Market Blueprint

7/23/2019 Market Blueprint

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Market Blueprint

We are seeking stakeholders’ views on the questions set out in thisconsultation document. If you have any comments on the paperplease contact: [email protected]

Publication Date: 2 January 2014

Response deadline: 14 February 2014

mailto:[email protected]






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Contents

1. Executive summary 5

1.1 Introduction 5

1.2 Scope of retail market reform 5

1.3 Recommended market arrangements for water and sewerage 6

1.4 Recommended market arrangements for trade effluent 7

1.5 Recommended market arrangements for developer services 8

1.6 Recommended market arrangements for subcontracted and associatedservices 9

1.7 Registration and switching strategy 9

1.8 Financial settlement strategy 10

1.9 Operational services strategy 11

1.10 Market operator target operating model 12

1.11 Systems architecture and data model 13

1.12 Next steps 13

2. Introduction 14

2.1 Programme background 14

2.2 Document purpose and context 14

3. Scope and vision for retail market reform 17

3.1 Scope of retail market reform 17

3.2 Vision and success criteria of retail market reform 19

3.3 Key perceived issues retail market reform seeks to address 19

4. Market arrangements for water and sewerage 21

4.1 Current market arrangements in England and Wales 22

4.2 Current market arrangements in Scotland 23

4.3 Future market arrangements in England 24

4.4 Evolution of WaSC and WOC arrangements 32

4.5 Evolution of NAV arrangements 34



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4.6 Evolution of WSL arrangements 34

4.7 Evolution of private supply, on-site disposal, and self-supply arrangements 36

5. Market arrangements for trade effluent 38



5.3 Future market arrangements in England for new consents and agreements 40

5.4 Future market arrangements in England for existing consents and

agreements 42

6. Market arrangements for developer services 43



6.3 Future market arrangements in England for new developments 49

6.4 Future market arrangements in England for completed and in-progressdevelopments 52

7. Market arrangements for subcontracted and associatedservices 54

7.1 Present and possible future subcontracted and associated services 54

7.2 Assumed market arrangements 55

8. Market strategy and high-level design 57

8.1 Structure of the market strategy and high-level design 57

8.2 Registration and switching strategy 57

8.3 Financial settlement strategy 60

8.4 Metering strategy 61

8.5 Operational services strategy 62

8.6 Market governance and performance management strategy 62

8.7 Customer contracts and tariffs strategy 63

8.8 Wholesale contracts strategy 63

8.9 Market operator target operating model 63



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8.10 Systems architecture and data model 65

8.11 Codes architecture 66

8.12 Upstream considerations 66

Appendix A: Consultation questions and approach 67

Consultation questions 67

Consultation approach 68

Appendix B: Glossary of terms 70

Appendix C: Customer expectations assessment 71

Appendix D: Working group comments 72

Appendix E: Market consistency assessment 76

Consistency with the Scottish market 77

Consistency against other criteria 81



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1. Executive summary1.1 Introduction

The UK Government’s Water Bill1 is designed to address the current and futurechallenges faced by the water and sewerage sector. One of the key reforms proposedis the introduction of retail competition for water and sewerage services to non-household customers in England, which will be in place from April 2017.

This market blueprint describes the:

present and recommended future market arrangements; and

different roles in the new market arrangements.It also summarises our recommended high-level market design.

In creating the design, we have reviewed and considered the market designs andassociated codes for, and met market participants from, the:

Irish and British electricity markets;

British gas market; and

Scottish water market.

We have also met with market operators and experts in these markets such as Ofgem,the Scottish Central Market Agency (CMA), the Water Industry Commission forScotland (WICS), Elexon and Electralink.

The design recommendations set out in this document have been developed withconsideration of their impact on and response to wider issues, including how they

would:

ensure a level playing field for market participants;

support market consistency both within England and between the English marketand the markets in Wales and Scotland;

reflect customers’ expectations of how they hope to see the retail market operate;

align with the later introduction of upstream markets; and

strike an appropriate balance between scale and complexity, deliverability and thebenefits they will generate.

The recommendations in this document are intended to facilitate wider discussionabout the changes. Following a period of consultation, updated recommendations willact as a recommendation to Ofwat. It should be noted that many of therecommendations in this document potentially relate to areas that fall within Ofwat’sregulatory remit (for example, areas of market governance or the possible content ofthe market codes), and will require a regulatory decision in due course.

1.2 Scope of retail market reform

The scope of retail market reform as outlined in this market blueprint is set out below.

1 Water Bill 2013-14. http://services.parliament.uk/bills/2013-14/water/documents.html

http://services.parliament.uk/bills/2013-14/water/documents.html






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In scope Out of scope

Services

provided tocustomers

Water, encompassing:

potable water; and non-potable water.

Sewerage services,

encompassing:

foul water;

surface water drainage; and

trade effluent.

Developer services.

-

Wholesale

services providedto retailers

Commodity and network

services (where bundled into asingle product).

Operational services.

Commodity and network

services (where providedindividually/not bundled into a

single product).

Highway drainage (these costs

are assumed to be socialised in

commodity and network

services).

Customers All non-household customers.

Developers and self-lay

operators (SLOs).

All household customers.

Any legally permitted reselling

of in-scope services by acustomer.

Geography Customers receiving services

from water companies that are

wholly or mainly in England.

Customers receiving services

from water companies that are

wholly or mainly in Wales or

Scotland.

Timeframe Market operations from April

2017 onwards.

Market operations before April

2017.

1.3 Recommended market arrangements for water andsewerage

1.3.1 Customer choice

Customers will be able to choose their retailers for water and sewerage services. Werecommend that the base unit for all switching activity should be the service type atindividual premises. The service types in the water and sewerage markets are potablewater, non-potable water, foul water, surface water drainage, and trade effluent.

We recommend that legacy special agreements are split into a wholesale element anda retail element to enable the customer to be able to change retailer from 1st April 2017.



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1.3.2 WaSC, WOC and NAV evolution

Water and sewerage companies (WaSCs), water only companies (WOCs) and newappointments and variations (NAVs) will continue to provide both retail and wholesalefunctions within their area of appointments. They may also choose to set up their owncompetitive retail arm, seeking to acquire customers outside of their area ofappointment.

WaSCs, WOCs and NAVs will be required to provide wholesale services to their ownincumbent retailer and new entrant retailers on a non-discriminatory basis.

The obligations set out in legislation and licences which WaSCs and WOCs have willcontinue. WaSCs and WOCs will need to continue to satisfy themselves that they arecomplying with their licence obligations and other statutory obligations.

1.3.3 WSL evolution

The water supply licensing (WSL) retail only arrangements will evolve directly into thenew retail market arrangements. The WSL combined supply licence arrangements willbe unbundled into two elements:

a retail element; and

an upstream element.

The retail element will be managed in the same way as the retail only arrangements.The management of the upstream element will be outside the scope of the retailmarket; service points served under such an upstream agreement should be requiredto be registered with the market, but the financial settlement and managing ofoperational services should be administered bilaterally.

1.3.4 Market operator

A new market operator (MO) should be created, providing services in the areas of:

registration and switching;

financial settlement;

market governance; and

industry data exchange.

1.4 Recommended market arrangements for tradeeffluent

1.4.1 Consents and permits

Consents should be granted by the wholesaler, and should continue to relate to thepremises and occupier, and not the retailer. The customer should be required to applyfor the consent through their chosen retailer of trade effluent services. Incumbentretailers will be obliged to offer a consent application handling service, and new entrantretailers should be permitted to choose whether they offer this service.

The wholesaler should not be permitted to communicate with the customer directlyduring the application process, except on matters related to compliance andenforcement.

The Environment Agency (EA) will continue to grant permits for discharge into thewatercourse. The customer will be required to interact directly with the EA.



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1.4.2 Charging

The wholesaler should charge the retailer, and the retailer should charge the customer,adding in a retail margin. The standard billing frequency and payments terms should beas for other sewerage services.

1.4.3 Compliance and enforcement

The undertaker will continue to have an obligation to take and analyse samples ofwaste discharged from premises to ensure compliance with consents, and werecommend that this is a wholesaler responsibility.

If the retailer requires additional sampling and analysis for the purposes of customerbilling, we recommend that this should be the responsibility of the retailer. However,they should have choice over who they contract with to do this work, but the wholesalershould be required to offer their trade effluent sampling and analysing services on a

reasonable and non-discriminatory basis.

1.4.4 Existing agreements

Customers that have existing trade effluent agreements will be allowed to changeretailer from1st April 2017. On retail market opening these customers should continue to be servedby the incumbent WaSC retailer until such time that they choose to change. Existingtrade effluent charging agreements should be split into a wholesale element and aretail element (margin).

1.5 Recommended market arrangements for developer

services

1.5.1 Roles in the developer services market

We recommend that developers interact with ‘retailers of developer services’, and thatthe following organisations should be able to enter this market.

Incumbent non-household retailers of water and/or sewerage (with an obligation toprovide such services).

New entrant water and/or sewerage retailers.

New entrant specialised developer service only retailers such as SLOs ordevelopers themselves.

We recommend that Ofwat considers how to enable organisations such as SLOs anddevelopers to act as a retailer of developer services (without being a water and/orsewerage retailer), with suitable controls and governance (such as accreditation), butwithout undue burden or complexity (such as licencing).

We recommend that the provision of developer services to a developer should be aseparable service to the provision of water and sewerage services.

1.5.2 Administration and customer service activities

The retailer of developer services should be responsible for administration andcustomer service related to developer services, irrespective of whether the

development is household, non-household or mixed.



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Registering new sites should be the responsibility of the retailer of developer services,not the wholesaler.

1.5.3 Planning, design, and engineering worksResponsibilities and options to use SLOs and contractors will remain unchanged.Interactions between the developer and wholesaler should be through the retailer ofdeveloper services.

1.5.4 Payment handling

The retailer of developer services should handle all payments, irrespective of whetherthey come from the developer or to the developer.

If the option for payments related to developer service works take the form ofrepayment over a period of up to 12 years remains, the developer should not be

permitted to change the retailer of developer services they interact with for a particularsite during the repayment period.

1.5.5 Completed and in-progress developments

For developments that are part-way through to completion, and for chargingarrangements and financial payments being made that relate to developmentscompleted before 1st April 2017 but where the payment schedule extends beyond 1st April 2017, the relationship should transfer to the incumbent non-household retailer on1st April 2017.

The developer should not be permitted to switch to another retailer of developerservices for payment arrangements related to completed developments.

1.6 Recommended market arrangements forsubcontracted and associated services

1.6.1 Market interactions with organisations

Organisations providing sub-contracted and associated services – for example, meterreading and water retailer recommendations – should interact by default with themarket and the MO through the party on whose behalf they are working/who appointedthem.

1.6.2 Market operator constraintsThe MO should not be permitted to offer sub-contracted and associated services. Itshould be permitted to negotiate bilateral access agreements to MO systems andmarket data on a commercial basis with organisations providing such services.

1.7 Registration and switching strategy

1.7.1 Customer choice

Customers will be able to choose their retailers for water and sewerage services, andwe recommend that the base unit for all switching activity should be the service type at

individual premises (see section 1.3.1 for more detail).



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1.7.2 Creation of a central register

There will be a central register of service points in the market, which the MO will hostand maintain. The register should be developed principally from national datasets,against which incumbent water companies should be required to map their existingservice point information.

1.7.3 Customer awareness

We recommend that there should be a centralised marketing campaign to raisecustomers’ awareness of switching, complemented by retailers’ direct marketingactivities. This campaign should not be delivered by the MO, but should be enabled byOfwat and involve a range of organisations, including retailers and customerrepresentative bodies.

We hope that new providers will emerge to provide retailer and tariff comparison and

advice services to customers. The MO will not provide such services.

1.7.4 The switching process

We recommend that there should be a standard switching process. The new retailershould initiate switch requests and then lead the administration of the switch, withmessages between participants passed through the MO. Where a customer moves to anew premises, they should continue to be served by the retailer who has been servingthe service point(s) (under a deemed contract) until the customer requests otherwise.

The switch process should incorporate a customer cooling off period, and a timewindow to allow the new retailer to cancel, or the current retailer to object. Objectionsshould be handled after the customer’s switch request is submitted, rather than before,

and there should be a defined set of objection reasons. We recommend that a newretailer should be able to refuse a customer request to switch to them such thatretailers have scope to specialise in segments of the market.

There should be a maximum standard timescale for switches to take effect. In addition,a customer should be able to select an alternative date beyond this within a specifiedwindow.

We recommend to Ofwat that a new retailer should be able to refuse a customerrequest to switch to them, but that there should be a defined set of reasons that cannotbe used to refuse to request an application. Retailers should have an enduringresponsibility to serve their customers until they choose to switch again.

1.8 Financial settlement strategy

1.8.1 Timing and frequency of settlement

Ofwat’s information notice published in November 20132 sets out that the settlementperiod will be one calendar day and the billing period will be one calendar month for allservices.

We recommend that initial settlement calculations for a billing period (calendar month)should be issued five business days after the end of the billing period, two resettlementruns, two and eight months after initial settlement, with full and final settlement after 13months.

2 Available at: http://www.ofwat.gov.uk/competition/review/prs_in1321pr14paymentterms.pdf

http://www.ofwat.gov.uk/competition/review/prs_in1321pr14paymentterms.pdf






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1.8.2 Payment terms and credit requirements

Ofwat’s information notice published in November 2013 sets out that standard paymentterms are 30 days from the last day of the billing period, or 15 days after the invoice isdeemed to be received, whichever is the later, and that a retailer needs to have either aletter of credit from a guarantor with a defined minimum credit rating, or an agreementwith a wholesaler to use an escrow account.

We recommend that the credit rating requirement for standard payment terms shouldbe the minimum investment grade rating.

Market participants may negotiate non-standard payment and credit terms. To ensuretransparency and a level playing field, we recommend that there should be arequirement to publish details of such agreements and to make them available to allother market participants.

1.8.3 Settlement and estimation calculation approachThe charges due will be based on wholesale charges schemes.

Non-daily metered service points should have an estimate of annual consumption (theyearly volume estimate or YVE), and be allocated to a standard consumption profile.These should then be used to estimate consumption for each day/settlement period.

1.8.4 Roles and responsibilities in settlement

The party providing the service should be responsible for determining how muchservice has been provided, including taking meter readings.

The MO should make any adjustments necessary to consumption data, including

estimating usage, and determine charges due between market participants.

The party providing the service will be responsible for billing and collections.

1.9 Operational services strategy

1.9.1 Standardised operational services catalogue

A catalogue of operational services provided across England should be created, andwe will seek to make the definition of services consistent.

1.9.2 Standardised service levels

Ofwat will carry out work on service levels. To help inform that work, Open Water willcarry out an information gathering exercise to establish how consistent service levelsalready are.

We recommend that the MO should collect and publish information on serviceperformance.

1.9.3 Negotiating non-standard services and service levels

We recommend that market participants should be able to negotiate non-standardservices and/or service levels. We recommend that Ofwat should consider arequirement to publish details of such agreements.



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1.9.4 Administering service requests and notifications

All standard, and where possible non-standard, service requests and notificationsshould be communicated between market participants through the MO.

1.10 Market operator target operating model

Note: Ofwat will be carrying out work related to the MO delivery, ownership andgovernance, and commercial model. Items presented below against those headingsare recommendations to Ofwat:

1.10.1 Services provided

A new MO should be created, providing services in the areas of;

registration and switching;

financial settlement; market governance; and

industry data exchange.

1.10.2 Requirement to use market operator services

To achieve a level playing field we recommend to Ofwat market participants should berequired to make use of the MO services for ‘standard’ services, agreements andinteractions, including where the parties interacting are related – for example, when theincumbent wholesaler and incumbent retailer are interacting. We recommend thatOfwat should put in place a process to allow participants to request dispensation fromthis requirement.

‘Non-standard’ agreements and interactions where the MO cannot provide its standardservices without changing its processes and systems should be managed bilaterally.

1.10.3 Delivery model

There should be a single MO. The MO should in-source/build capabilities associatedwith:

strategy;

procurement and contractor management;

business operations; and

market governance and MO change management.

It should outsource/procure capabilities associated with:

IT system build, operate and change; and

market operations.

1.10.4 Ownership and governance model

The MO should be a company limited by guarantee. It should be owned by marketparticipants, and governed by an independent board.

1.10.5 Commercial model

The MO should be a not-for-profit entity funded on a cost recovery basis frommembers/owners. Set-up costs should be paid by wholesalers (in a manner which does



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not impact household customers), and operational costs 50% by wholesalers and 50%by retailers. Costs for individual companies will be proportionate to their size, primarilyassessed through the number of service points.

1.11 Systems architecture and data model

1.11.1 Industry data exchange hub interface approach

An industry data exchange (IDEX) hub should be created, through which marketparticipants will send and receive data. Three types of interface should be implemented.

