Charging

Ofwat has a duty to protect the interests of consumers, wherever appropriate by promoting competition. There are currently two separate frameworks under which competition is regulated in the water and sewerage sectors:

• water supply licensing
• new appointment and variations

In most cases, entrants to the market under these frameworks will require access to the supply system, or network, of existing appointed water companies (incumbents), in order to compete for existing and newly connected customers.

So far, effective competition has not yet developed under the water supply licensing framework, in part due to the way that access charges are calculated. The new appointments and variations framework has been more successful at facilitating entry. However, it has been hampered by issues around charges for providing services to new development sites (charges for new connections).

In order to address the shortcomings of the existing frameworks, and facilitate more effective competition, both Ofwat and the UK Government (in its white paper ‘Water for Life’) are proposing a number of reforms that will affect charges between water companies. These include:

• replacing the costs principle, which governs how access charges (common carriage and charges for wholesale bundles) are calculated in the water supply licensing framework
• replacing the methodology for charges for new connections
• introducing separate retail and wholesale price controls
• requiring water companies to offer all customers who can choose their water supplier a default tariff(s)
• introducing a wholesale charging mechanism for the New Appointments and Variations regime

Designing frameworks and rules

The charging project will explore how the charging related reforms proposed by the Government and Ofwat could be progressed. This involves working with the sector to consider the design of appropriate frameworks or rules for the following.

• Charging for resource entry (including the replacement for the costs principle).
• Charging for retail entry.
• Charging for new connections.
• Charging for new appointments and variations.

Further information

If you would like any further information about this project, please speak to Andrew McGeoghan via email andrew.mcgeoghan@ofwat.gsi.gov.uk or by calling 0121 644 7626