We regulate the amount of revenue water companies are allowed to recover over five years through the price control process. We scrutinise companies’ business plans and challenge them to deliver value for money, while ensuring they can continue to invest to maintain and improve the vital water and sewerage services that customers expect. Our latest price control determinations were set in 2019, and you can find more information about it here.
Water companies are responsible for determining their charges and ensuring they do not exceed their revenue allowance. We set charging rules that companies must follow when developing their charging schemes and differences in charges for different services need to reflect differences in costs. Their licences also prohibit them from setting charges which result in undue discrimination or preference. We do not approve each set of charges of individual companies, but we have the powers to intervene if they are breaching the rules or licence conditions.
Charging rules and guidance
We regulate and oversee a number of different charges that companies set through charging rules and guidance for:
- household customers (charges scheme rules)
- retailers (wholesale charging rules)
- new appointees (bulk supply and discharge charges)
- developers and self-lay providers (new connection charges)
Charges for household customers
A charges scheme is a statement of each company’s charges for household customers and associated terms, such as times and methods of payment.
From 2017-18 charges schemes, companies must follow the charging scheme rules we have set out, as updated from time to time.
Wholesale charges are charges from wholesalers to business retailers, following the opening of the market for non-household customers to retail competition in 2017.
Effective 1 September 2016 (following amendments to the Water Industry Act 1991) we have a duty to set the rules that wholesalers must use when setting their charges for wholesale services.
From 1 April 2017, companies must follow the wholesale charging rules we have set out.
Bulk supplies are a supply of water from one appointed company to another. Bulk discharges are where sewage or wastewater is discharged to another company to treat.
There are two types:
- between an incumbent water company and another incumbent water company; or
- between an incumbent water company and a new appointee.
Incumbent to incumbent bulk supplies are also known as water trades. There are no charging rules for these agreements. In our price review process we introduced water trading incentives to encourage more trades between companies. To qualify for the incentive, the water company would have to show that its trade complies with an Ofwat approved trading and procurement code.
Our guidance can be found here:
- Negotiating bulk supplies – a framework (August 2013)
Between incumbents and new appointees
In 2018, Ofwat introduced the wholesale minus approach to bulk charging to new appointees by incumbents. As part of the process of updating guidance on this approach in 2021, Ofwat initiated the Bulk Charging Working Group (BCWG) to develop industry best practice further.
Current and future working papers can be found on the BCWG page.
Our latest guidance can be found here:
- Bulk charges for new appointees – guidance on our approach and expectations(January 2021)
- Our website has further guidance for new appointees regarding the negotiation of bulk supply or discharge agreements.
If water companies fail to agree on the terms of their bulk agreement, including the charges, they can ask us to make a decision (a ‘determination’) about what the terms and conditions should be.
New connection charges
The Water Industry Act 1991 (as amended by the Water Act 2014) allows us to set rules about the charges that developers and other customers pay water and wastewater companies for new connections and other infrastructure services.
We introduced rules covering the charging for new connections for companies wholly or mainly in England from April 2018. These rules include requirements for water and wastewater companies to provide upfront charges for most connections services and make the charges for offsite reinforcement works more transparent and cost reflective.
We are in the process of working with the Welsh Government and the Welsh water and wastewater sector to develop a set of new connections rules to apply to companies that are wholly or mainly in Wales.