The purpose of this page is to explain the purpose of Bulk Charging Water Group (BCWG), which was established in April 2021, and provide links to its papers.
Overview
As we set out in our review of incumbents’ support for effective markets, incumbents water companies have an important role in supporting markets to be effective and ultimately deliver for customers. Beyond following our guidance or directions, incumbents should be actively considering how to support markets on an ongoing basis, including the new appointments and variations market.
In November 2020, we presented our conclusions on revised guidance on bulk supply and discharge charges for new appointees, which was finalised and published in January 2021. In line with our strategy Ofwat is committed to drive greater collaboration and partnerships across the sector.
Using those principles our conclusions document set out a road map for new appointee bulk charges and invited incumbents and new appointees to form an industry working group to conclude on future best practice on bulk charging. This was in anticipation of further changes and improvements to incumbents’ bulk charges for new appointees in 2022-23 and beyond.
Scope
The purpose of this working group is to promote and enable the effectiveness of competition in the new appointee market by improving the sector’s approach to bulk charging. All companies were made aware of their duties under the Competition Act 1998 and the Water Act in this regard and the working group does not share commercial sensitive data or sensitive price/cost information that could be an issue under competition law.
Roadmap – Bulk charges for new appointees
| 2020-21 charging year | 2021-22 charging year | 2022-23 and beyond | |
| Ofwat | Publishes CEPA’s report on bulk charges for new appointees.
Consults on bulk charges, and then on guidance to improve transparency and cost-reflectivity of bulk charges. Initiates a working group on bulk charges. |
Sets strategic direction and confirms objectives for the working group, promoting collaborative working between incumbents and new appointees. | Addresses issues including whether the needs of future customers are the environment are being served by current approaches; whether to set bulk charging rules. |
| Incumbents | Review CEPA’s report, our conclusions and the revised guidance.
Plan for implementing the guidance, including making changes for 2021-22 and addressing transitional issues. Establish a working group. |
Finalise working group scope, governance and short-term objectives.
Identify best practice and develop common approach to methodological problems, for implementing in 2022-23. Engage with new appointees on addressing transitional arrangements. |
Alongside wider stakeholders, take ownership of strategic initiatives and future work programmes of the working group. |
| New appointees | Engage with Ofwat and industry consultations | Lead work to highlight areas of refinement and appraise improvements in incumbents’ approaches to bulk charges. | Lead some initiatives to refine potential common methodological approaches.
Help to evaluate the effectiveness of the working group. |
Stakeholders
The following companies volunteered to work toward producing future best practice on bulk charging:
Affinity Water Ltd
Anglian Water services Ltd
Dŵr Cymru
Icosa Water services Limited
Independent Water Networks Ltd
Leep Networks Services (Water and Sewerage) Ltd
Northumbrian Water Ltd
Portsmouth Water Ltd
Severn Trent services (Water and Sewerage) Ltd
South East Water Ltd
South West Water Ltd
Southern water Ltd
Sutton and East Surrey Water Plc
Thames Water Utilities Ltd
United Utilities Water Ltd
Wessex Water Ltd
Yorkshire Water Services Ltd
The work of the BCWG
The BCWG began its consideration of improvements to industry bulk charging best practice in April 20021, agreeing the following list of priorities and objectives for the BCWG which were formed into sub-groups for consideration of the following relevant issues.
- Relevant starting point for bulk charging
- Avoided costs in relation to bulk charging
- Methodological pricing approach to bulk charging
- Environmental incentives in relation to bulk charging
- New appointee rate of return in relation to bulk charging.
As the work of the BCWG progresses we will update these pages with outputs from the initial sub-groups form to consider the above priorities as well as new priorities and objectives that present themselves in subsequent charging years.
Current BCWG workstreams
The outputs of BCWG workstreams can be found in the side bar on these pages and will be updated as more become available.
- Relevant starting point
The focus of the group was to understand the range of approaches currently used to set the relevant starting point for bulk supply tariffs; identifying elements that work well and those that add complexity. The aim of the group was to develop a set of overarching principles (Paper 1) that would help to secure consistency in the way bulk supply tariffs are set by water and wastewater incumbents; with the ultimate intent of establishing a simple, transparent process that facilitates production of accessible, user-friendly charging documents that are informed by agreed best practice.
- Avoided Costs working group
The focus of the group has been to review and expand on the list of avoided costs initially set out in Appendix B of CEPA’s report on ‘Bulk Charges for NAVs regime in the Water Industry in England and Wales’, published in April 2020. This exercise will ensure that the full range of costs that the incumbent will no longer incur due to the NAV operating the site have been considered.
The output of this exercise being a full list of potential avoided costs (Worksheet 1) that incumbents should consider when applying the bottom-up approach to on-site on-going costs within the wholesale-minus pricing methodology.
We have also published guidance for the bulk charging for new appointees
- Methodological pricing approach to Bulk charging
The focus of the group was to review and present potential options for the bottom-up calculation of avoided costs for new appointee bulk charges, or a practical alternative basis in comparison to top-down. Presenting findings in a way that will enable the BCWG make recommendations on industry best practice.
The group looked to develop a proposed new appointee wholesale minus charging framework (worksheet 1) for calculating bottom-up avoided costs, based on the findings of the avoided costs working group, that can be used to inform the avoided cost estimation included in incumbent companies’ bulk charges for new appointees.