An automated interface for machine-to-machine communication.

A semi-manual interface for participants to upload/download data files to/frommanually.

A manual interface such as set of secure web forms.

1.12 Next steps

We are seeking feedback on the recommendations outlined in this document. Detailson how to provide feedback are included in appendix A.

A future iteration of the high level design will be published in early summer 2014. Thiswill include updates following review of feedback provided, and additional content in theareas of:

metering strategy;

customer contracts and tariffs strategy;

wholesale contracts strategy; and

upstream considerations.

Additionally, we understand Ofwat will be carrying out work in the following areas,which we will seek to input to, and ensure our recommendations align with:

market governance and performance management strategy; and

codes architecture.



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2. Introduction2.1 Programme background

The UK Government’s Water Bill3 was introduced into Parliament and published on27th June 2013. The Water Bill is designed to address the current and future challengesfaced by the water and sewerage sector, which were described in the Water WhitePaper 4.

Among other things, the Water Bill is designed to:

increase customer choice;

improve service provision;

stimulate innovation; and

drive more sustainable approaches to managing our scarce resources.The Government’s key reforms are:

the introduction of retail competition for water and sewerage services to non-household customers in England, which will be in place from April 2017; and

the introduction of competition in the upstream sector, which will take place at a laterdate (after 2019).

The Open Water programme has been created to facilitate the implementation of theproposed reforms.

2.2 Document purpose and context

This document is part of a suite of materials being published throughout 2014. They setout the Open Water programme’s recommendations for the high-level design for thenew competitive water retail market for non-household customers in England. Thesematerials are:

this market blueprint, which describes the present and future market arrangementsand the different roles in the new market arrangements, and summarises theprogramme’s recommendations for the high-level market design;

a series of documents on strategy and high-level design, which present in moredetail the programme’s recommendations in areas such as registration andswitching, financial settlement, and industry governance and performancemanagement; and

supporting discussion papers and option analyses, which have informed thedocuments listed above.

The intended audiences for the high-level design papers are:

the strategy, regulation and change teams within incumbent and new entrant watercompanies in England;

Ofwat;

potential providers of services and systems to a new central Market Operator and/orto water companies; and

3 Water Bill 2013-14. http://services.parliament.uk/bills/2013-14/water/documents.html 4 Water for Life – Market reform proposals. https://www.gov.uk/government/publications/water-for-life-market-reform-proposals




https://www.gov.uk/government/publications/water-for-life-market-reform-proposals









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anyone with an interest in the reform of the water industry.

This document is structured as follows,

The vision and objectives of market reform (chapter 3. An overview of the current market arrangements, detail of the recommended future

market arrangements, and detail as to how companies and customers will betransitioned from the present arrangements to future arrangements (chapters 4-7).

The strategy and high level design to deliver the new market arrangements(chapter 8.

The design recommendations set out in this document have been developed withconsideration of their impact on and response to wider issues, including how theywould:

ensure a level playing field for market participants;

support market consistency both within England and between the English market

and the markets in Wales and Scotland; reflect customers’ expectations of how they hope to see the retail market operate;

align with the later introduction of upstream markets; and

strike an appropriate balance between scale and complexity, deliverability and thebenefits they will generate.

In creating this document, the Open Water team has reviewed and considered themarket designs and associated codes for, and met market participants from, the:

Irish and British electricity markets;

British gas market; and

Scottish water market.

We have also met with market operators and experts in these markets such as Ofgem,the CMA, WICS, Elexon and Electralink.

The recommendations set out in this document have been discussed with:

an industry working group;

Ofwat’s Choice and Trading Arrangements Programme Board member s;

Open Water’s Programme Delivery Board; and

Open Water’s High Level Group.

Feedback from these groups has been considered and reflected in the proposalsmade.

Throughout this document we ask a number of questions and seek stakeholders’ viewson these. We list all of the questions in appendix A. Please provide your responses tothe consultation questions and any other comments or queries you may have regardingthis paper by 14th February 2014, to [email protected]. We provide anaccompanying template for responses on the Open Water website to help this process,which we strongly encourage respondents to use. We will, however, accept responsesin other formats if necessary.

We will be running a workshop on 29th January for representatives from watercompanies to discuss the content presented in all of the high-level design papers.Details of this session have been shared with water companies, and for moreinformation please contact [email protected].

A second iteration of this document will be issued in early summer 2014. This willinclude any changes necessary to align with additional strategy and high-level design











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papers which will be produced in early summer 2014, and will also reflect any changesmade in response to consultation responses received.

The recommendations set out in this document are intended to facilitate wider

discussion about the changes. Following the consultation, the updatedrecommendations will act as a recommendation to Ofwat, for the relevant regulatorydecisions in due course.



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3. Scope and vision for retail

market reform3.1 Scope of retail market reform

The scope of Open Water and the market arrangements and market design set out inthis document is the introduction and operation from April 2017 of a competitiveretail market for water and sewerage services, serving English non-householdcustomers. We define this in more detail below. Of course, there are nuances to thisscope, and we discuss these in more detail in later chapters of this document and inthe supporting design materials.

3.1.1 Services provided to customers

The scope of Open Water and this market blueprint encompasses the provision of thefollowing services to customers.

Water 5, encompassing:o potable water; ando non-potable water.

Sewerage services, encompassing:o foul water;o surface water drainage; ando trade effluent.

Developer services.In the future, further services related to an upstream market may be introduced, but atthis time these are not defined as being in scope.

3.1.2 Wholesale services provided to retailers

The scope of Open Water and this market blueprint encompasses the provision of thefollowing services by wholesalers to retailers.

Commodity and network services (sometimes called direct services), such asproviding water or disposing of foul water.

Operational services (sometimes called indirect services), such as exchanging a

meter or repairing a burst water main.Other services that the wholesaler performs but which are not directly and identifiablybilled to customers at present are outside the scope of Open Water and the market.For example, where a sewerage company treats and disposes of water from highwaydrainage, this will not be a service within the scope of the market; instead, the cost ofproviding this service would be socialised and recovered through other services thatare within the scope of the market.

In the future, further services related to an upstream market may be introduced, but atthis time these are not defined as being in scope.

5 This includes water provided for the purposes of firefighting, even if it is supplied through adedicated firefighting service point.



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3.1.3 Customers

The scope of Open Water and this market blueprint encompasses non-householdcustomers that currently receive their services through the water supply and/orsewerage system of an undertaker that operates wholly or mainly in England; anddevelopers, as customers of developer services from water and sewerage companies.

We recognise that in some circumstances the distinction between household and non-household is not clear – for example, whether a show home on a new housingdevelopment is a household premises or not. Ofwat will be issuing more detailedeligibility guidance which seeks to address these areas of ambiguity.

If a customer re-sells any of the in-scope services, then the party that pays the water orsewerage company is considered the customer and hence within scope of the market,and the party onto which they sell the service are outside the scope of the market. Forexample, if a commercial property firm sells on water to their tenants, the property

company is considered a customer within the market, and the tenants are not.

3.1.4 Geography

The scope of Open Water and this market blueprint includes the English water market,which encompasses water companies that operate wholly or mainly in England.

The scope of Open Water explicitly excludes water companies that operate wholly ormainly in Wales. While the Water Bill will result in changes for some Welsh customersand the operation of the Welsh market, delivering these changes is not within thescope of Open Water and, accordingly, is not described in this market blueprint.Similarly, market operations now or in the future related to the WSL arrangements forthe Welsh market are not within the scope of Open Water.

As a consequence of the differing policies being introduced for the English and Welshmarkets, it should be noted that a customer may be within the scope of the marketdescribed in this blueprint for some services but not all – for example, a customer thatreceives their water from an English-administered water company and sewerageservices from a Welsh-administered water company.

The scope of Open Water also explicitly excludes Scottish water companies andcustomers. In producing this market blueprint, we have sought to ensure anappropriate level of consistency with the Scottish market to help improve customerexperience. However, for the avoidance of doubt, this document only describes thedesign for the English water retail market. It is for the Scottish Government and WICSto advise on the future plans for the Scottish market.

3.1.5 Timeframe

The operation of the market from April 2017 onwards is within the scope of Open Waterand this market blueprint.

The operation of the existing competitive WSL and NAV frameworks, and introducingany possible enhancements before April 2017 to those frameworks, are explicitly out ofthe scope of Open Water and this document.

Consultation question:

BP 3a: Do you agree with the recommended scope of the English non-household retail

market?



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3.2 Vision and success criteria of retail market reform

The content presented in this market blueprint is intended to reflect the Open Water

programme vision that Ministers have agreed with the High Level Group. The vision isthat:

the Market Reform Programme has been created to support delivery of the UKGovernment’s vision for the future of water management in England, set out in theWater White Paper;

we want to support a resilient water sector, in which water companies are moreefficient and customer focused, and in which water is valued appropriately;

we will improve the range and quality of services offered to customers by removingbarriers to competition, fostering innovation and efficiency, and encouraging newbusinesses to enter the market;

we will create markets where all participants operate on a level playing field; and

our reforms will drive more sustainable use of resources and keener pricing forcustomers.

The agreed over-arching success criteria for the Open Water programme are that:

all non-household customers are in a position to negotiate better targeted, moreefficient and more cost effective services;

outcomes are cost-beneficial for most customers;

the new competitive markets are fair, transparent and efficient;

the market delivers a seamless customer experience in England and Scotland;

reform incentivises innovation by both existing and new market participants; and

reforms to upstream markets in England drive sustainable and efficient use of water,encouraging innovation and choice in alternative water resources and sewerage

services.

3.3 Key perceived issues retail market reform seeks toaddress

The current market structure in England and Wales is widely perceived to experiencethe following problems.

From a customer perspective, water companies are considered to be less innovativeand providing lower levels of customer service and focus compared with companies inother sectors, and customers are not receiving the level of support and encouragementthey would like in managing their water consumption. In addition, customers with a

multi-regional presence have to interact with a number of water companies, which canbe inefficient and time consuming.

From the perspective of new retailers, the current framework requires them to agreeprices on an individual basis with the incumbent water companies, which can beburdensome and time consuming.

From a regulatory/legislative perspective, it is thought that the lack of competition isresulting in lost opportunities to drive efficiencies and improve service. In particular, thefollowing are perceived issues with the present WSL framework.

The small size of the WSL market and the small number of customer who haveswitched retailer.

The requirement on a party wishing to provide upstream services to the WSL marketto also provide the associated retail services.



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The absence of arrangements equivalent to WSL for the sewerage value chain.

The costs principle (the current approach to access pricing), which restricts availablemargins.



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4. Market arrangements for

water and sewerageKey recommendations made in this chapter

Customer choice: Customers will be able to choose their retailers for water and

sewerage services. We recommend that the base unit for all switching activity should

be the service type at individual premises. The service types in the water and

sewerage markets are potable water, non-potable water, foul water, surface water

drainage, and trade effluent.

We recommend that legacy special agreements are split into a wholesale element and

a retail element to enable the customer to be able to change retailer from 1st April2017.

WaSC, WOC and NAV evolution: WaSCs, WOCs and NAVs will continue to provide

both retail and wholesale functions within their areas of appointment. They may also

choose to set up their own competitive retail arm, seeking to acquire customers outside

of their area of appointment.

WaSCs, WOCs and NAVs will be required to provide wholesale services to their own

incumbent retailer and new entrant retailers on a non-discriminatory basis.

The obligations set out in legislation and licences which WaSCs and WOCs have will

continue. WaSCs and WOCs will need to continue to satisfy themselves that they arecomplying with their licence obligations and other statutory obligations.

WSL evolution: The WSL retail only arrangements will evolve directly into the new

retail market arrangements. The WSL combined supply licence arrangements will be

unbundled into two elements: a retail element, and an upstream element.

The retail element will be managed in the same way as the retail only arrangements.

The management of the upstream element will be outside the scope of the retail

market; service points served under such an upstream agreement should be required

to be registered with the market, but the financial settlement and managing of

operational services should be administered bilaterally.

Market operator: A new MO should be created, providing services in the areas of

registration and switching, financial settlement, market governance, and industry data

exchange.

To achieve a level playing field, we recommend to Ofwat that for ‘standard’ services,

agreements and interactions, market participants should be required to make use of

the MOs services, including where the parties interacting are related – for example,

when the incumbent wholesaler and incumbent retailer are interacting. We recommend

that Ofwat should put in place a process to allow participants to request dispensation

from this requirement.

‘Non-standard’ agreements and interactions where the MO cannot provide its standardservices without changing its processes and systems should be managed bilaterally.



22

4.1 Current market arrangements in England andWales

At present, the water and sewerage markets in England and Wales comprise:

19 large vertically integrated regional monopoly providers;

a small number of companies providing water and sewerage services to specificsites; and

a small number of retailers providing water to the largest non-household customers.

The diagrams below illustrate the water and sewerage6 supply chains for non-household customers and the different market arrangements that exist today. We thenprovide further explanation of them.

Figure 1: Water supply chain and present non-household market arrangements in England and Wales

Figure 2: Sewerage supply chain and present non-household market arrangements in England and Wales

Most non-household and other business customers in England and Wales are servedby large incumbent monopoly providers, comprising:

ten vertically integrated, regional monopoly water and sewerage companies(WaSCs); and

nine vertically integrated, regional monopoly water only companies (WOCs).

The new appointment or variation (NAV) arrangement, often referred to as the ‘inset’framework, allows for an alternative company to provide water and sewerage services

6 Excluding trade effluent, which is explained in more detail in chapter 5.

LargeIncumbent

Monopoly

Providers

Water and Se werage Companies (WaSCs)

Water Supply Chain

RetailDistributionStorage &Treatment

AbstractionBusiness

Customers

BusinessCustomers

Site-SpecificMonopoly

Providers BusinessCustomers

Water only Companies (WoCs)

Water SupplyLicensee

Providers BusinessCustomers

WSL Combined Supply Licensee WSL Comb. Supp. Lic.

WSL Retail Only Lic.

New Appointment or Variation Companies (NAVs)

Undertaker

Undertaker

Secondary Undertaker WSL Comb. Supp. Lic.Primary Undertaker

LargeIncumbent

Monopoly

Providers

Water and Sewerage Companies (WaSCs)

SewerageSupply Chain

RetailCollection &

TransportationTreatment (Sewage

& Sludge)Disposal

BusinessCustomers

BusinessCustomers

Site-SpecificMonopoly

Providers Business

Customers

New Appointment or Variation Companies (NAVs)



23

for a specific site or area. These may, as shown in Figure 1 and Figure 2 , manage thefull end-to-end water supply chain, or they may purchase wholesale services from theneighbouring WaSCs and/or WOCs. Currently, there are five such companies

operating in England and Wales.The water supply licensing (WSL) arrangements allow for large users of water – that is,those that use more than 5 million litres of water a year in England or 50 million litres ofwater a year in Wales – to change their water retailer. The WSL arrangements do notallow for a customer to change their sewerage service retailer. From a market designperspective, there are three main variants of the WSL framework. These are:

retail only, where the water supply licensee purchases a wholesale supply of waterfrom the local WaSC or WOC and retails it to customers. Currently, there are eightwater supply licensees offering water to non-household customers on a retail onlybasis;

combined supply, where the water supply licensee, in addition to providing retail

services to the customer, introduces water into the undertaker ’s system sufficient tomeet their customer’s needs. There are currently no combined supply agreements inoperation in England or Wales; and

secondary supply, which is a variant of the combined supply arrangements, whereinstead of introducing water into the undertaker’s system themselves, the watersupply licensee appoints a neighbouring undertaker (the ‘secondary undertaker ’) tointroduce the water into the primary undertaker ’s system. There are currently nocombined supply agreements with secondary supply in operation in England orWales.

Under all of these arrangements it is possible that, for a particular site, the endconsumer of the water or sewerage services is not the party responsible for paying the

bill to the water company, and hence that water and sewerage services are beingresold. For example, the owner of a shopping centre may purchase water from a watercompany, which they then sell on to the tenants of individual stores. In the presentmarket arrangements, this re-selling is by the Water Resale Order, and for thepurposes of this market blueprint, the party paying the bill to the water or seweragecompany is the customer.

A number of customers have private water supplies such as an on-site bore hole, andon-site sewerage storage and treatment such as a septic tank. These arrangementsare regulated by local authorities and the Environment Agency respectively, andcustomers have complete choice about which companies they engage with to providesuch services.

4.2 Current market arrangements in Scotland

The Scottish market has developed independently of the English and Welsh markets,as water industry and environment law are wholly devolved.

The diagram below illustrates the water and sewerage7 supply chains for non-household customers and the associated companies in Scotland. We then providefurther explanation.

7 7 Excluding trade effluent, which is explained in more detail in chapter 5.



