How the market works

Opening the expanded business retail market required new systems, licences, rules and processes to enable eligible business and other non-household customers to engage with the market, and for new retailers to enter the market.

These licences, rules and processes are contained in the various codes which have been developed as part of the new legal and regulatory framework.


Legal and Regulatory Framework

The business retail market relies on a number of legal documents to work (the ‘legal framework’) – ranging from legislation to non-statutory guidance.

The diagram below sets out the different elements of the legal framework for the business retail market – and who is responsible for creating these.

The legal framework will evolve as more provisions of the Water Act 2014 come into force, or the new market is set up. For example, various powers exist for the Secretary of State to issue further regulations, such as regulations for the licensing arrangements between England and Wales and Scotland.

Retail market opening legal architecture

Closed Market Consultations, Impact Assessments and Engagement

Information on the various consultations, impact assessments and engagement which we have done and which has led to the creation of the new water retail market.


Policy and Guidance

We have developed a suite of policy and guidance to enable the effective working of the new retail market. Our policy and guidance follows the consultation process which we have done prior to market opening.


PR16 and charging

Our PR14 price review final determinations set business retail price controls for a two-year period, allowing for a review of these arrangements prior to market opening. These controls set the total allowed revenue that a retailer can earn for a given customer type, based on an allowed average cost per customer and a net margin as well as forecasts of wholesale revenue and customer numbers in each year. Companies set charges that comply with the annual allowed revenue controls for each customer type which are called default tariffs.

In May 2016, following consultation with stakeholders, we issued our statement of method that set out our approach to this price review (PR16), including how we would assess company proposals for the business retail price controls for the period between 1 April 2017 and 31 March 2019.

In September 2016, following consideration of company proposals, we published our PR16 draft determinations. Stakeholders were asked to respond to these by 28 October 2016.

We have now published our Business retail price review 2016: Final Determinations and accompanying documents below.