Providing new connections
We use the term new connections here to describe where a customer requires either or both:
- access to the existing public water supply or sewerage system by means of a service pipe or lateral drain
- a new water main or public sewer
The customer can request that the local water company or a new appointee provide this new infrastructure, or alternatively, they may choose their own contractor to do the work, which is then known as ‘self-lay’. The monopoly company will take over responsibility for (‘adopt’) self-laid infrastructure that meets the terms of its adoption agreement with the owner, developer or self-lay organisation that carries out the work.
If the service is for an eligible non-household premises, the owner or developer can also make an arrangement with a retail company (a ‘retailer’) to have the new connections infrastructure provided.
Below we provide further clarity on our general expectations of monopoly companies for:
- charging for new connections
- customer service
- competition law obligations
- assurance terms within a self-lay agreement
- planning for and enabling growth
Charging for new connections
Details of the different regimes that apply to companies based wholly or mainly in England or Wales can be found on the following pages.
New connections bring new customers to the water sector in England and Wales. These can be an individual property or a large-scale development site. As one of the few parts of the sector open to competition in the market, new connections can also deliver the benefits of effective competition. These benefits include new providers driving service improvements, innovation and efficiencies for customers across the sector.
New connections customers are also important drivers of the national economy. So, the sector has a responsibility to enable them and their contribution to economic growth and sustainable development. As well as the end-user of water and sewerage services, monopoly companies should recognise the following groups as customers of their services.
- Self-lay providers (SLPs)
- Companies with new appointments and variations (NAVs)
- Retailers (for an eligible non-household premises)
Monopoly companies should apply the principles of good customer service to the recipients of any new connections services they provide. In particular monopoly companies should be working closely with their new connections customers to:
- understand their needs, which include commercial considerations and may be different from end-users of water and sewerage services
- provide clear and transparent information on how and when to access their services, including details of what the customer needs to provide in order to receive the quality service they want
- provide clear and transparent information on their charging arrangements
- explain their level of service commitments. This should include details of what the company will do if they do not meet their commitments and what the customer’s rights are, for example, to bring a dispute to us for determination.
Water and sewerage companies have agreed a shared set of service measures for key new connection services they provide to developers and SLPs.
Competition law obligations
Monopoly companies provide a broad range of new connections services.
Some of these services can only be provided by the monopoly company in its licensed geographical area (‘area of appointment’). These are ‘non-contestable services’. For other new connections services, customers can choose from some or all of the following providers:
- a monopoly company
- a retailer (for eligible non-household premises only)
- self-lay providers
- sewerage infrastructure contractors
- new appointments and variations
The specific new connections services that are considered contestable and non-contestable are not defined in legislation. The ‘Code of Practice for the Self-Laying of Water Mains and Services – England and Wales’ sets out the current working practice in the sector. Monopoly companies publish an addendum to this code of practice setting out details of any areas in which they operate differently from the code of practice. This includes if they consider different services to be (non-) contestable in their area of appointment.
Monopoly companies should have a strong understanding of:
- each of the distinct new connections services they provide
- in what capacity they deliver them (that is, as the monopoly provider or as a competitor)
- who the customers for each of their services are
This understanding is critical to a monopoly company’s ability to:
- provide a high quality service to its new connections customers; and
- comply with their obligations under competition law.
Monopoly companies must offer their non-contestable services on equivalent terms for all of their customers. This includes circumstances where a monopoly company is providing non-contestable services to another part of its own business – which may be competing with other new connections providers – to enable it to provide a contestable service.
Assurance terms within a self-lay agreement
In respect of the terms offered by a water company within a self-lay agreement entered into under section 51A of the Act, we have set out our general expectations in our Code for Adoption Agreements.
In summary, we consider it is reasonable for the terms of a self-lay agreement to require an SLP to:
- Demonstrate it is suitably competent to provide the proposed self-laid works, for example by means of WIRS accreditation
- Be subject to contractual obligations to meet the water company’s design and construction standards when providing the self-laid works
- Be subject to contractual obligations to remedy any defects arising with the self-laid works within a defined liability period
Beyond these requirements, we consider any additional assurance terms should be:
- Reflective of the accreditation schemes that are developed and recognised by the sector
- Transparent and available for all SLPs to access and understand the rationale for, including the reasons for any differences in their application
- Reflective of and proportionate to identifiable costs and/or risks the water company faces
- Reasonable in terms of who holds the balance of risk
Our general expectations allow for a water company to require different terms of different SLPs should it wish to. Water companies are responsible for their own compliance with competition law and this is a factor a water company will need to consider if it requires additional and/or different assurances from different SLPs.
Ofwat has powers under section 51B of the WIA91 to consider appeals about the terms on which a water company offers to enter into a self-lay agreement under section 51A. Common areas of dispute referred to us include the terms a water company has offered in order to satisfy itself about the quality of the self-laid assets it will be taking ownership of (‘assurance terms’).
Planning for and enabling growth
Monopoly companies have general duties under section 37 and 94 of the WIA91 to develop their networks in order to meet increasing demand through new connections.
- Section 37 requires a water company to develop and maintain the system of water supply such that it can make such supplies available to persons demanding them.
- Section 94 requires a sewerage company to provide, improve and extend a system of public sewers to ensure an area is effectually drained.
Monopoly companies’ price controls include allowances – where they provide sufficient evidence ‒ for them to:
- invest in their water and sewerage networks to support growth; and
- recover the costs of this investment from customers.
In order to plan for and enable new developments schemes we expect monopoly companies to speak with and listen to:
- new connections customers
- local planning authorities
- other relevant statutory bodies
- other infrastructure providers
Strong and on-going conversations between monopoly companies and their new connections customers should deliver a range of benefits to all parties, including both new connections customers and monopoly companies’ existing customers. These benefits include the monopoly companies:
- providing levels of service for new connections customers based on greater trust and confidence and a stronger understanding of their needs
- having a better and earlier understanding of the impact of changes in demand on their networks
- efficiently planning the development of their networks, with investment and business planning based on robust assumptions of growth
- effectively managing the investment risks of providing new capacity, only doing so where they are confident that it is required and that they will be able to recover the costs of providing it
- being able to deliver strategic, joined-up solutions where there are multiple development sites coming forward, rather than a succession of smaller schemes
- recovering fair and proportionate contributions from new connections customers and existing customers to the infrastructure required to respond to growth
On-going and timely conversations between monopoly companies and their new connections customers and planning authorities is essential for all parties to understand the timing, location and impact of future developments. Alongside the statutory planning system, these conversations are one of the ways in which monopoly companies should identify and enable the delivery of development schemes. Where appropriate, monopoly companies should use these conversations to work with multiple developers to identify and deliver joined-up solutions where several sites are coming forward together.