24

Figure 3: Water and sewerage supply chains and present non-household market arrangements in

Scotland

There is a single wholesaler, Scottish Water, which is responsible for providing allwater and sewerage services to non-household retailers.

Retail competition for all non-household customers has been in place since 2008. Nothreshold for switching retailer exists; therefore, any non-household customer inScotland can switch their water and/or sewerage services to another retailer. For asingle premises, the customer can switch all of their water services to a new retailer,but cannot switch potable and non-potable supplies to separate retailers. Similarly, fora single premises, the customer can switch all of their sewerage services to a newretailer, but cannot switch foul water, surface water drainage and trade effluent toseparate retailers. If a building has multiple occupants, it is defined as multiplepremises (one for each occupier) and, accordingly, each occupier can choose their

water and sewerage retailers.

There are now 13 licenced retailers in the Scottish water and sewerage market. Sincethe market opened, about 5%8 of the market has switched retailer and about 50%9 ofthe market has renegotiated their water and sewerage services.

There is a single market operator, the Central Market Authority (CMA), whichadministers the market. They:

maintain a record of which retailer is responsible for serving each customer;

determine the charges that retailers must pay Scottish Water; and

chair the technical panels that administer the codes which describe and govern themarket.

4.3 Future market arrangements in England

Reforming the water and sewerage markets will be carried out in the following twophases.

Phase 1 will involve introducing retail market competition, with the planned date forretail market opening being 1st April 2017. We discuss the retail marketarrangements in sections 4.3.1 4.3.3 below.

8 Source: Water Industry Commission for Scotland.9 Source: Business Stream.

Water andSewerage

Companies


RetailCollection &Transportation

Treatment (Sewage& Sludge)

Disposal

BusinessCustomers

Water Supply Chain


Abstraction

Business

Customers

Wholesaler (Scottish Water) Retailers

MarketFacilitation

Organisations

Market Operator (CMA)



25

Phase 2 will include upstream reform, which will follow retail market opening at alater date (after 2019). We discuss the outline upstream market arrangements insection 4.3.4 .

4.3.1 Retail market arrangements

From 1st April 2017, a new retail market for water and sewerage services will beintroduced in England. The key characteristics of the new market are that:

all non-household customers will be able to change their retailer(s) for water andsewerage services, or they can choose to self-supply;

incumbent WaSCs, WOCs and NAVs will continue to provide both retail andwholesale functions within their area of appointments, but a level of separation willbe required between retail and wholesale functions10; and

regulated access to wholesale water and sewerage services will be introduced,replacing the present negotiated access arrangements, and encouraging new

retailers to enter the market.

The diagram below illustrates the water and sewerage supply chains for non-householdcustomers and (in their simplest form) the new market arrangements that will exist from1st April 2017. We then provide further explanation, and in later sections describe inmore detail some of the intricacies for WaSCs, WOCs, NAVs and WSLs.

Figure 4: Water and sewerage supply chains and non-household market arrangements in England from 1st

April 2017

Wholesalers, which includes the existing WaSCs, WOCs and NAVs, will be responsiblefor providing water and/or sewerage services within their area of appointments to

retailers. Access to wholesale services will be on the basis of regulated access – that is,the cost and service level offered by wholesalers to all retailers will be regulated andnot negotiated as it is currently with the WSL framework.

Retailers will purchase water and sewerage services from wholesalers, and then sellthem on to customers. Default customer tariffs will be implemented for those customersserved by incumbent retailers, operating on the basis of minimum service levels andmaximum prices. Retailers will be free to offer innovative alternative tariffs, productsand services to customers. The retailers in the market will include:

incumbent retailers, including the existing WaSCs, WOCs and NAVs, acting as thedefault retailer for customers within their area of appointment; and

10 Ofwat is currently consulting on the level of separation required/proposed by watercompanies.

Water andSewerage

Companies


RetailCollection &


& Sludge)Disposal

BusinessCustomers

Water Supply Chain


Abstraction

BusinessCustomers

Wholesalers

Retailers

Self-Supply Licencee

Wholesale Market Retail Market



26

new entrant retailers, including the competitive retail arms of any existing watercompanies operating anywhere in the country, and any other new market entrants.

Customers will be able to choose their retailers for water and sewerage services. We

recommend that the base unit for all switching activity should be the service type atindividual premises. The service types in the water and sewerage markets are potablewater, non-potable water, foul water, surface water drainage, and trade effluent. As aresult, a customer would be able choose to have different retailers for each servicetype at each premises, or they may choose an offer which “bundles” services acrosstypes and premises, which we expect to be offered by retailers. The key reasons forthis recommendation11 are that it should:

promote competition and potentially provide a greater choice of retail services,innovation and specialist retailers, meeting Defra’s stated aim “to allow new entrantsto be able to offer specialised services” and “enable all new entrants to specialise inthe services they wish to provide” 12; and

ensure the market design is adaptable to the development of the upstream market,through retail service alignment to upstream commodities.

Where services cannot be separately delivered, measured and charged – for example,if foul water and surface water drainage are combined – then the customer should beable to choose their water retailer for all water services and sewerage retailer for allsewerage services

Alternatively, customers may choose to become a self-supply licensee; instead ofpurchasing water and sewerage services from a retailer, they can purchase directlyfrom the wholesaler. In essence, they become a retailer, but one that can only supplytheir own site(s) or those of their associate(s).

New entrant water companies will operate using new licences, which Ofwat will grant13

,with authorisations that describe the activities they can perform in the market. Theauthorisations, with separate versions for water and sewerage, are14:

wholesale authorisations, allowing water to be input into an incumbent watercompany’s network; and

retail authorisations, enabling new entrants to provide customer-facing services.

With respect to the markets, in this document:

the retail market relates to activities between the customer and the retailer.Reselling water by the customer, where legally permitted, is governed by the WaterResale Order and is outside the scope of the retail market; and

the wholesale market relates to interactions between retailers and wholesalers.

4.3.2 Allocating existing activities to wholesale and retail

Introducing retail competition will result in activities which are currently performed bythe incumbent monopoly providers being performed by different parties. The table

11 The recommendation to manage switching at the service group level is explained in moredetail in the registration and switching strategy.12 Source: Water for Life – Market Reform Proposals. Defra December 201113 Separate licences will be required for new entrant retailers seeking to operate in both theEnglish and Scottish markets. However, Ofwat and WICS have stated an intent to co-ordinate

their respective application processes.14 Slight variations to these authorisations exist in relation to Wales. Refer to the Water Bill formore details.



27

below sets out activities for water and sewerage, and the parties that will beresponsible for performing them in the new retail market. (Note: activities for developerservices and trade effluent are set out in later chapters.)

The information in the table is consistent with Ofwat’s direction on separation ofactivities for price control purposes set out in their final methodology statement15 published in summer 2013, and subsequent amendments and clarifications, whichwere not outlined explicitly in Ofwat’s consultation.

Wholesale activities Retail activities

Commodity

provision

Water abstraction

Water storage

Water treatment

Sewage treatment and disposal

–

Network

provision

Network ownership

Network maintenance

System operation

Scientific services

Customer-side leak and blockage

repairs

Metering Determining meter functionality

and capability (joint with retailer)

Meter installation, maintenance

and repair

Meter ownership

Determining meter functionality


Meter reading

Disconnections

and

reconnections

Disconnection and reconnection

site activity

Disconnection and reconnection

decision making

15 Source: http://www.ofwat.gov.uk/pricereview/pr14/pap_pos201307finalapproach.pdf

http://www.ofwat.gov.uk/pricereview/pr14/pap_pos201307finalapproach.pdf






28

Wholesale activities Retail activities

Customer

service

– Sales, marketing and customer

setupBilling, payment handling and

debt management

Customer contact (explicitly

including all calls whether

network or non-network related,

and liaison back to the

Wholesaler)

Customer account management

Vulnerable customer schemeadministration

Demand side water efficiency

services

4.3.3 Required market facilitation activities and roles

To enable the new retail market to function effectively, new market facilitation activitiesare required to enable:

registration and switching – maintaining a record of service points and the registeredparties for providing different services to each service point, and enabling theregistered parties to be switched;

financial settlement – determining and processing the financial payments betweencompanies to pay for services provided;

market governance – assuring that market codes are appropriately administeredand that all market participants adhere to market codes;

customer awareness – ensuring customers are aware of their options to changeretailer; and

industry data exchange – passing relevant data between market participants toenable market processes to be executed.

Delivering these activities will impose new requirements on the regulator, and on allmarket participants. In addition, we recommend that a new MO is created with theobjective of providing services that help enable and facilitate the effective operation ofthe competitive market arrangements.

Below, we set out, for each of these activities, the main services that we recommendthe MO provide. We provide more detail, including information supporting thesedecisions, in section 8.9.



29

Registration and

switching

Administering a central register of service points

Handling registration and market data enquiries from market

participants

Allocation of ‘retailer less’ service points to retailers (if Ofwat policy

is to assign service points)

Financial

settlement

Determination of ‘usage’ for standing charge-based services

Determination of any yearly volume estimate, consumption

estimate, and consumption profiling

Determination of financial charges due between market

participants

Market

governance16

Administering code modification proposals

Drafting, version control and publication of market codes

Carrying out monitoring and reporting of market compliance and

low-level routine enforcement of compliance to market rules

Arbitrating and resolving disputes between market participants

Customer

awareness

–

Industry data

exchange

Transmitting, validating and storing electronic messages between

a market participant and the MO, and between market participants

Key to the success of the market will be the provision of a level playing field for allmarket participants, ensuring transparency of market operations, and enabling thisconsistency in how market participants interact with each other. Ofwat will be carryingout work on ensuring a level playing field; to help Ofwat, we have considered thisobjective with relation to use of MO services, and formed the recommendationsoutlined below.

To achieve a level playing field, we recommend to Ofwat that for ‘standard’ services,agreements and interactions, market participants should be required to make use ofthe MOs services described above – for example, passing messages to each otherthrough the MO and the MO determining the financial payments due between parties.

We recommend that this requirement should apply to all market participants of allscales, including:

small retailers and wholesalers;

incumbent water companies and new entrants; and

self-supply licensees.

As Open Water develops, the detailed design of the MO we will seek to ensure thatmarket participants can interact in a manner proportionate to their circumstance andscale.

16 Ofwat will be carrying out work on market governance which will consider this area further; tohelp Ofwat, we have also considered this area, and formed the recommendations shown.



30

We recommend that a requirement to make use of MO services should apply wherethe two market participants interacting are ‘related’ – that is, where any two marketparticipants interacting or transacting are the same company, are part of the same

group, or share the same parent company, for example: the incumbent wholesaler and incumbent retailer within a region; or

an incumbent retailer and a new entrant retailer that are part of the same group orshare the same parent organisation.

However, we recognise that in some circumstances this recommendation may imposea cost burden on water companies – for example, if an incumbent water company hasintegrated metering IT systems it may be prohibitively expensive to replace these withretailer-specific systems and wholesaler-specific systems.

We also recognise that there will be circumstances where services, interactions andagreements between market participants are ‘non-standard’ – for example, financiallysettling a complex site-specific demand-side management agreement. In such cases,we recommend that these should be managed bilaterally by market participants, andnot making use of MO services. During detail design, Open Water will seek to definespecific non-standard services and interactions, which we recommend to be managedbilaterally.

We recommend that Ofwat put in place a process to allow market participants torequest dispensation from any requirement to interact through the MO in circumstanceswhere the parties interacting are related, and/or where services, interactions andagreements are considered to be ‘non-standard’.

4.3.4 Upstream market arrangements

Sometime after 2019, a new upstream market for water and sewerage will beintroduced in England. High-level design for the market has not been carried out yet,but at the simplest level this can be considered as enabling new entrants to providecommodity services – the abstraction and treatment of water, and the treatment anddisposal of sewage – making use of the wholesalers’ networks.

Figure 5: Water and sewerage supply chains and non-household market arrangements in England

following upstream competition

While the high-level design is yet to be complete, the intent of Government policy isthat the market would operate on a bilateral basis, meaning that retailers would

contract directly with commodity providers or wholesalers for commodity services, andwholesalers for network services.

Water andSewerage

Companies

- Phase 1


RetailCollection &


& Sludge)Disposal

BusinessCustomers

Water Supply Chain


Abstraction

BusinessCustomers

Wholesalers

Retailers


Water andSewerage

Companies

- Phase 2BusinessCustomers

Retailers


Wholesalers

Commodity Providers



31

The table below provides an indication of where responsibility may lie for thesefollowing the introduction of upstream competition for those items previously defined asbeing wholesale activities.

Commodity provision activities

(from commodity providers or

wholesalers)

Network operation activities

(from wholesalers)

Commodity

provision

Water abstraction

Water storage

Water treatment

Sewage treatment and disposal

–

Networkprovision

– Network ownership

Network maintenance

System operation

Scientific services

Metering – Determining meter functionality


Meter installation, maintenance

and repair

Meter ownership

Disconnections

and

reconnections

– Disconnection and reconnection

site activity

Some of the present market arrangements, notably the WSL combined supply licencearrangements, are in essence providing upstream competition today, and will continueto be permitted post-April 2017. This introduces a challenge regarding how thesearrangements are managed before the full introduction of upstream competition.

Our intended approach for addressing this challenge is as follows.

In April 2017, deliver a retail market defined as being where the retailer is procuringwholesale services from one wholesaler per product and does not procure thecommodity and network operation services from separate parties.

Require that any upstream agreements – that is, where the commodity and networkoperation services are being provided by differing parties, existing before the fullintroduction of upstream competition – be managed outside of the market on abilateral basis.

We discuss the implications of this for the WSL framework in section 4.6 .

We do not consider upstream market design in this retail market blueprint, and allsubsequent sections relate only to the introduction of retail competition.



32

Consultation questions:

We are seeking your views on the recommendation that registration and customer

switching should be at the service type level in the registration and switching strategy.

We are seeking your views on the recommendations regarding the scope of services

provided by a new MO in the registration and switching strategy, f inancial settlement

strategy, the market operator target operating model, and the systems architecture and

data model.

BP 4a: Do you agree with the recommendation to Ofwat that for ‘standard’ services,

agreements and interactions, all market participants should be required to make use of

the MO’s services?

BP 4b: Do you agree with the recommendation to Ofwat that market participants

should be allowed to request dispensation from any requirement to interact through the

MO in circumstances where: the parties interacting are related; and/or where services,interactions and agreements are considered to be ‘non-standard’?

4.4 Evolution of WaSC and WOC arrangements

4.4.1 Evolution for WaSC and WOC companies

There are currently ten vertically integrated, regional monopoly WaSCs and ninevertically integrated, regional monopoly WOCs. With the introduction of retailcompetition, the role of the WaSC/WOC will change and new interactions will beintroduced. We illustrate this in the diagram below.

Figure 6: Water and sewerage supply chains and evolution of WaSC/WOC roles in England

WaSCs and WOCs will continue to provide both retail and wholesale functions withintheir areas of appointment, but a level of separation will be required between retail andwholesale functions17. This is indicated in Figure 6 as the ‘Incumbent Wholesaler’ and‘Incumbent Retailer’ roles. The obligations set out in legislation and licences whichWaSCs and WOCs have will continue. WaSCs and WOCs will need to continue tosatisfy themselves that they are complying with their licence obligations and otherstatutory obligations.

17 Ofwat is currently consulting on the level of separation required or that the water companieshave proposed.

WaSC/WOCRoles &

Interactions- 2017


RetailCollection &


& Sludge)Disposal

BusinessCustomers

Water Supply Chain


Abstraction

BusinessCustomers

Incumbent Wholesalers

Incumbent Retailers


WaSC/WOCRoles

- Today

Water and Sewerage Companies (WaSCs)and

Water only Companies (WoCs) BusinessCustomers

Competitive Ret. Arm

Net Entrant Retailers



33

While shown as separate elements, these could be the same company. WaSCs andWOCs will be required to continue providing an incumbent retail service, and cannotvoluntarily exit from the market.

WaSCs and WOCs may also choose to set up their own competitive retail arm, seekingto acquire customers outside of their area of appointment, and with the probableremoval of the in-area trading ban, within their area of appointment18.

As incumbent wholesalers, WaSCs and WOCs will be required to provide wholesaleservices to:

their own retail businesses (incumbent and competitive);

any new entrant retailers; and

any self-supply licensees, on a non-discriminatory basis.

Ofwat is currently consulting with stakeholders to understand how the WaSCs andWOCs plan to separate their retail and wholesale functions. We are expecting a variety

of proposals to be made, ranging from limited functional separation through tocompanies creating separate retail and wholesale business units enabled bycompletely separate systems, processes and staff. As such, the market design asproposed seeks to support all such possibilities.

Central to the success of the market will be the provision of a level playing field. Insection 4.3.3 we set out a recommendation to Ofwat that market participants should berequired to make use of the MOs services. In the case of WaSCs and WOCs thisrecommendation includes using the MO services in relation to supporting interactionsbetween the incumbent wholesaler, incumbent retailer, and/or competitive retail arm.

