Our approach to assessing NAV applications
The new appointment and variation mechanism set out in primary legislation provides an opportunity for entry and expansion into the water and sewerage sectors by allowing one company to replace the existing appointee as the provider of water and / or sewerage services for a specific area. This mechanism can be used by new companies to enter the market and by existing appointees to expand their businesses. The legal framework for new appointments is set out in the WIA91. Section 7 of the WIA91 sets out the criteria by which an appointment or variation may be made. Section 8 sets out the procedure for making that appointment or variation.
When considering applications for new appointments and variations, Ofwat operates within the statutory framework set out by Parliament, including our statutory duty to protect consumers, wherever appropriate by promoting effective competition. In relation to unserved sites, we consider that we must ensure that the future customers on a site – who do not have a choice of supplier – are adequately protected. When assessing applications for new appointments and variations, the two key policy principles we apply are that:
– customers, or future customers, should be no worse off than if the site had been supplied by the existing appointee; and
– Ofwat must be satisfied that an applicant will be able to finance the proper carrying out of its functions as a water and/or sewerage company.
We clarified these two policy principles in February 2011, and then updated them when we published our new appointments and variations – policy (2015 and 2019) and process (2018) documents. In December 2015, we published our ‘Statement on our approach for assessing financial viability of applications for new appointments and variations’. This states that we will adopt a company-based assessment of financial viability, rather than a detailed sitebased assessment, where it is appropriate to do so. When we assess whether customers will be no worse off as a result of the appointment, we not only consider the customers on the site but also the generality of customers – i.e. customers of the existing provider and customers more generally across England and Wales, who in our view benefit from the effective operation of the new appointment and variation mechanism.
Ofwat acts to protect consumers, especially those who are unable to choose their supplier. In assessing applications to supply new development sites, Ofwat acts on behalf of both existing customers as well as potential new customers who are not yet on site, to protect their interests. The fact that future customers on a site have not directly chosen their supplier is not a position unique to new appointments and variations – only business, charity and public sector customers (“Business Customers”) in England and Wales are able to choose their supplier.
The majority of Business Customers where the area of the relevant appointed company is not wholly or mainly in Wales (and whose premises are, or are likely to be, supplied with at least 50 Ml where the relevant area is wholly or mainly in Wales) have been able to effectively switch suppliers of water and/or sewerage since 1 April 2017.
Recognising this, our assessment of an applicant’s proposals includes analysis of its plans to ensure customers will be at least no worse off in terms of their annual bills and levels of service than if they had been supplied by the existing appointee in whose geographical area the relevant Site sits.
In considering whether customers will be no worse off, we also considered the potential effects a new appointment or variation may have on the prices that existing customers may face. We assess this by comparing how much the appointee might have expected to receive in revenue from serving the site directly, were they to serve the site, with the revenues they might expect from the proposed arrangement with applicant.
Levels of Service
Every appointee is required under its licence conditions to publish and make available the Core Customer Information for its household customers.
We assess the proposed Customer Code of Practice, and proceed to consultation if our view is that it is of an appropriate standard, and that customers on the Site would be no worse off in relation to the scope of the applicants proposed Customer Code of Practice than they would be if the appointee were to be the customers’ services providers.
Ability to finance and properly carry out its functions
We have a statutory duty to ensure that efficient appointees can finance the proper carrying out of their functions. When a company applies for a new appointment or variation, it must satisfy us that it is able to carry out all of the duties and obligations associated with being an appointed water or sewerage company.
Prior to consulting on an application, we consider the financial position of the applicant in relation to providing services to the Site, and we need to be satisfied the applicant demonstrates sufficient financial viability.
Below are the criteria under which we are able to grant a new appointment. The applicant must make sure that the proposed area of appointment (‘the site’) meets one or more of the qualifying statutory criteria. Its application must set out which of the criteria are being relied on. We cannot grant an application unless one of these criterion apply; further information about these can be found in the policy and process guidance.
The unserved criterion
Under section 7(4)(b) read with section 36 of the WIA91 we can grant a NAV under the unserved criterion if none of the premises in the site are:
– supplied with water by means of a connection with a distribution main of the existing appointed water company (in the case of an application to supply water); or
– drained by means of a public sewer or lateral drain of the existing appointing sewerage company (in the case of an application to discharge sewage).
