In June 2019, Ofwat began investigating certain contractual credit terms that Thames Water applies to retailers operating in the business retail market in the area covered by Thames Water’s licence. The issue initially formed part of a wider investigation under the Competition Act 1998 (“CA98”) into whether Thames Water was breaching the Chapter II prohibition (abuse of a dominant position). However, in June 2020 we concluded that the CA98 was no longer the most appropriate tool to use to investigate the issue. We instead opened an investigation under the Water Industry Act 1991 into whether terms relating to the £25,000 credit limit that Thames Water had set for non-primary services contravened the requirements of the Wholesale Retail Code. Thames Water addressed the concerns that our investigation identified and in November 2020 we decided to close our investigation.
Summary of Ofwat’s final decision to close the case
Our investigation found that certain of the terms and conditions that Thames Water applied to the provision of non-primary services were inconsistent with the requirements of the business retail market’s standard Wholesale Contract (the contract that applies between wholesalers and each of the retailers providing services to non-household customers in their areas), and with the requirements of the Business Terms of the Wholesale Retail Code. Specifically, we concluded that:
- Terms that Thames Water included in its Wholesale Tariff Document (parts of which form part of the Wholesale Contract) that enabled it to invoice retailers as soon as they had incurred more than £25,000 of non-primary service charges within a month and which required payment within three Business Days, were contrary to the requirements of Section 9.4 of the Business Terms (Payment of Non-Primary Charges). Section 9.4 explicitly states that invoices for non-primary services shall be issued monthly and that payment should be made by the later of (a) 30 days after the end of the month to which the invoice relates, or (b) 15 days after the date that the invoice is received.
- Terms that Thames Water included in its Wholesale Tariff Document that enabled it to suspend the provision of non-primary services when invoices are not paid do not form part of the Wholesale Contract and are not provided for under the Wholesale Retail Code. The market’s Business Terms instead provide for the termination of a Wholesale Contract, until which the wholesaler must supply services. Under Section 11.2 of the Business Terms, Thames Water may terminate the Wholesale Contract if the contracting retailer becomes a defaulting party. Part E of the Business Terms (Default and Termination) sets out the circumstances in which retailers may be found to be defaulting parties and the processes that need to be followed in order for this to be done.
- Additional terms that Thames Water sought to apply to the provision of non-primary services through its “Additional Terms and Conditions (for specific non-primary services)” document, were not permitted as they were not included in the Wholesale Contract and were not permitted by the Wholesale Retail Code. Clause 13 of the Wholesale Contract makes clear that the Wholesale Contract forms the entire agreement between a wholesaler and contracting retailers in relation to the provision of non-primary services. Any terms and conditions applied by Thames Water to non-primary services must therefore be expressly included in the Wholesale Contract or be permitted by the Wholesale Retail Code.
We shared our conclusions with Thames Water and offered it the opportunity to address our concerns. Thames Water revised its Wholesale Tariff Document from 1 November 2020 to remove the terms that enabled it to (i) invoice for non-primary services more frequently than on a monthly basis; (ii) require payment of invoices for non-primary services within three business days; and (iii) suspend service for non-payment of non-primary services. It has also clarified that the Additional Terms and Conditions do not apply to primary or non-primary services.
The changes made by Thames Water to its terms and conditions have addressed the concerns we were investigating. We have therefore concluded that further enforcement action is not necessary to secure its compliance with the Wholesale Retail Code and have closed our investigation.
Sections 66DA and 117F of the Water Industry Act 1991
21 June 2019
24 November 2020
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