4.4.2 Evolution for WaSC and WOC served customers

Most non-household customers that are served by WaSCs and WOCs do not currentlyhave a contract, and they will be allowed to change retailer from 1st April 2017. A smallnumber of customers do have contracts or are served under special agreements. Forthese customers, Ofwat have advised through the price control process that suchexisting agreements should be split into a wholesale element and a retail element19,thus enabling the customer to be able to change retailer from 1st April 2017.

Customers will be able to choose their retailers for water and sewerage services. Werecommend that the base unit for all switching activity should be the service type atindividual premises. This is explained further in Section 4.3.1

On retail market opening, WaSC and WOC customers will continue to be served by the

incumbent WaSC/WOC retailer(s) until such time that they choose to change.

18 The Enterprise and Regulatory Reform Act 2013 repealed the legislation relating to the in-area trading ban. Ofwat’s level playing field discussion document(http://www.ofwat.gov.uk/competition/review/pap_tec201309levelplayingfield.pdf ) proposes toremove the in-area ban condition in the licence of each retailer related to an incumbent by April2015.

19 Preparing business plans for the 2014 price review – retail questions and answershttp://www.ofwat.gov.uk/pricereview/pr14/pr14publications/prs_web20131114businessplanqa.pdf

http://www.ofwat.gov.uk/competition/review/pap_tec201309levelplayingfield.pdf



http://www.ofwat.gov.uk/pricereview/pr14/pr14publications/prs_web20131114businessplanqa.pdf








34

4.5 Evolution of NAV arrangements

4.5.1 Evolution for NAV companies

There are currently five NAVs operating in England. Their arrangements will evolve inexactly the same manner as for a WaSC or WOC, as described in detail in section 4.4 . In summary, the changes for NAVs are that:

they will continue to provide wholesale and retail services within their area ofappointments;

the obligations set out in legislation and licences which NAVs have will continue,and they will need to continue to satisfy themselves that they are complying withthem;

they will be required to provide wholesale services on a non-discriminatory basis tothe customer ’s chosen retailer; and

we recommend that NAVs should be required to interact with other marketparticipants and between their own retail and wholesale functions through the MO.We recommend that Ofwat put in place a process to assess requests fordispensation from the requirement for communications between related marketparticipants to go through the MO.

4.5.2 Evolution for NAV served customers

Most non-household customers who are served by NAVs do not currently have acontract, and they will be allowed to change retailer from 1st April 2017. A small numberof customers do have contracts or are served under special agreements. For thesecustomers, we recommend that such existing agreements are split into a wholesale

element and a retail element, to enable the customer to be able to change retailer from1st April 2017.

Our recommendations regarding their choices and constraints as to what services theycan switch are exactly the same as for a customer of a WaSC or WOC, and aredescribed in detail in section 4.4 .

On retail market opening, NAV customers will continue to be served by the incumbentNAV retailer until such time that they choose to change.

4.6 Evolution of WSL arrangements

4.6.1 Evolution for WSL companies

The WSL arrangements currently comprise a retail only framework and a combinedsupply framework, which in itself contains two different upstream arrangements. Withthe introduction of retail competition, the role and interactions of the WSL will changeand new interactions will be introduced, as shown and described below.



35

Figure 7: Water and sewerage supply chains and evolution of WSL retail only roles in England

The WSL retail only arrangements will evolve directly into the new retail marketarrangements. WSL retailers and will become what we refer to as new entrant retailerselsewhere in this document. In 2014 we expect Defra and Ofwat to provide guidanceas to whether existing WSL retailers will have to apply for new water licences. With theappropriate authorisations they will also be able to retail sewerage services.

We recommend that f or ‘standard’ agreements and interactions, market participantsshould be required to make use of the MO’s services described in section 4.3.3 – forexample, passing messages to each other through the MO and the MO determining thefinancial payments due between parties.

As the WSL framework is already in operation there will likely be existing contracts withcustomers that extend beyond the opening of the new retail market, and supporting

these, legacy agreements between retailers and wholesalers. We recommend that ifthe MO can perform its functions for these legacy agreements, such as determining thefinancial payments due between parties, without incurring incremental developmentcosts, then it should be a requirement that these MO services are used. If the MOcannot do so, then we recommend that these agreements should be considered as‘non-standard’ and should be managed bilaterally by market participants.

Figure 8: Water and sewerage supply chains and evolution of WSL Combined Supply roles in England

The WSL combined supply licence arrangements will be unbundled into two elements,a retail element and an upstream element, and there will be no additional constraints

placed on entering into new combined supply agreements/upstream agreements in thelead up to or after retail market opening.

WSL Roles &Interactions

- 2017


RetailCollection &Transportation

Treatment (Sewage& Sludge)

Disposal

BusinessCustomers

Water Supply Chain


Abstraction

Business

Customers


- Today

(Water Only)BusinessCustomers

WSL Retail OnlyLicenseeUndertaker

New Entrant Retailer Incumbent Wholesaler


- 2017


RetailCollection &


& Sludge)Disposal

BusinessCustomers

Water Supply Chain


Abstraction

BusinessCustomers


- Today

(Water Only)BusinessCustomers

WSL Combined Supply Licensee WSL Comb. Supp. Lic.Undertaker

Secondary Undertaker WSL Comb. Supp. Lic.Primary Undertaker

WSL Combined Supply Licensee New Entrant Retailer Undertaker

Secondary Undertaker New Entrant Retailer Primary Undertaker

Outside of retail market design



36

The retail element will be managed in the same way as the retail only arrangements(see above in this section).

The upstream element introduces a challenge regarding how these arrangements are

managed before the full introduction of upstream competition. Our approach foraddressing this challenge is as follows.

In April 2017, deliver a retail market defined as being where the retailer is procuringwholesale services from one wholesaler per product and does not procure thecommodity and network services from separate parties.

Require that any upstream agreements – that is, where the commodity and networkservices are being provided by differing parties, existing before the full introductionof upstream competition – be managed outside of the market on a bilateral basis.

As such, managing the upstream element of existing and new WSL combined supplyagreements will be outside the scope of the retail market. Practically, we recommendthat what this means is that while the service points served under such an agreementwill need to be registered with the market, the financial settlement and managing ofoperational services should have to be administered bilaterally between the relevantmarket participants.


BP 4c: Do you agree with the recommendation that service points served under a WSL

combined supply agreements should be registered with the market, but that the

financial settlement and managing of operational services should have to be

administered bilaterally between the relevant market participants, until the introduction

of full upstream competition in 2019 or later?

4.6.2 Evolution for WSL served customers

There will be no additional constraints placed on customers entering into WSLagreements before retail market opening in April 2017, and WSL agreements enteredinto prior to this will be valid until the end of the contract, even if that extends beyond April 2017.

Non-household customers that are served by WSLs by definition can change retailernow, and will continue to be allowed to change retailer after 1st April 2017, subject toany exit penalties in their existing contract. We recommend that their choices andconstraints as to what services they can switch after 1st April 2017 are exactly the same

as for a customer of a WaSC or WOC, as described in detail in section 4.4 .

4.7 Evolution of private supply, on-site disposal, andself-supply arrangements

4.7.1 Private water supplies

A number of customers have private water supplies such as on-site bore holes. Localauthorities regulate these arrangements and customers can choose which companiesthey engage with to provide such services.

There will be no change to these arrangements with the introduction of the new retail

market, and private water supplies will be outside of the scope of the retail market.



37

4.7.2 On-site sewerage disposal

A number of customers have on-site sewerage storage and treatment such as septictanks. The Environment Agency regulates these arrangements and customers canchoose which companies they engage with to provide such services.

There will be no change to these arrangements with the introduction of the new retailmarket, and on-site sewerage storage and treatment will be outside of the scope of theretail market.

4.7.3 Introduction of self-supply arrangements

From April 2017, customers may if they wish choose to self-supply. So, instead ofpurchasing water and sewerage from a retailer they will be able to purchase directlyfrom the wholesaler. In essence, they become a retailer, but one which can only supplytheir own site(s) or those of their associate(s).

If a customer chooses to become a self-supply licensee, they will be subject to many ofthe same regulations and requirements as a retailer, but we will seek to ensure thatthese requirements are proportionate.

We recommend that for ‘standard’ agreements and interactions self -supply customersshould be required to make use of the MO’s services as described in section 4.3.3 – for example, passing messages to each other through the MO and the MO determiningthe financial payments due between parties. As we develop the detailed design of theMO we will seek to ensure that self-supply customers can interact in a mannerproportionate to their circumstance and scale.



38


trade effluentKey recommendations made in this chapter

Consents and permits: The wholesaler should grant consents, and they should

continue to relate to the premises and occupier, and not the retailer. The customer

should be required to apply for the consent through their chosen retailer of trade

effluent services. Incumbent retailers will be obliged to offer a consent application

handling service, and new entrant retailers should be permitted to choose whether they

offer this service.

The wholesaler should not be permitted to communicate with the customer directlyduring the application process, except on matters related to compliance and

enforcement.

The Environment Agency (EA) will continue to grant permits for discharge into the

watercourse, and the customer will be required to interact directly with the EA.

Charging: The wholesaler should charge the retailer, and the retailer should charge

the customer, adding in a retail margin. The standard billing frequency and payments

terms should be as for other sewerage services.

Compliance and enforcement: The undertaker will continue to have an obligation to

take and analyse samples of waste discharged from premises to ensure compliancewith consents, and we recommend that this is a wholesaler responsibility.

If the retailer requires additional sampling and analysis for the purposes of customer

billing, we recommend that this should be the responsibility of the retailer. However,

they should have choice over who they contract with to do this work, but the wholesaler

should be required to offer their trade effluent sampling and analysing services on a

reasonable and non-discriminatory basis.

Existing agreements: Customers with existing trade effluent agreements will be

allowed to change retailer from 1st April 2017. On retail market opening these

customers should continue to be served by the incumbent WaSC retailer until such

time that they choose to change. Existing trade effluent charging agreements should besplit into a wholesale element and a retail element (margin).


The current market arrangements for trade effluent in England and Wales can beconsidered against four main activities:

consenting;

treatment;

charging; and compliance and enforcement.



39

A consent and/or permit are required to discharge trade effluent. WaSCs areresponsible for administering and granting of consents while the Environment Agencyis responsible for administering and granting of permits. All trade effluent consents

granted by a WaSC are available on a public register.The customer producing trade effluent has different options for treating it, which requiredifferent consents and permits. It can be:

discharged into the foul sewer, requiring a consent from the WaSC;

treated on-site to reduce its strength, typically by a contractor appointed by thecustomer, and then:

o discharged into the foul sewer, requiring a consent from the WaSC;o discharged into the surface water or ground water, requiring a permit from

the Environment Agency; oro pumped or tankered to a sewerage treatment works, not requiring a consent

as this is not considered to be trade effluent; or

tankered and then treated off-site by a contractor appointed and paid by thecustomer. The contractor is then responsible for the trade effluent and can disposeof it using either of the two options above. In such cases, the trade effluentcontractor is considered the customer of the WaSC and is responsible for applyingfor any consent and/or permits.

The WaSC charges the customer for trade effluent based on the volume and strengthof waste discharged, and whether it is discharged into the sewer or directly into thetreatment works. This is typically done using a standard formula, the “Mogden formula”,with regional variations between WaSCs.

To ensure compliance with the consent, WaSCs take and analyse samples of wastedischarged from premises. They have a variety of enforcement options available to

them for non-compliance. Additional samples may be taken for the purposes of chargecalculation and billing.

As with all sewerage services, customers cannot change their retailer for trade effluentservices, although if the customer makes use of a trade effluent contractor, then achoice of providers exists.


The market arrangements for trade effluent in Scotland can be considered against thesame four key activities as in England and Wales. However, because of the presenceof non-household retail competition, how these activities are performed differs to

England and Wales.The wholesaler, Scottish Water, grants the consents, but the customer is required toapply for the consent through their current sewerage services retailer. The wholesalerwill not communicate with the customer directly, except on matters related tocompliance and enforcement. In such circumstances, the retailer is invited to anymeetings between the customer and the wholesaler and copied into correspondence. All trade effluent consents granted by Scottish Water are available on a public register.

The options for treating trade effluent are almost identical to those in England andWales, although the parties the customer has to interact with are different. Therefore, itcan be:

discharged into the foul sewer, requiring a consent from Scottish Water; treated on-site to reduce its strength, typically by a contractor appointed by the

customer, and then:



40

o discharged into the foul sewer, requiring a consent from Scottish Water;o discharged into the surface water or ground water, requiring a permit

from the Scottish Environmental Protection Authority (SEPA); oro

pumped or tankered to a sewage treatment works, not requiring aconsent as this is not considered to be trade effluent; or

tankered and then treated off-site by a contractor appointed and paid by thecustomer. The contractor is then responsible for the trade effluent and can disposeof it using either of the two options above. In such cases, the trade effluentcontractor is considered the customer of Scottish Water and is responsible forapplying for any consent and/or permits.

As is the case in England and Wales, charging is based on the split Mogden formula.However, it is the sewerage retailer that carries out the charging. The CMA determinesthe charge and informs the wholesaler, who then charges the retailer. The retailer thencharges the customer, adding in a retail margin on top of the wholesale charge. Billingfrequency and payment terms for trade effluent are the same as those for othersewerage services.

To ensure compliance with the consent, the wholesaler takes and analyses samples ofwaste discharged from premises. The results of samples are sent to the retailer andcustomer, through a portal and via letter. Scottish Water is not required to notify theretailer or customer prior to carrying out a sampling visit. The responsibilities withregard to ensuring compliance are often described as the wholesaler acting as the“policeman” and the retailer acting as the “customer’s advisor”.

Customers can change their retailer for sewerage services, which encompasses theprovision of trade effluent services. A customer cannot have separate retailers for tradeeffluent and other sewerage services (foul water and surface water drainage) for the

same premises.

5.3 Future market arrangements in England for newconsents and agreements

5.3.1 Trade effluent market arrangements

Our recommended market arrangements for trade effluent in England are similar tothose implemented in Scotland, with a few nuanced differences to reflect some uniquecharacteristics of the English market.

We recommend that the wholesaler grant consents that will continue to relate to the

premises and occupier, and not the retailer. The customer should be required to applyfor the consent through their present or chosen trade effluent services retailer (orthrough their sewerage services retailer if their trade effluent is not discharged into aseparate service point). Incumbent retailers will be obliged to offer a consentapplication handling service20, and new entrant retailers should be permitted to choosewhether they offer this service.

The wholesaler should not be permitted to communicate with the customer directlyduring the application process, except on compliance and enforcement matters. The

20 Undertakers currently have an obligation to manage how trade effluent consents are granted.

This obligation will continue, and we recommend that the obligation to administer applicationssits with the undertaker’s retail business, and that the obligation to assess applications andgrant trade effluent consents sits with the undertaker’s wholesale business.



41

requirement for wholesalers to make granted consents available on a public registershould remain. At this time, we are unclear as to whether any standardisation ofregisters or sharing of access to registers through market data flows and processes is

required to enable effective switching, and we will consider this in future phases ofwork.

The EA will continue to grant permits for discharge into the watercourse, and thecustomer should be required to interact directly with the EA.

Ofwat’s price control work will define how charges are determined, including the levelof regional variation. In section 5.3.2 we discuss the potential role of the MO indetermining the charges due.

We recommend that roles and responsibilities for trade effluent charging should be thesame as the Scottish market, with the wholesaler charging the retailer, and the retailerthen charging the customer, adding in a retail margin on top of the wholesale charge.The standard billing frequency and payments terms should be the same as for other

sewerage services, and are explained further in section 8.3 . Our recommendedapproach for circumstances where measurements are required from customer-ownedmeters or sub-meters for the purposes of determining trade effluent charges, will bedefined as part of Open Water’s metering strategy work scheduled for early 2014.

As is the case in Scotland, to ensure compliance with the consent the undertaker willcontinue to have an obligation to take and analyse samples of waste discharged frompremises, and we recommend that the wholesaler is responsible for this. The detail ofthe interactions between the wholesaler, retailer and customer, such as whether theretailer is advised of compliance visits before they occur, will be developed as part ofdetailed market design work.

If the retailer requires additional sampling and analysis for the purposes of customerbilling, we recommend that these should be the retailer’s responsibility. They should beable to choose who they contract with to do this work, but we recommend that thewholesaler should be required to offer their trade effluent sampling and analysingservices on a reasonable and non-discriminatory basis.

