not contain sufficient information or technical detail in relation to what is required of a licensee. Nor is the licensee always told where it can access the information it needs.

Updating access codes
Notwithstanding our requirement for companies to remedy the quality of their access codes, they also need to plan ahead for the annual update of their indicative prices and access codes, due by 31 August and 15 September 2006 respectively. As discussed at the first meeting of the new WSL Monitoring Advisory Group on 28 March 2006, we will report regularly to the group on current Ofwat policy and developments in the WSL market, for members then to disseminate to their constituent bodies and to promote best practice. We will also ensure that changes to our Access Code Guidance are made in the most effective manner, taking into account the need for consultation on proposed changes where appropriate.

Customer transfer process
In the interests of preventing further delays to the operation of the new regime, I refer you again to MD201, which reminded water companies that they would need to be in a position to transfer customers from Autumn 2005. The transfer process has been tested, all companies have had the opportunity to raise queries and have demonstrated their ability to process customer data. We therefore look to see the successful transfer of customers within the limits required by the Customer Transfer Protocol, compliance with which is a condition of your company's appointment.

Philip Fletcher

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