Anyone submitting an application for a NAV under the unserved criterion should, where appropriate, include a report from an independent professional adviser that verifies the status of the site. But, if the unserved status of a site is not in dispute, it may be sufficient for an applicant to provide us with factual details of the site, accompanied by a signed letter from the existing appointee confirming its view that the site is unserved.
The onus is on the applicant to satisfy us that the unserved criterion has been met. The terms ‘drain’, ‘lateral drain’, ‘sewer’, and ‘public sewer’ are defined in section 219 of the WIA91. If an existing appointee disputes that a site is unserved there is an onus on that existing appointee to provide us with relevant information to substantiate its position. We would expect any company that claimed to serve a site to be able to provide evidence in support of its claim.
We would not consider it reasonable for an existing appointee to stop or slow negotiations with an applicant if there are doubts about the unserved nature of a site.
We consider this issue separately for both water and sewerage services. It is possible that a site may qualify as unserved for one service, but be served for the other.
The large user criterion
Under this criterion, an applicant may apply for a NAV to serve premises that are, or are likely to be, supplied with not less than the following quantity of water in any period of twelve months:
– 50 mega litres (if the area of the relevant existing appointee concerned is wholly or mainly in England megalitres); and
– 250 megalitres (if the area of the relevant existing appointee concerned is wholly or mainly in Wales).
The same threshold levels apply to a NAV for sewerage services, in terms of the volume of water supplied, not the amount of effluent discharged.
The customer concerned must provide consent in writing to the new appointment or variation of appointment.
The onus is on the applicant to demonstrate that the customer(s) on the site do or are likely to use volumes of water at least equal to the relevant threshold. Any evidence of actual usage over time (if it exists), including the consumption profile, will be important for our assessment. If the application is based on likely future consumption, Application guidance for new appointments and variations 8 then the applicant must set out the future expected usage levels and profiles for the relevant customer(s) and provide evidence in support of this.
The consent criterion
This applies when an existing appointee consents to transfer a specific part of its supply area to another appointee.
The consent criterion gives existing appointees the opportunity to avoid incurring significant costs to serve a site when another company may be able to serve it at lower cost. We will only grant a new appointment under this criterion if consent is unambiguous. The onus is on the applicant to provide evidence of the clear consent of the existing appointee for the new appointment.
The register of new appointments and variations can be viewed here.
We provide the below supplementary information about ongoing applicants for our New Appointments and Variations (NAV) process, the information is intended to sit alongside the active consultations.
Independent Water Networks Limited
In October 2007, Independent Water Networks Limited obtained its first appointment as a water and sewerage undertaker for a housing development at the Long Croft Road site in Anglian Water Services Limited’s area.
Icosa Water Services Limited
On 20 October 2016, Icosa Water Limited was appointed as a water and sewerage undertaker for a site called West Raynham in Norfolk. On 20 December 2016, Icosa Water Services Limited, who is a subsidiary of Icosa Water Limited, applied to take over the appointment for the West Raynham site under the consent criterion.
Leep Networks (Water) Limited
Leep Utilities Water Limited was formed in 2017 as a joint venture between Peel Utilities, part of the Peel Group, and Ancala Partners LLP, an infrastructure investment manager.
In 2019, Leep Utilities Water Limited (via Leep NAV Networks Limited, a newly incorporated subsidiary of group company Leep Utilities Water Limited) informed Ofwat that it proposed to directly acquire 100% of the shares in SSE Water from SSE plc. The outcome of the acquisition, completed in June 2019 was that Leep Utilities Water Limited would own two NAV companies: Leep Water Networks Limited and SSE. Leep Water consolidated all of its existing appointments and variations into SSE, which has been renamed Leep Networks (Water) Limited.
Leep Water Networks Limited previously traded as Peel Water Networks Limited until July 2017. On 13 February 2009 Peel Water Networks Limited obtained its only appointment as a water and sewerage undertaker for MediaCityUK in Salford Quays.
On 25 October 2018 Leep Water Networks Limited obtained its only appointment as a water and sewerage undertaker for Liverpool International Business Park.
Now trading as Leep Networks (Water) Limited Ofwat has agreed to further variations of Leep Water’s area of appointment, so that Leep Water can serve a number of further sites for water and/or sewerage services.