Customers will be able to change their retailer for trade effluent services, and werecommend that they can do this independently of their retailer for other sewerageservices. This is explained further in Section 4.3.1

5.3.2 Role of the market operator in trade effluent

In section 4.3.3 we outlined the services we recommend to be provided by a new MO

in relation to water and sewerage. Our default design recommendation is that theservices that the MO provides should be used for all contestable products and servicesin the non-household market. However, for trade effluent we think that, because of thebespoke and site-specific nature of the agreements, it may be appropriate for:

some or all communications to be considered as ‘non-standard’ and accordinglycommunicated directly between retailers and wholesalers and not through the MO;and

the calculation of charges due to be considered as ‘non-standard’ and accordinglydetermined by the wholesaler and not by the MO.

We will carry out more work on this in early 2014 and share our conclusions in duecourse.



42


BP 5a: Do you agree with the recommendation that customers should be required to

apply for trade effluent consents through their chosen retailer of trade effluent

services?

BP 5b: Do you agree with the recommendation that new entrant retailers should be

permitted to choose whether they offer a trade effluent consent handling service?

BP 5c: Do you agree with the recommendation that wholesalers should not be

permitted to communicate with the customer directly during the consent application

process, except on matters related to compliance and enforcement?

BP 5d: Do you agree with the recommendation that the customer should be required to

interact directly with the Environment Agency to obtain a discharge permit?

BP 5e: Do you agree with the recommendation that trade effluent billing frequency and

payment terms should be the same as for other sewerage services?

BP 5f: Do you agree with the recommendation that if the retailer requires additional

sampling and analysis for the purposes of customer billing (beyond that required for

compliance and enforcement) this should be the responsibility of the retailer?

BP 5g: Do you agree with the recommendation that wholesalers should be required to

offer their trade effluent sampling and analytical services to retailers on a reasonable

and non-discriminatory basis?

5.4 Future market arrangements in England for existingconsents and agreements

Customers’ existing consents will continue and any expiry date they may have will notchange as a result of the introduction of retail competition.

Non-household customers with existing trade effluent agreements will be allowed tochange retailer from 1st April 2017. On retail market opening these customers shouldcontinue to be served by the incumbent WaSC retailer until such time that they chooseto change. We recommend that existing trade effluent charging agreements should besplit into a wholesale element and a retail element (margin). The customers chosennew trade effluent retailer should pay the wholesaler on the basis of the wholesaleelement.


BP 5h: Do you agree with the recommendation that existing trade effluent charging

agreements should be split into a wholesale element and a retail element (margin)?



43


developer servicesKey recommendations made in this chapter:

Roles in the developer services market: We recommend that developers interact

with ‘retailers of developer services’, and that the following organisations should be

able to enter this market: incumbent non-household retailers of water and/or sewerage

(with an obligation to provide such services); new entrant water and/or sewerage

retailers. and new entrant specialised developer service only retailers such as SLOs or

developers themselves.

We recommend that Ofwat consider how to enable SLOs and developers to act as aretailer of developer services without them being a water and/or sewerage services

retailer, with suitable controls and governance (such as accreditation), but without

undue burden or complexity (such as licensing).

We recommend that retailing of developer services to a developer should be a

separable service to that of retailing water and sewerage services.

Administration and customer service activities: The retailer of developer services

should be responsible for administration and customer service related to developer

services, irrespective of whether the development is household, non-household or

mixed.

The retailer of developer services, and not the wholesaler, should be responsible for

registering new premises, service points, and services.

Planning, design, and engineering works: Responsibilities and options to use SLOs

and contractors will remain unchanged. Interactions between the developer and

wholesaler should be through the retailer of developer services.

Payment handling: All payments, irrespective of whether they are from the developer

or to the developer, should be managed through the retailer of developer services.

If the option for payments related to developer services take the form of repayment

over a period of up to 12 years remains, the developer should not be permitted to

change the retailer of developer services with which they interact for a particular

agreement during the repayment period.

Completed and in-progress developments: For developments that are part-way

through to completion, and for charging arrangements and financial payments being

made which relate to developments completed before 1st April 2017 but where the

payment schedule extends beyond 1st April 2017, the relationship should transfer on

1st April 2017 to the incumbent non-household retailer.

The developer should not be permitted to switch to another retailer of developer

services for payment arrangements related to completed developments.



44

Throughout this document, ‘developer services’ refers to services to provide theinfrastructure needed to connect new premises to a water supply and/or sewerageservices, and/or to make new service points and/or services available at existing

premises. This encompasses developments of all sizes – for example, from connectinga single house through to building a number of premises and associated infrastructureas part of a regeneration scheme. It includes developer service activities from pre-planning through to when customers are able to start using water and sewerageservices.

While the scope of Open Water and this market blueprint is clearly defined as being fornon-household customers only, it is impossible to develop effective developer serviceproposals without considering the household market, especially because of thecomplexities associated with mixed-use developments. As such, and for completeness,we present the present and recommended future market arrangements for household,non-household and mixed-use developments.


For the purposes of this market blueprint, we define and refer to the followingdeveloper services activities.

Type of activity Activity

Administration and customer

service

Providing developer information

Administering applications

Registering new service points

Planning and designPre-planning

Engineering design

Engineering works

Engineering project management

Installing on-site mains and sewers

Installing off-site mains and sewers

Connecting new mains and sewers to live mains

and sewers

Connecting premises to live mains and sewers

Reinforcing upstream infrastructure

Inspection and adoption

Payment handling Making payments for engineering works

In the current English and Welsh markets, responsibilities and processes for developerservices are the same for household, non-household, and mixed-use developments.

6.1.1 Administration and customer service

All administration and customer service is carried out by the developer with theincumbent (i.e. the WaSC, WOC and/or NAV).



45

6.1.2 Planning and design

Carrying out pre-planning work, such as assessing if there are any capacity constraintson a proposed new development, is non-contestable and the responsibility of theincumbent.

Carrying out engineering design work is contestable. Incumbent companies are obligedto offer to undertake these works using current legal and regulatory procedures, anddevelopers may choose whether to use either of the following.

For water: the incumbent water company or a Self Lay Operator (SLO). SLOs areunregulated, but must be accredited to perform these works.

For sewerage: the WaSC, NAV or a contractor of their choice.

If the developer uses an SLO or contractor to perform engineering design, theincumbent water company is responsible for reviewing and signing off this work.

6.1.3 Engineering works

Responsibility and options for performing of engineering works are as follows.

For water: all activities except connecting new mains to live mains are contestable.For contestable activities, developers may choose whether to use the incumbent oran SLO.

For sewerage: all activities are contestable and developers may choose whether touse the WaSC, NAV or a contractor of their choice.

Incumbent companies are obliged to offer to carry out these works using current legaland regulatory procedures.

Once engineering works have been completed, the incumbent company is responsiblefor inspecting the works before adopting them. Regardless of who carries out theengineering works, the incumbent water companies ‘adopt’ the new infrastructure andhave enduring ownership of the new assets, and incumbent sewerage companiesadopt most but not all of the new infrastructure.


If the incumbent company carries out the works, then the developer may be required tomake payment to them. Similarly, if the developer/SLO carries out the works, then theincumbent company may need to make payment to them. The amount due is based onthe cost of works with adjustment for expected future income from the newly-connected

premises. Payments from the developer to the incumbent company may take the formof a one-time payment, or repayment over a period of up to 12 years, and paymentsfrom the incumbent to the developer/SLO are one-time based only.


Developer services in Scotland encompass the same activities as for the English andWelsh markets. However, there are a number of important differences regardingmarket responsibilities and processes. We describe these below.


For household developments, Scottish Water is responsible for administration andcustomer service.



46

For non-household developments, the retailer is responsible for administration andcustomer service. Retailers are not obliged to offer this service. Scottish Water chargesretailers an administration fee for handling an application and retailers pass this charge,

plus a retail margin, onto developers.For mixed-use developments, a single application for technical approval is submitted,with the appropriate process (household or non-household) determined on a site-specific basis depending on predominant property type planned for the completed site. Applications for individual connections on the site will then be submitted through thehousehold or non-household process depending on the property type.

For all types of development, the developer must interact directly with Scottish Water inrelation to any upstream reinforcement which may be required.

Scottish Water is responsible for registering the new service points in the market whenconnection to the mains network is complete. The service point is then assigned to theretailer handling the application to bring the customer into charge.

6.2.2 Planning and design

Undertaking pre-planning work is non-contestable and the responsibility of ScottishWater.

The developer is responsible for engineering design. They may carry out workthemselves, or may appoint a utility connection provider (UCP)21 or other appropriateparty.


The developer is responsible for engineering works. They may carry out this workthemselves, or appoint a UCP or other appropriate party.

Physical connections of either new mains and sewers or new premises to the existingwater and sewerage networks are contestable. The developer can make use of eitherScottish Water or a UCP to carry out this work.

All new mains and sewers (on- or off-site), which are to be adopted by Scottish Water,must be laid by a UCP acting on behalf of the developer. Scottish Water hasresponsibilities in relation to inspection of infrastructure prior to adoption.


Once they have been built, Scottish Water typically adopts those new assets that aresited on a public road or footpath.

For non-household developments, Scottish Water charges the retailer, which then inturn charges the developer cost plus a retail margin. Payments for householddevelopments are made directly from the developer to Scottish Water. Payments for alldevelopments are only ever one-time based.

21 UCPs are accredited by the Water Industry Regulations Scheme (WIRS).



47

Type of

activity

Activity Household development Mixed-use development Non-household

developments

Administration

and customerservice

Providing developer

information

Developer direct to

Scottish Water

For connection of new mains serving both household and

non-household premises to live mains: application of

technical approval for entire site either through the non-

household retailer or directly to Scottish Water, decided on

a site-by-site basis depending on predominant property

type.

For connection of non-household premises and new mains

only serving non-household premises to live mains:through non-household retailer.

For connection of household premises and new mains

only serving household premises to live mains: developer

direct to Scottish Water.

For upstream works: developer direct to Scottish Water.

Through non-household

retailer 22

Administering

applications

Registering new

service pointsScottish Water

Planning and

design

Pre-planning Scottish Water

Engineering design Responsibility of developer through use of a UCP or other appropriate party

Engineering

works

Engineering project

managementResponsibility of developer through use of a UCP or other appropriate party

Installing on-site

mains and sewersResponsibility of developer through use of a UCP

Installing off-sitemains and sewers Responsibility of developer through use of a UCP

Connecting new

mains and sewers to

live mains and sewers

Carried out by Scottish Water at regulated price or by any UCP acting on behalf of the developer

22 Retailer not obliged to offer this service. The wholesaler charges the retailer an administration fee, who passes this onto customers.



48

Type of

activity

Activity Household development Mixed-use development Non-household

developments

Connecting premises

to live mains and

sewers

Carried out by Scottish Water at regulated price or by any UCP acting on behalf of the developer

Reinforcing upstream

infrastructureCarried out by Scottish Water at regulated price or by any UCP acting on behalf of the developer

Inspection and

adoptionInspection carried out by Scottish Water (not all infrastructure adopted)

Payment

handling

Making payments for

engineering works

Scottish Water charges

developer directly

For applications through non-household retailer: Scottish

Water charges retailer, retailer charges cost plus margin to

developer.

For all other works: Scottish Water charges developer

directly.

Scottish Water charges

retailer, retailer charges

cost plus margin to

developer



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6.3 Future market arrangements in England for newdevelopments

6.3.1 Key roles in the market

Ofwat has previously communicated23 that the market arrangements for non-householddeveloper services in England will be similar to those implemented in Scotland,whereby the retailer will be responsible for administration and customer service, andthe wholesaler will be responsible for performing engineering works. Ofwat hassubsequently clarified that “developer services, in terms of managing developer queriesand providing information to developers, should all be allocated to non-household[retailers], irrespective of whether the development is household, non-household ormixed”24.

Currently, developers in England are able to use SLOs and contractors to carry outsome engineering works and to interface between themselves and the wholesalers.Ofwat has indicated to us that to simplify the developer experience parties such asSLOs should be able to provide the same services as retailers during the developmentof a site. We recommend that such an approach is adopted.

We have taken these as inputs to the recommendations outlined below.

Figure 9: Proposed key roles for developer services

We recommend that developers interact with ‘retailers of developer services’, and thatthe following organisations should be able to enter this market.

Incumbent non-household water and/or sewerage retailers, which we recommendshould have an obligation to provide such services.

New entrant water and/or sewerage retailers, which we recommend should not havean obligation to provide such services, in order to enable retail specialisation.

New entrant specialised developer service only retailers such as SLOs ordevelopers themselves. We recommend that Ofwat consider how to enable SLOsand developers to act as a retailer of developer services without them being a waterand/or sewerage services retailer, with suitable controls and governance (such asaccreditation), but without undue burden or complexity (such as licensing).

23 Setting price controls for 2015-20 – final methodology and expectations for companies’business plans.

24 Preparing business plans for the 2014 price review – retail questions and answershttp://www.ofwat.gov.uk/pricereview/pr14/pr14publications/prs_web20131114businessplanqa.pdf

ParticipantsAnd

Choices

Developer Service

Activities

Administration andcustomer service

Engineering design& engineering

works Developers

RetailersOf Developer Services

Developers

Wholesalers

Self Lay Operators &Contractors








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To enable new entrant retailers to specialise, we recommend that new entrant retailersof services should be permitted to choose to serve segments of the market of theirchoice. For example, they could choose to serve just household developments, or just

developments of a certain scale.We recommend that providing developer services to a developer should be aseparable service to providing water and sewerage services, since developer servicesis effectively a pre-supply service. Therefore, having a developer services arrangementthrough one retailer of developer services should not preclude the developer orsubsequent occupier of new non-household premises from choosing an alternativeretailer for water and sewerage services, once the new service point has beenregistered.


As described above, administration and customer service related to developer services

should be the responsibility of the retailer of developer services, irrespective of whetherthe development is household, non-household or mixed. Developers will be able tochoose which retailer of developer services they use.

The retailer of developer services should act as the link between the developer and theparty (or parties) carrying out the engineering works, including wholesaler(s), SLO(s)and contractor(s). Where wholesalers are permitted to charge for their ownadministration efforts, we recommend that wholesalers should charge retailers and thatretailers pass this charge plus a retail margin onto developers.

Ofwat’s PR14 guidance on retail activities for developer services concluded thatretailers should be responsible for providing developer information and administerapplications. We recommend that in addition to these activities, the retailer of

developer services should be responsible for registering new service points, andinforming any relevant parties of new connections, including the:

wholesaler;

MO; and/or

household retailer.

While this recommendation is inconsistent with Scotland, we think that such anapproach is consistent with the retailer providing all administration services, andresolves issues that would arise if the wholesaler were responsible, but not for any orparts of the engineering works.

6.3.3 Planning and designFor carrying out planning and design, it is beyond the scope of the Open Waterprogramme to amend the choices a developer has regarding whether to use thewholesaler or an SLO or contractor, as described in section 6.1 .

We recommend that the party (or parties) chosen to carry out this work should interactwith the developer through the developer ’s chosen retailer of developer services, whichin turn will interact with the wholesaler where needed.

We recommend to Ofwat that wholesalers are obliged to offer to carry out these worksusing current legal and regulatory procedures.



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For carrying out engineering works, it is beyond the scope of the Open Waterprogramme to amend the choices a developer has regarding whether to use thewholesaler or an SLO or contractor, as described in section 6.1 .

We recommend that the party (or parties) chosen to carry out this work should interactwith the developer through the developer ’s chosen non-household retailer or SLO (asillustrated in Figure 9).

We recommend to Ofwat that wholesalers are obliged to offer to carry out these worksusing current legal and regulatory procedures.


Ofwat has stated25 that they will consult on charging rules for developer services.During our work on developer services, we have identified a number of issues resulting

from the introduction of retail competition which we would recommend Ofwat considerin their work, including:

whether payments between developers and wholesalers can continue to be madeon a repayment basis over up to 12 years;

how, if payments for developer services are being made over up to 12 years, theimpact of customers changing retailers will be factored into charge calculations,including for payments relating to developments that complete before marketopening in 2017;

whether, if charges for developer services are in part or whole retrospectivelydetermined based on actual site consumption, what risk (if any) is carried by thenon-household retailer, and hence whether the retail margin is defined as a

proportion of/on top of a wholesale charge, or as a fixed amount; and what costs the retailer may reasonably charge for payments due from the

wholesaler to the developer.

Irrespective of the answers, we recommend that all payments from the developer to thewholesaler should be managed through the retailer of developer services. We alsorecommend that all payments from the wholesaler to the developer should also bemanaged through the retailer of developer services. We recognise that thisrecommendation is inconsistent with Scotland, but we think that the benefits inconsistency across the two payment flow directions in England justifies theinconsistency with Scotland.

Developers will be able to choose which retailer of developer services they appoint(see section 6.3.1 ). If they agree to a repayment-over-time model with that retailer ofdeveloper services, we recommend that the developer should not be permitted to thenchange the retailer of developer services that they interact with for that repaymentagreement. We consider the initial application handling and subsequent handling ofpayments to be a single transaction, and allowing switching during the payment phasemay cause issues where the retailer of developer services is recovering the one-timecosts of application handling through a retail margin on the long-term payments. As weexplained in section 6.3.1 we recommend that providing developer services andproviding water and sewerage services should be separable, and hence this would not

25 Charging for new connections – a discussion paper,http://www.ofwat.gov.uk/competition/review/pap_tec201311newconnections.pdf

http://www.ofwat.gov.uk/competition/review/pap_tec201311newconnections.pdf





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constr ain a customer’s choice as to from where they purchase water and sewerageservices.

6.3.6 Role of the market operator in developer servicesIn section 4.3.3 we outlined the services we recommend to be provided by a new MOin relation to water and sewerage. Our default design approach is that the services theMO provides should be used for all contestable products and services in the market.However, because of the bespoke and site-specific nature of the agreements withdeveloper services, it may be appropriate for:

some or all communications related to developer services to be considered as ‘non-standard’ and accordingly communicated directly between retailers of developerservices and wholesalers and not through the MO; and

the calculation of charges due to be considered as ‘non-standard’ and accordinglydetermined by market participants and not by the MO.

We will carry out further work on this in spring 2014 and share our recommendations inearly summer 2014.

In section 6.3.2 we recommend that the retailer of developer services should beresponsible for managing registration of new service points associated with non-household premises. This would naturally require interaction with the MO in their role ofadministering the central register of contestable sites in the non-household market.


BP 6a: Do you agree with the recommendation that developers interact with ‘retailers

of developer services’, and that the retailing of developer ser vices should be a

separable service to the retailing of water and sewerage services?BP 6b: Do you agree with the recommendation that administration and customer

service related to developer services should be the responsibility of the retailer of

developer services, irrespective of whether the development is household, non-

household or mixed?

BP 6c: Do you agree with the recommendation that registration of new premises,

service points and services should be the responsibility of the retailer of developer

services and not the wholesaler?

BP 6d: Do you agree with the recommendation that interactions between the developer

and wholesaler should be through the retailer of developer services?

BP 6e: Do you agree with the recommendation that all developer service payments

should be managed through the retailer of developer services?

BP 6f: Do you agree with the recommendation that the developer should not be

permitted to change the retailer of developer services they interact with for a particular

site during the payment period?

6.4 Future market arrangements in England forcompleted and in-progress developments

The market arrangements outlined in section 6.3 r elate to development applicationsthat start after the retail market opens on 1st April 2017. However, at that point there will



53

be development applications that are still in progress, and there will be financialpayments being made in relation to developments completed in the previous 12 years.We set out our recommended approach below.

For developments that are part-way through to completion, we recommend that therelationship should transfer on 1st April 2017 to the incumbent retailer. Unless contractsbetween the developer and the incumbent company prohibit it, if the developer has notstarted to pay for services provided, the developer should be able to change the retailerof developer services with which they are interacting.

For charging arrangements and financial payments being made that relate todevelopments completed before 1st April 2017 but where the payment scheduleextends beyond 1st April 2017, whether from the developer or to the developer, werecommend that the payment handling should sit with the incumbent retailer.Consistent with our approach for repayments outlined in section 6.3 , we recommendthat the developer should not be permitted to change the retailer of developer services

with which they interact for legacy repayment agreements.Consultation question:

BP 6g: Do you agree with the recommendation that the developer should not be

permitted to switch to another retailer of developer services for payment arrangements

related to completed developments?



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subcontracted andassociated services

Key recommendations made in this chapter

Market interactions with organisations: Organisations providing subcontracted and

associated services, for example meter reading and water retailer recommendations,

should by default interact with the market and the Market Operator through the party

who they are working on behalf of / who appointed them.

Market Operator constraints: The Market Operator should not be permitted to offer

subcontracted and associated services. It should be permitted to negotiate bilateral

access agreements to Market Operator systems and market data on a commercial

basis with organisations providing such services.

In 2014 we will be undertaking work to develop our strategy and market design inrelation to parties providing subcontracted and associated value-add services to marketparticipants. In Section 7.1 below we set out our thoughts on what these services maybe, and, recognising the importance of this work to other design activities beingundertaken now, we have produced in Section 7.2 a series of working assumptions as

to the strategy and market design in this area.

In developing our assumed market arrangements we have sought to meet the followingobjectives:

Competition and choice should be maintained for existing subcontracted andassociated services; and

Competition and choice should be allowed to emerge for possible newsubcontracted and associated services.

7.1 Present and possible future subcontracted andassociated services

Retailers, wholesalers, customers and developers, in both the present and futuremarket structures, are likely to appoint agents or other organisations to act on theirbehalf. In the table below we set our thoughts on what some of the services are.



55

Working on behalf

of / appointed by

Service provided

Water and sewerage

retailers

Meter reading

Customer service (e.g. customer contact centres, billing,

payment handling)

Information technology (e.g. application development,

application maintenance)

Shadow financial settlement26 and market data reconciliation

Water and sewerage

wholesalers

Meter asset provision

Meter operations (e.g. meter installation, meter maintenance)

Operational services (e.g. pipe laying, burst rectification)

Information technology (e.g. application development,

application maintenance)

Shadow financial settlement and market data reconciliation

Customers

Bill aggregation, checking and reformatting

Water efficiency advice and on-site water use management

On-site trade-effluent treatment

Water and sewerage provider and product advice,

recommendation and procurement negotiation (e.g.

recommendation websites, outsource procurement services)

Water and sewerage provider and product brokerage and

reselling (e.g. purchasing water and reselling under analternative brand)

Developers Self-lay operational services (e.g. pipe laying, connections)

7.2 Assumed market arrangements

Considering the objectives stated at the start of this chapter, and our requirement tomaintain a deliverable scope of work, Open Water will take the following approach withrespect to subcontracted and associated services:

We will do nothing to intentionally curtail competition for existing services or prevent

competition for possible new associated services emerging; and We will do nothing to proactively increase competition for existing services, and we

will leave the creation of possible new associated services to market forces.

Our assumed market arrangements for organisations providing subcontracted andassociated services, and specifically how the interact with the Market Operator (MO)are therefore:

26 Shadow financial settlement is the activity often performed by a market participant ofreplicating the settlement calculations performed by an MO to provide assurance to themselvesthat financial charges determined by the MO are accurate.



56

Organisations providing these services should by default interact with the marketand the MO through the party who they are working on behalf of / who appointedthem27.

Organisations providing these services should not need to sign up to codes. Theparty who they are working on behalf of / who appointed them may be a codesignatory, but these parties should not need to be.

Furthermore, with relation to the MO, our assumed strategy28 is that:

The MO should not be permitted to offer the services listed in Section 7.1 . Permitting the MO to offer such services would stifle the emergence of a competitivemarket in this area.

The MO should be permitted to negotiate bilateral access agreements to MOsystems and market data on a commercial basis (with suitable controls being put inplace regarding access to market data) with organisations providing such services29. Allowing the MO to offer such services may help enable a competitive market to

emerge without materially impacting Open Water’s ability to deliver for 1st April 2017.


BP 7a: Do you agree with the recommendation that organisations providing

subcontracted and associated services should by default interact with the market and

the Market Operator through the party who they are working on behalf of / who

appointed them?

BP 7b: Do you agree with the recommendation that the MO should not be permitted to

offer sub-contracted and associated services?

BP 7c: Do you agree with the recommendation that the MO should be permitted to

negotiate bilateral access agreements to MO systems and market data on acommercial basis with organisations providing such services?

27 Future metering strategy work will consider if there is any requirement for market participantsto provide meter reading services to each other. If there is, then we will consider whether suchinteractions should make use of the MO.28 These elements have been confirmed through our work on the MO scope of services. See

section 8.9.1 f or more detail.29 Explicitly, this includes any organisations providing outsource customer services, such asBristol and Wessex Billing Services.



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8. Market strategy and high-

level design8.1 Structure of the market strategy and high-level

design

This chapter summarises the strategy and high-level design we are recommending toimplement the market arrangements. We have broken this down into 11 areas, asindicated below in Figure 10 . For each area, we summarise the recommended strategy,while a supporting strategy and high level design paper presents the recommendationsin more detail.

We are developing this work in two tranches. Those items shown in darker colours inFigure 10 have been developed and are presented in this iteration of the marketblueprint, while those in lighter colours will be developed in spring 2014 and presentedin a second iteration of this document, which will be published in early summer 2014(with the exception of work on codes architecture and market governance andperformance management strategy, which Ofwat will lead).

Figure 10: Structure of strategy and high level design papers

8.2 Registration and switching strategy

8.2.1 Customer choice when switching retailer

Customers will be able to choose their retailers for water and sewerage services. Werecommend that the base unit for all switching activity should be the service type at

individual premises. The service types in the water and sewerage markets are potablewater, non-potable water, foul water, surface water drainage, and trade effluent. As aresult, a customer would be able choose to have different retailers for each servicetype at each premises, or they may choose an offer which “bundles” services acrosstypes and premises, which we expect to be offered by retailers. The key reasons forthis recommendation30 are that it should:

promote competition and potentially provide a greater choice of retail services,innovation and specialist retailers, meeting Defra’s stated aim “to allow new entrants

30 The recommendation to manage switching at the service group level is explained in moredetail in the registration and switching strategy.

Upstream Considerations

Market Operator

Target Operating Model

Systems Architecture

& Data Model

Codes Architecture

R e g i s t

r a t i o n & S w i t c h i n g

S t r a t e g y

F i n a n c i a l S e t t l e m e n t S t r a t e g y

O p e r a t i o

n a l S e r v i c e s S t r a t e g y

M a r k

e t G o v e r n a n c e &

P e r f o r m

a n c e M a n a g e m e n t

S t r a t e g y

C u s t o m e

r C o n t r a c t s & T a r i f f s

S t r a t e g y

W h o l e s a l e C o n t r a c t s S t r a t e g y

M e

t e r i n g S t r a t e g y



58

to be able to offer specialised services” and “enable all new entrants to specialise inthe services they wish to provide” 31; and

ensure the market design is adaptable to the development of the upstream market,

through retail service alignment to upstream commodities.Where services cannot be separately delivered, measured and charged – for example,if foul water and surface water drainage are combined – then the customer should beable to choose their water retailer for all water services and sewerage retailer for allsewerage services.

A customer must meet two requirements to be able to switch their retailer. The servicethey wish to switch must be:

being supplied to a non-household premises located in the area of appointment ofan undertaker operating wholly or mainly in England; and

the customer requesting the switch should also be being directly served and billedby the current retailer (that is, not a service point subject to a sub-meteringarrangement where the end-user is paying somebody else who in turn pays theretailer).

8.2.2 Creating a central register

There will be a central register of service points in the market, which the MO will hostand maintain. The register should be principally developed from national datasets,against which incumbent water companies should be required to map their existingservice point information. The Open Water programme will prototype and pilot thedevelopment of the register with a sample of companies, so that it can be developedand made available ahead of market opening.

Market participants should all have access to this central register. Customers shouldnot be able to access the register directly – they should need to contact a marketparticipant to enquire about or take up their ability to switch and to access data aboutthe services their premises receive.

8.2.3 Customer awareness

We recommend that there should be a centralised marketing campaign to raisecustomers’ awareness of switching, complemented by retailers’ direct marketingactivities. This campaign should not be delivered by the MO, but should be enabled byOfwat and involve a range of organisations, including retailers (both new entrants andincumbents); and customer representative bodies such as the Consumer Council for

Water. As the industry’s regulator, we recommend that Ofwat should publish a public record ofcurrently licensed retailers, if possible linked to the existing Scotland on Tap website.

We recommend that the MO should not provide a retailer or tariff comparison service.We hope that new providers will emerge to provide such services to customers.

8.2.4 The switching process

We recommend that there should be a standard switching process, with minorvariations to reflect the different switch and market change scenarios.

31 Source: Water for Life – Market Reform Proposals. Defra December 2011



59

Where a customer moves to a new premises, they should continue to be served by theretailer who has been serving the customer’s service point(s) (under a deemedcontract) until the customer requests otherwise.

By requesting a new connection through a retailer a customer should be considered tohave selected that retailer and the resulting service point should be registered to them.Where service points are identified as being served but not currently billed, they shouldbe assigned to the incumbent retailer until a customer chooses otherwise.

Where service points needs to be assigned because there is not a retailer, this shouldbe as a last resort, allowing first for customer choice and market-based solutions.Where it remains necessary, service points should be assigned in line with anassignment policy agreed by Ofwat and administered by the MO, and see customersenter deemed contracts with the new retailer until they choose otherwise.

To make a switch, a customer, or a third party broker acting on their behalf, shouldmake their request to the retailer to whom they wish to switch. The new retailer should

then lead the administration of the switch and resulting communications with the MOand the customer. Brokers should not interact directly with the MO and should have tosubmit the switch request through the new retailer.

There should be a limited set of scenarios where the current retailer will have a role incommunicating with the customer during the switch process – in particular, to resolvean objection or where the customer has not initiated the switch.

The switch process should incorporate a window to allow for:

a customer cooling off period;

cancellation by the new retailer; and

objection by the current retailer after the customer’s switch request is submitted

rather than before.

There should be a defined set of reasons under which the current retailer can object toa customer’s request to switch to another retailer, and we recommend that a newretailer should be able to refuse a customer request to switch to them such thatretailers have scope to specialise in segments of the market. However, there should bea defined set of reasons why they cannot refuse to accept a switch request.

Retailers should have an enduring responsibility to serve a customer until they chooseto switch. Detailed design and Ofwat will consider in further detail what specificcustomer protection provisions are needed in the switching process – in particular,around sales and marketing activities. We recommend that the current retailer shouldbe permitted to undertake sales activity following a switch request.

There should be a maximum standard timescale for switches to take effect after theMO has been notified of the switch request. A customer should be able to select analternative date beyond this within a specified window. The objections process shouldstop the clock on this switch timescale but should have a defined escalation andarbitration route to ensure they are resolved in a timely manner and switches are notbeing ‘blocked’ for unjustified reasons.



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8.3 Financial settlement strategy

8.3.1 Products and services in settlement

All products and services provided by one market participant to another will need to bepaid for. For the purposes of the financial settlement strategy, we characterise theproducts and services into the following three groups.

Continuously delivered services where charging is volume based and either meteredor estimated, such as a metered water supply.

Continuously delivered services where charging is time based, such as a standingcharge for meter provision or unmeasured supplies.

Event-based services where charging is based on the number and type of events,such as a meter exchange.

8.3.2 Timing and frequency of settlementOfwat’s information notice published in November 201332 sets out decisions that the:

settlement period for continuously delivered services will be one calendar day; and

the billing period for all services will be one calendar month.

For all types of service, we recommend that the MO should issue initial settlementcalculations for a billing period (calendar month) five business days after the end of thebilling period, for all calculated charges due between all market participants.

For continuously delivered services, whether volume based or time based, werecommend that, following initial settlement, there should be two resettlement runs, twoand eight months after initial settlement, with full and final settlement after 13 months.

For event-based services, we recommend that there is only one settlement run, and sothe initial settlement will be the full and final settlement.

8.3.3 Payment terms and credit requirements

Ofwat’s information notice published in November 2013 sets out decisions that:

standard payment terms are 30 days from the last day of the billing period, or 15days after the invoice is deemed to be received, whichever is the later; and

a retailer needs to have either a letter of credit from a guarantor with a definedminimum credit rating, or an agreement with a wholesaler to use an escrow account.

We recommend that the credit rating requirement for standard payment terms shouldbe the minimum investment grade rating – that is, Standard & Poor’s (BBB-), Fitch(BBB-), or Moody’s (Baa3).

Future work will recommend what amount of credit should be posted by a debtor.

Market participants may negotiate non-standard payment and credit terms. In order toensure transparency and a level playing field, we recommend that there should be arequirement to publish details of such agreements and to make them available to allother market participants.

32 Available at: http://www.ofwat.gov.uk/competition/review/prs_in1321pr14paymentterms.pdf







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8.3.4 Settlement and estimation calculation approach

The charges due will be based on wholesale charges schemes.

For continuously delivered services where charging is volume based and eithermetered or estimated, reflecting that (i) the market settlement period (a calendar day) ismore frequent than meter reading for most services and service points, and that (ii)meter readings may not be available at the time of settlement, we recommend that thefollowing approach should be taken to determining the consumption value used insettlement.

Daily metered service points should use actual meter reading values. When dailymetered values are unavailable, historical service point consumption data should beused to estimate consumption.

Non-daily metered service points should use a combination of periodic meterreadings, a yearly volume estimate (YVE) and consumption profiles. Consumption

for a settlement period should be based on: interpolation between two periodic meter readings using consumption profile factors;

or

for settlement periods after the latest periodic meter reading, a combination of theYVE and consumption profile factor will be employed.

Future high-level design work will consider the process for calculating the YVE and theconsumption profiles.

8.3.5 Roles and responsibilities in settlement

The party providing the service should be responsible for determining how muchservice has been provided, including taking meter readings, and providing this

information to the MO. With respect to meter readings, we recommend that thewholesaler should be responsible for any verification of meter readings provided byretailers.

For standard agreements, we recommend that the MO should:

retain meter readings for use in settlement, and perform any necessary adjustmentor aggregation of this data required to perform settlement;

determine estimated usage in the absence of actual data; and

determine charges due between market participants.

We recommend that it should be mandatory for market participants to use these MOservices for all agreements, except for non-standard agreements where the MO

systems and processes would require change to deliver the services. In suchcircumstances, we recommend that the party providing the service should beresponsible for determining charges due.

The party providing the service is responsible for billing and collections.

Future high-level design work will recommend responsibilities for determining thequantity of credit to be posted by a retailer.

8.4 Metering strategy

This work is scheduled to start in spring 2014, and will be presented in a seconditeration of this market blueprint to be issued in early summer 2014.



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8.5 Operational services strategy

8.5.1 Services and service levels

Both wholesalers and retailers will provide operational services, and market codes willgovern the provision of these services. Wholesalers must provide operational servicesimpartially to the incumbent retailer and all new entrant retailers.

Open Water will work to describe operational services using common terminologyacross the whole market. We recommend that all operational services provided by anymarket participant in England, whether described using common terminology or not,should be catalogued centrally.

For services that are consistently defined, it would be possible to develop standardlevels of service (for example, the number of days to complete a task), and such anapproach could provide benefits in market consistency, especially for retailers and

customers. Ofwat will carry out work to consider service levels; to help inform that work,Open Water will carry out an information gathering exercise to establish how consistentservice levels already are. We recommend that once the market has opened, the MOshould collect and publish information on service performance to allow retailers tocompare and challenge wholesalers.

We recommend that market participants should be able to negotiate non-standardservices and/or service levels – for example, a given service being completed morequickly may be offered at a higher price. In order to ensure transparency and a levelplaying field, we recommend that Ofwat should consider a requirement to publishdetails of such agreements. It is likely that under current licences and competitionlegislation there would be a requirement to offer such non-standard services and

service levels in a non-discriminatory manner, and publication of details could help tofacilitate this.

8.5.2 Administering service requests and notifications

The MO should be responsible for transmitting, validating and storing all standardelectronic service requests and notifications between wholesalers and retailers. Itshould be mandatory to use this MO service.

The MO should provide the capability for transmitting and storing (but not validating)non-standard service requests and notifications, and use of this service should beoptional.

We recommend that the above should still hold true where the participants are related,unless a specific dispensation has been granted (see section 4.3.3 f or more detail onour recommendations regarding dispensations from use of MO services).

Retailers will generally be responsible for all communication with their customersregarding operational services. Where this is not the case (for example, when awholesaler is on site) the wholesaler should be required to keep the retailer informed ofany works carried out.

8.6 Market governance and performance managementstrategy

We understand that Ofwat intends to develop proposals in this area. We anticipate thiswill take place alongside the development of the second iteration of this marketblueprint.



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8.7 Customer contracts and tariffs strategy

This work is scheduled to start in spring 2014, and will be presented in a second

iteration of this market blueprint to be issued in early summer 2014.

8.8 Wholesale contracts strategy


8.9 Market operator target operating model

8.9.1 Services provided by the market operator

To enable the new retail market to function effectively, new market facilitation activities

are required, which are introduced in section 4.3.3 . For each of the facilitation activitieswe have considered whether they are best performed by the MO, or another party suchas retailers, wholesalers or the regulator. Our recommended scope of services for theMO is as follows.

Registration and switching services

The MO will administer a central register of service points in the market, and shouldmanage enquiries from market participants regarding data in the register.

The MO should be responsible for any allocation of ‘retailer -less’ service points toretailers (if Ofwat policy is to assign service points).

The MO should not provide customer advice, recommendation or providercomparisons, nor should it manage enquiries from customers regarding central

registration data.

Financial settlement services

The MO should retain the master record of meter readings for use in settlement, andperform any necessary adjustment or aggregation of this data required to performsettlement. The MO should determine estimated usage in the absence of actualdata.

The MO should determine charges due between market participants. Invoicing andpayment handling will be managed bilaterally and not by the MO.

It should be mandatory for market participants to use the above MO services for alldirect and indirect services in the market, except for non-standard agreements

where the MO systems and processes would require change to deliver the services;these should be managed bilaterally.

The MO should not be responsible for performing on-site verification of meterreadings.

Future work will recommend what role the MO should have in relation to creditmanagement.

Market governance services

The MO should administer market codes and the code modification process, providesecretariat functions to code panels and working groups, and administer accessionto codes during market entry and exit.

If the need for such services is defined in Ofwat’s forthcoming work on market

governance, the MO should carry out monitoring and reporting of market codecompliance, and have delegated authority to issue warnings and financial and non-



64

financial penalties for low-level infractions. Enforcement of significant market issuesshould not be performed by the MO.

If the need for such services is defined in Ofwat’s forthcoming work on market

governance, the MO should administer, but not arbitrate on, market disputes. The MO should produce and publish market statistics.

The MO should provide training on codes, processes and systems to marketparticipants.

Customer awareness services

The MO should not be responsible for customer awareness campaigns, and shouldnot be responsible for publishing a record of licensed retailers.

Industry data exchange services

The MO should be responsible for transmitting, validating and storing all standardmarket messages between participants. It should be mandatory to use this MO

service. The MO should provide the capability for transmitting and storage (but not

validating) non-standard electronic messages, and use of this service should beoptional.

8.9.2 Delivery model

To deliver the recommended services the MO will require a series of strategy,management, and operational functions, as well as supporting IT systems, to bedeveloped or procured. Ofwat will be carrying out work to determine how best toensure that these capabilities are delivered to the required standard and deliveringgood value. We recommend to Ofwat that:

there should be a single MO providing all of the identified services;

the following MO business capabilities should initially be in-sourced/‘built’: o MO strategy;o procurement and contractor management;o business operations; ando market governance and MO change management;

the following MO business capabilities should initially be outsourced/procured:o IT system build, operate and change; ando market operations;

the procurement process should determine if out-sourced services and systems arebest provided by one or multiple vendors.

8.9.3 Ownership and governance model

For the MO to carry out business, it will need to be established as a legal entity. Ofwatwill be carrying out work to consider what type of entity it should be, and who owns andgoverns it. We recommend to Ofwat that:

the MO should be a company limited by guarantee;

the MO should be a private sector organisation, owned by all market participants;

the MO should be governed by a Board comprising an independent Chair, a majorityof independent members, and nominated representatives of incumbent and newentrant water companies; and

Ofwat should not be an owner of the MO, and should not be a member of the MOBoard. Ofwat should control the MO through market codes.



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8.9.4 Commercial model

The cost of providing the MO services will need to be recovered and a clearcommercial model for the MO put in place. Ofwat will be carrying out work to considerwhat the appropriate commercial model is. We recommend to Ofwat that:

the MO should be a not-for-profit entity, but providers of outsourced services shouldbe permitted to make a profit;

MO funding should be on the basis of cost recovery from members/owners, withrisks not borne by outsource providers backed off to members/owners;

MO set-up costs should be paid for wholesalers, in a manner which does not imposecosts on household customers, with the split of costs proportionate to the number ofservice points each wholesaler has. If it demonstrates good value, the procurementprocess should choose proposals from vendors to finance some set-up activities,with costs recovered during market operations; and

MO operational costs should be paid for 50% by wholesalers and 50% by incumbentretailers, new entrant retailers and self-supply customers. Wholesalers’ share of thecosts should be split proportionate to the number of service points, in a mannerwhich does not impose costs on household customers. Retailers’ share of the costswill be split based on proportion of service points and wholesale charges.

8.10 Systems architecture and data model

8.10.1 Required market operator IT systems

To enable the MO to deliver the recommended services to market participants in theareas of registration and switching, financial settlement, market governance, and

industry data exchange, IT systems will be required, most notably: a registration system and database;

a meter reading preparation system, charge calculation system, and associateddatabases;

a management information/business intelligence system; and

an industry data exchange hub, including a message validation system andmessage database.

8.10.2 Industry data exchange hub interface approach

We recommend that the MO should be responsible for co-ordinating data exchangewithin the industry. To enable this, an industry data exchange (IDEX) hub should becreated, through which market participants send and receive data. Reflecting thediffering frequencies with which different market processes will be employed, and thediffering scale of market participants, we recommend that the following three types ofinterface should be implemented.

An automated interface, expected to be for machine-to-machine communication andused for transferring large volumes of data at low cost.

A semi-manual interface for participants to upload data files to and download datafiles from manually, to be used as a contingency or as a low cost alternative for newor small market entrants with lower volumes of data to be transferred.

A manual interface such as set of secure web forms to enter data into manually, tobe used as a contingency or as a very low cost alternative for new or small market

entrants with lower volumes of data to be transferred.



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8.10.3 Market data model

The recommended data model for the market, and specifically for the MO, includes:

for registration and switching, a centrally held record of premises, service points,and associated meters and market participants. We recommend that the centraldata model should not hold customer-level data;

for operational services, a centrally held record of service requests and notifications;

for metering and financial settlement, a centrally held record of meter readings,wholesale charging schemes, and derived wholesale charges.

8.11 Codes architecture

We understand that Ofwat intends to develop proposals in this area. We anticipate thiswill take place alongside the development of the second iteration of this marketblueprint.

8.12 Upstream considerations




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Appendix A: Consultation

questions and approachConsultation questions

We are seeking views in relation to the following questions posed throughout thisdocument.

BP 3a: Do you agree with the recommended scope of the English non-householdretail market?

BP 4a: Do you agree with the recommendation to Ofwat that for ‘standard’ services,agreements and interactions, all market participants should be required to make use

of the MO’s services? BP 4b: Do you agree with the recommendation to Ofwat that market participants

should be allowed to request dispensation from any requirement to interact throughthe MO in circumstances where: the parties interacting are related; and/or whereservices, interactions and agreements are considered to be ‘non-standard’?

BP 4c: Do you agree with the recommendation that service points served under aWSL combined supply agreement should be registered with the market, but that thefinancial settlement and managing of operational services should have to beadministered bilaterally between the relevant market participants, until theintroduction of full upstream competition in 2019 or later?

BP 5a: Do you agree with the recommendation that customers should be required toapply for trade effluent consents through their chosen retailer of trade effluent

services? BP 5b: Do you agree with the recommendation that new entrant retailers should be

permitted to choose whether they offer a trade effluent consent handling service?

BP 5c: Do you agree with the recommendation that wholesalers should not bepermitted to communicate with the customer directly during the consent applicationprocess, except on matters related to compliance and enforcement?

BP 5d: Do you agree with the recommendation that the customer should berequired to interact directly with the Environment Agency to obtain a dischargepermit?

BP 5e: Do you agree with the recommendation that trade effluent billing frequencyand payment terms should be the same as for other sewerage services?

BP 5f: Do you agree with the recommendation that if the retailer requires additionalsampling and analysis for the purposes of customer billing (beyond that required forcompliance and enforcement) this should be the responsibility of the retailer?

BP 5g: Do you agree with the recommendation that wholesalers should be requiredto offer their trade effluent sampling and analytical services to retailers on areasonable and non-discriminatory basis?

BP 5h: Do you agree with the recommendation that existing trade effluent chargingagreements should be split into a wholesale element and a retail element (margin)?

BP 6a: Do you agree with the recommendation that developers interact with‘retailers of developer services’, and that the retailing of developer services shouldbe a separable service to the retailing of water and sewerage services?

BP 6b: Do you agree with the recommendation that administration and customer

service related to developer services should be the responsibility of the retailer of



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developer services, irrespective of whether the development is household, non-household or mixed?

BP 6c: Do you agree with the recommendation that registration of new premises,

service points and services should be the responsibility of the retailer of developerservices and not the wholesaler?

BP 6d: Do you agree with the recommendation that interactions between thedeveloper and wholesaler should be through the retailer of developer services?

BP 6e: Do you agree with the recommendation that all developer service paymentsshould be managed through the retailer of developer services?

BP 6f: Do you agree with the recommendation that the developer should not bepermitted to change the retailer of developer services they interact with for aparticular site during the payment period?

BP 6g: Do you agree with the recommendation that the developer should not bepermitted to switch to another retailer of developer services for paymentarrangements related to completed developments?

BP 7a: Do you agree with the recommendation that organisations providing sub-contracted and associated services should by default interact with the market andthe MO through the party on whose behalf they are working/who appointed them?

BP 7b: Do you agree with the recommendation that the MO should not be permittedto offer sub-contracted and associated services?

BP 7c: Do you agree with the recommendation that the MO should be permitted tonegotiate bilateral access agreements to MO systems and market data on acommercial basis with organisations providing such services?

In addition, in other high-level design papers we are seeking views on the followingrecommendations which are repeated in this paper. If you have views on any of theserecommendations, please refer to the relevant paper for details on how to respond:

In the market operator target operating model:

The recommended scope of the English non-household retail market.

The recommended scope of services provided by the market operator related tomarket governance.

In the registration and switching strategy:

The recommendation that registration and customer switching should be at theservice type level.

The recommended scope of services provided by the MO related to registration andswitching.

The recommended scope of services provided by the MO related to customerawareness.

In the financial settlement strategy:

The recommended scope of services provided by the MO related to financialsettlement.

In the systems architecture and data model:

The recommended scope of services provided by the MO related to industry dataexchange.

Consultation approach

Please provide your responses to the above consultation questions and any othercomments you may have regarding this paper by 14 th February 2014, to



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[email protected]. We provide an accompanying template for responseson the Open Water website to help this process, which we strongly encouragerespondents to use. We will, however, accept responses in other formats if necessary.

In addition, we will be running a workshop on 29th January for representatives fromwater companies to discuss the content presented in all of the high level design papers.Details of this session have been shared with water companies, and for moreinformation please contact [email protected].










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Appendix B: Glossary of

termsFor a full glossary of terms used in this document please refer to the Open Waterprogramme Glossary of Terms, available at www.open-water.org.uk.

http://www.open-water.org.uk/






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Appendix C: Customer

expectations assessmentOpen Water has previously identified that to achieve the objectives of water marketreform it is critical to ensure that customers’ expectations of a competitive water retailmarket are understood and considered in the market design. To achieve this work hasbeen undertaken33 with the objectives of:

“Understanding what customers’ expectations are of a competitive water market;

Identifying whether customer expectations will be met through market design, or leftto market competition and innovation; and

Where the need for market design has been identified, agreeing what the Open

Water programme will deliver, what will be delivered elsewhere, and whatexpectations will not be met.”

The customer expectations defined through this work have been considered in therelevant strategy and high level design documents. As no customer expectations havebeen mapped to the market blueprint, accordingly no assessment has been carried outin this paper. Assessments are provided in the supporting individual strategy papers – for example, financial settlement and operational services.

33 Document available at: http://www.open-water.org.uk/documents/.

http://www.open-water.org.uk/documents/






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Appendix D: Working group

commentsOpen Water held a working group on the 5th November 2013 to seek feedbackregarding the recommended Market Blueprint from experts in the water industry andcompetitive utility markets.

The sentiment of the attendees was that:

The recommendations regarding market arrangements for water and sewerage,trade effluent, and subcontracted and associated services were generally endorsed. A number of refinements and challenges were suggested which have beenconsidered.

The recommendations regarding market arrangement for developer services werenot endorsed with a series of issues and opportunities highlighted. As aconsequence these recommendations have been reworked.

The working group identified and discussed a wide range of subjects. Some of the keypoints and our commentary in response are provided below. Note, many of the pointsraised were not directly related to the Market Blueprint, for example comments aboutthe governance of Open Water, and as such are not included in the information below.Points which were also raised in previous working groups, e.g. those related to themarket data model, are not presented here and readers should refer to the relevantpapers.

Working Group comments and questions Commentary

Market Scope

Debate was had regarding Highways Drainage andin particular the link to development of seweragesystems. There was general endorsement thathighways drainage is a societal cost incurred by thewholesaler, the cost of which should be recoveredthrough a “tax” on other sewerage service charges.

Accordingly we have not changed ourrecommendations in this area since the workinggroup. See Section 3.1 Comments regardingdeveloper services were considered in changesmade to developer services in Section 6.3

Market Scope

The recommendations regarding the scope of themarket were generally endorsed. (Noting the abovepoint regarding highways drainage).

Accordingly we have not changed ourrecommendations in this area since the workinggroup. See Section 3.1 .

Market arrangements for water and sewerage:switching level

There was debate regarding the pros and cons ofswitching at the premises level versus the servicepoint level.

These points have been considered in changesmastered in the Registration & Switching strategy,and supported by a new options analysis consideringat what level switching should occur. Since theworking group we have changed ourrecommendation such that switching occurs at theservice type level, e.g. a customer can switch theirfoul sewerage services and surface water drainageseparately (if they can be separately measured), butthey must purchase all services of a particular typefrom one retailer for a premises, e.g., if a customerhas three potable water supplies at one premisesthey must select a single retailer for these services.This change is reflected in Section 4.3.1 of thisdocument.



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Market arrangements for water and sewerage:customer eligibility

It was asked who decides who is eligible.

We will not be setting out more detail in high leveldesign, but Ofwat will be issuing eligibility guidanceand we would encourage Ofwat’s work on market

governance to consider a dispute process foreligibility issues.

Market arrangements for water and sewerage:definition of roles in the market

The recommendations regarding the roles in themarket were generally endorsed.

Accordingly we have not changed ourrecommendations in this area since the workinggroup. See Section 4.3 .

Market arrangements for water and sewerage: useof the Market Operator

The recommendation that use of the MarketOperators (MOs) services should be mandatory forrelated participants was discussed at length.Generally sentiment was that for financial settlementand registration and switching this was an

acceptable recommendation, but that for operationalservices this was more challenging due to the closeintegration within incumbent companies.

Since the working group Ofwat have advised us thatthey consider this a level playing field issue whichthey will provide a decision on. We maintain ourrecommendation (now to Ofwat) that use of the MOshould be mandatory for related participants. SeeSection 4.3.3 f or more detail.

Market arrangements for water and sewerage: useof the Market Operator

It was debated who should run any dispensationprocess regarding mandatory use of the MOsservices. The general suggestion was that it shouldbe Ofwat.

Since the working group Ofwat have advised us thatthey consider this a level playing field issue whichthey will provide a decision on. We now present arecommendation to Ofwat that Ofwat should run thedispensation process. See Section 4.3.3 f or moredetail.

Market arrangements for water and sewerage:evolution of market roles

The recommendations regarding the evolution ofroles in the market were generally endorsed.

Accordingly we have not changed ourrecommendations in this area since the workinggroup. See Sections 4.4 , 4.5 and 4.6 .

Market arrangements for water and sewerage:evolution for customers

The recommendations regarding customers stayingwith their present retailer until they choose to switchwere generally endorsed.

Accordingly we have not changed ourrecommendations in this area since the workinggroup. See Sections 4.4 , 4.5 and 4.6 .

Market arrangements for water and sewerage:evolution for customers

Points were raised regarding customers on existingspecial agreements and whether they would be ableto switch retailer.

Since the working group we have formed arecommendation that special agreements should besplit into a wholesale and retail element and thatcustomers on such agreements should be permittedto change retailer on market opening. See Section4.3 f or more detail.

Market arrangements for trade effluent: consenting

The recommendation that consents are granted bywholesalers but the customer contact is through the

retailer was generally endorsed, with arecommendation to clarify that the wholesaler willneed to contact the customer in certaincircumstances.

Accordingly we have modified the wording but notthe sentiment of recommendations in this area sincethe working group. See 5.3.1

Market arrangements for trade effluent: charging

The plan to consider who is responsible fordetermining trade effluent charges in 2014 wasdiscussed. Scottish attendees shared theirexperience that this has been a challenging andchanging area in their market, and that their view isthat this should be done by the MO.

We will consider this in 2014 as a discrete piece ofwork.


Potential issues where trade effluent charging is

based on sub-meters and/or customer meters wereraised.

We will consider this in 2014 as part of our MeteringStrategy.



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The recommendations regarding trade effluentcharging were generally endorsed. (Noting theabove points regarding responsibilities andmetering).

Accordingly we have not changed ourrecommendations in this area since the workinggroup. See Section 5.3.1

Market arrangements for trade effluent: complianceand enforcement

Points were raised by attendees regardingresponsibilities for sampling and analysis where thisis required for billing purposes and not forenforcement purposes.

Since the working group we have developed arecommendation that such sampling should be theresponsibility of the retailer, but that wholesalersshould make their sampling and analysis servicesavailable on a non-discriminatory basis to retailers.See Section 5.3.1

Market arrangements for trade effluent: complianceand enforcement

The recommendations regarding trade effluentcompliance and enforcement were generallyendorsed. (Noting the above point regarding

sampling for billing).


Market arrangements for developer services: rolesand activities

Points were raised regarding additional DS activitiessuch as engineering design, which are not reflectedin the recommendations.

Since the working group we have refined ourrecommendations based on these points. SeeSection 6.3.1 f or more detail.

Market arrangements for developer services: rolesand activities

It was discussed that SLOs act as the conduitbetween the developer and wholesaler all ready andas such adding in a retailer to undertake thesecustomer service type activities may be inefficient

Since the working group we have developed theconcept of the ‘retailer of developer services’, andthat (i) it should be made simple for SLOs and similarorganisations to act as a retailer of developerservices and as such compete with water retailers,and that (ii) retailing of developer services should beseparable from retailing of water and sewerageservices. See Section 6.3.1 f or more detail.

Market arrangements for developer services:administration and customer services

The options for which types of developments(household, non-household, mixed) go throughwhich type of retailer was discussed. It was generallyendorsed that all developments of all types goingthrough a single retailer was simpler for developers.

Since the working group we have changed ourrecommendations to reflect the working groupsviews. See Section 6.3.2 6.3.1 f or more detail.

Market arrangements for developer services:administration and customer services

It was raised that encouraging new entrants toprovide developer services may be challenging andmay limit competition.

Since the working group we have developed theconcept of the ‘retailer of developer services’ (seeabove). We recommend this is separable fromretailing of water and sewerage services toencourage new entrant retailers specialising indeveloper services. We have also recommendedthat incumbent non-household retailers should beobliged to provide these services, but that newentrant water and sewerage service retailers shouldnot. See Section 6.3.1 f or more detail.

Market arrangements for developer services:engineering works

The recommendations regarding developer servicesengineering works were generally endorsed.


Market arrangements for developer services:payment handling

A number of points were raised regarding the natureand determination of charges for developer services,for example whether payment over 12 years wasappropriate and how ex-post charge calculation

based on actual site consumption is to be managedin an unbundled market.

We present these points in Section 6.2.4 to Ofwat,who will be undertaking work on charging fordeveloper services shortly.



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Market arrangements for developer services:payment handling

The recommendations regarding developer servicespayment handling (that they go through the retailer)were generally endorsed.


Market arrangements for subcontracted andassociated services

Points were raised regarding meter reading as aservice, and if wholesalers had to offer meter readsfor legacy AMR reads, whether these should passthrough the Market Operator.

We will consider this in 2014 as part of our MeteringStrategy. We highlight that we have made norecommendations regarding how data from legacy AMR systems should be made available.


It was discussed whether Bristol and Wessex Billingconstituted an outsource provider and whatcomplexity this would lead to for them to interact with

the MO.

We consider BWBSL to be an outsource providerand as such our default position would be that theywould have to pass data through their parentcompany (i.e. Bristol Water and Wessex Water) whoin turn would interface with the MO.

However, we propose a pragmatic approach toagreeing interfaces with participants, and wouldconsider such circumstances on a case-by-casebasis.


The recommendations regarding subcontracted andassociated services were generally endorsed.(Noting the above points regarding meter readingand BWBSL).

Accordingly we have not changed ourrecommendations in this area since the workinggroup. See Section 7.



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Appendix E: Market

consistency assessmentOpen Water has previously identified that to achieve the objectives of water marketreform it is highly desirable, and in many areas absolutely necessary, to haveconsistency in the market design. The discussion document published by Open Wateron “The New Retail Market for Water and Sewerage Services”34 outlined that the OpenWater programme will work to: “Ensure an appropriate level of consistency in themarket design, such that the expected benefits of water competition are realised”. Thisdiscussion document goes on to explain that the programme will work “to ensurereasonable consistency:

for all market participants, principally customers, retailers, and wholesalers; and in all dimensions across which a customer, retailer, wholesaler or other market

participant may require or desire consistency. This includes, but is not limited to,consistency across country, wholesale region or any other geographic boundary;customer segment; and product/service”.

In producing the retail market design set out in this document, the requirement toensure reasonable market consistency has been considered. In the following sectionsan assessment is provided as to how well we believe the main elements of the designachieves that requirement in terms of consistency with the Scottish market, andconsistency against other criteria.

34 Document available at: http://www.open-water.org.uk/documents/







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Consistency with the Scottish marketArea of design Assessment Commentary on key items

Scope of market HighAreas of commonalityServices provided to customers and wholesale services areconsistent with Scotland.

Market arrangementsfor water andsewerage

Medium Areas of commonality

The definition of retail and wholesale activities recommended isnear identical with Scotland.

The requirement for wholesalers to provide services in a non-discriminatory manner to all retailers is consistent with Scotland.

The creation of a single Market Operator (MO) to helpadminister the market is consistent with Scotland (see later fordifferences in the detail of services provided by the MO).

Areas of difference

Legal separation of incumbents is not required in England as it

is in Scotland. This is due to decisions presented in the WaterBill. Associated with this, the requirement for incumbents tocreate a competitive retail arm to sit alongside their in-areaincumbent retail business is unique to England.

We are proposing that registration and switching in Englandshould be managed at the Service Type level (e.g. potablewater), rather than the Service Group Level (e.g. water), as isthe case in Scotland. The key reasons for this are enablingadditional customer choice and to be consistent with the statedintent of government policy of encouraging specialisationamongst retailers.

Market arrangementsfor trade effluent

High Areas of commonality

Our recommendations regarding roles and responsibilities andgeneral approach for granting of consents and permits,

charging, and compliance and enforcement, are all consistentwith Scotland.

Areas of difference

As described in the assessment of market arrangements forwater and sewerage, we recommend that customers in Englandcan choose their retailer at the Service Type level, and hencecan choose a trade effluent retailer who is not their sewerageretailer. We believe this is consistent with the intent ofgovernment policy and will allow for greater specialisationamongst retailers.

35 Definition of assessments: Low/Medium/High: the level to which the design as outlined meetsthe dimension versus other reasonable alternatives



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Area of design Assessment35 Commentary on key items

Market arrangementsfor developer services


Our recommendations regarding roles and responsibilities andgeneral approach for administration and customer services,planning design and engineering works, and payment handling,are all consistent with Scotland.

Areas of difference

We recommend that retailing of developer services should be aseparable service from retailing of water and sewerage,whereas in Scotland it is not. We believe this will enableorganisations such as SLOs to compete with water andsewerage retailers in this market and provide a better customerservice.

We recommend that developers interact with a single retailer forhousehold, non-household and mixed use developments, whichis not the case in Scotland. We believe this will provide a betterexperience for developers and addresses issues advised to usby Scottish market participants regarding ambiguity andconfusion for mixed use developments.

Market arrangementsfor subcontracted andassociated services


All of our proposals are consistent with Scotland.

Registration andswitching strategy


Our recommendations regarding creation of a central registerand switching processes, facilitated by a Market Operator, areconsistent with Scotland.

Our outline view of the switching process is consistent withScotland.

Delivery of a customer awareness campaign by Ofwat isconsistent with Scotland.

Leveraging Scotland on Tap to provide a public record ofregistered retailers is consistent with Scotland.

The approach of encouraging third parties, rather than the MO,to provide retailer comparisons to customers is consistent withScotland.

Areas of difference

We are proposing that the registration and switching in Englandshould be managed at the Service Type level. (See above formore detail).



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Financial settlement Medium Areas of commonality

Our recommendations that the MO should determine usage andcalculate charges, but that billing and payment handling shouldbe managed bilaterally, are consistent with Scotland.

Our settlement and billing periods are consistent with Scotland.

Our approach to estimating consumption is consistent withScotland.

Areas of difference

We recommend that the MO should be responsible forcalculating charges for operational services, whereas inScotland this is the responsibility of Scottish Water. We believethe Scottish model has, through only having one wholesaler, adegree of inherent centralisation, and to achieve the sameends across 20+ wholesalers in England the MO shouldperform this, and in turn enable reduced costs, simplicity forretailers, and greater transparency.

Payment terms and settlement timelines are similar to Scotlandbut with a few key areas of difference. In line with Ofwatdecisions the English market will not have payment in advance,and that standard payment terms should be consistent acrossservices. In addition, our recommendations are that initialsettlement should occur four days later than in Scotland to allowfor more actual meter data to be communicated to the MO, andthat final settlement should be on a rolling basis and not on anannual basis to allow for faster final settlement and levelledworkload. We believe these variations on the Scottish modeladdress a number of issues shared with us by Scottish marketparticipants.

Operational services Medium Areas of commonality

The requirement for wholesalers to provide services in a non-

discriminatory manner to all retailers is consistent with Scotland.Areas of difference

Our recommendation that we should commonise the definitionof wholesale services across wholesale regions is notapplicable in Scotland as there is only one wholesaler. It is likelythat some of the services will be defined differently to those inScotland.

Our recommendation that service requests and notificationsshould pass through the MO is different to Scotland where suchcommunications are handled bilaterally. We believe the Scottishmodel has, through only having one wholesaler, a degree ofinherent centralisation, and to achieve the same ends across20+ wholesalers in England the MO should perform this, and inturn enable reduced costs, simplicity for retailers, and greater

transparency.



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Market Operator targetoperating model


Our recommendation that the MO should provide servicesassociated with registration and switching, financial settlement,industry data exchange, and market governance, are broadlyconsistent with Scotland. Generally, we propose that allservices provided by the CMA in Scotland should be providedby the MO in England, with some additional services providedby the MO in England as noted below.

Our recommendation that use of the MO should be mandatoryis the same as Scotland.

Our recommendations regarding the delivery model, ownershipand governance model, and commercial model, are consistentwith Scotland.

Areas of difference

We recommend that the MO should be responsible forcalculating charges for operational services, which is not the

case in Scotland. (See above for more details).We recommend that the MO should be responsible for passingservice requests and notifications between market participants,which is not the case in Scotland. (See above for more details).

Systems architectureand data model


Our recommendation of a tiered set of interfaces to the industrydata exchange hub is consistent with Scotland.

Our high level market data model is consistent with Scotland.



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Consistency against other criteriaMarket consistency dimension Assessment Commentary

Provides consistency acrosswholesale regions for Retailers

High We believe this is likely to be the most criticalconsistency requirement for a successful market, andthat our proposed design has delivered as high a levelof consistency as is possible within the scope of theOpen Water programme. Our overall approach ofcentralising new functions, such as registration andswitching, and financial settlement, and introducingcommon industry processes and using a MarketOperator in these areas, will strongly supportconsistency in this area.

In particular, we believe that our recommendation thatthe MO should be responsible for passing servicerequests and notifications between marketparticipants and determining operational servicecharges is a strong driver of consistency for retailers,

above and beyond what exists today in the WSLregime and Scottish market approaches.

Provides consistency acrosswholesale regions for Customers

Medium Our recommendations should provide for a consistentapproach for customer interaction with wholesalers,via retailers, in the competitive market. However, it islikely that customers will experience variable levels ofservice from wholesalers as at this stage norecommendations are made by Open Water or Ofwatto standardise levels of service.

Provides consistency acrossRetailers for Wholesalers

High We believe that our proposed design has delivered ashigh a level of consistency in this area as is possiblewithin the scope of the Open Water programme. Ouroverall approach of centralising new functions, suchas registration and switching, and financial settlement,

and introducing common industry processes andusing a Market Operator in these areas, will stronglysupport consistency in this area.

Provides consistency acrossRetailers for Customers

Medium Our recommendations support retailers being able tooffer a consistent set of products and services tocustomers across England.

We highlight that the removal of the in-area tradingban would help to provide greater choice forcustomers seeking to deal with a single nationalretailer.

Provides consistency acrossnon-household customersegments

High All of our recommendations apply equally to all sizesand segments of non-household customers, and wehave not made variant recommendations againstcustomer segment in any area.

Provides consistency withhousehold customer segments

Low Our recommendations will lead to a non-householdretail market which is very different to that fordomestic customers. We consider this to be a naturalconsequence of government’s chosen policy.

Provides consistency acrosswholesale products and services

High Our recommendations are broadly consistent acrossthe direct and indirect services provided bywholesaler. For example, we recommend that theMarket Operator provides services associated withcalculating charges for both direct and indirectservices.



Market consistency dimension Assessment Commentary

Provides consistency acrossretail products and services

High Our recommendations support retailers being able tooffer a consistent set of products and services tocustomers across England. By providing consistency

to retailers, e.g. in the payment terms for all water andsewerage being the same, this should reduce risk forretailers and enable them to offer consistency tocustomers. At the same time, we have also enabledspecialisation for retailers who only wish to retailparticular products and services.

Documents

Market Blueprint