Trust in water 1

What have markets ever done for me? Benefits of markets

for customers

Nicci Russell, Director

16 November 2016

Trust in water 2

An evolving sector

Our pro-market regulatory approach

Retail market opening for non-residential customers

Ofwat’s role in the new retail market

Opportunities for innovation and the role of data

A potential new market

Where next?

I’m going to talk about…..

Trust in water 3

Trust and confidence – our vision for the sector

Trust in water 4

The sector is delivering more for customers than ever before - 2014 price review

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And we’re pushing water companies to get even closer to their customers

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We’re stepping back as the sector steps up – but we remain the safety net

Companies use own discretion to provide

assurance beyond baseline requirements

Companies lose discretion on some areas of

assurance beyond baseline requirements

Companies lose discretion on many areas of

assurance beyond baseline requirements

Self

Assurance

Targeted

Prescribed

As part of the CMF, we rate each water company

against the three assurance categories:

Annual Performance

Reporting

Company Monitoring Framework

Water companies publish annual

performance reporting, and own the

relationship with consumers and

wider stakeholders

Our Company Monitoring Framework

challenges companies to publish

information that stakeholders can trust,

understand and use.

New for 2016

Find out more

All companies published Annual

Performance Reports by July 2016.

These are available on company

websites.

We will publish the results of our

Company Monitoring Framework

assessment in late November

2016.

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Photo © Environment Agency

Population

Growth

Climate

Change Affordability

Water

Scarcity Resilience

Future challenges

And changing

customer

expectations

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Our regulatory approach is pro market

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Because markets can deliver greater benefits…..

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….. our ‘Water2020’ proposals are about making greater use of markets

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Environmental benefits

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Promoting markets to benefit customers, the environment and society

Direct procurement for customers (new infrastructure)

Water resources

• Focus on new resources as most

benefits from wider consideration

of options for resources across

company boundaries to promote

efficiency and resilience.

• Trading is below its optimal level,

and taking steps to mitigate

identified barriers to this could

result in benefits of £800m for

customers

• We will also enable third party

resource providers to directly

contract with retailers as

provided for in Water Act 2014

Sludge

• Enable better and more

effective optimisation

• Greater participation from

firms operating in wider

waste markets

• OFT/Ofwat study

identified significant

benefits from

development of markets

for sludge

processing/transformation

to gas and fertiliser

• Possible benefits of

£780m

Direct procurement for customers: benefits include competition to provide finance as well as services and revealing

information about the market price of capital. Possible benefits of £625m.

Business Retail

• 2014 Water Act delivers retailer

choice for business customers by

2017

• Benefits from improved efficiency

and M&A of retail operations as

well as improving service and

increasing customer focus

• Environmental improvements

and water efficiency services

Residential Retail Review

• UK Government asked us to

reviewed the case for extending

retail competition to residential

customers (we reported in Sept).

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One size does not fit all – competition coming soon

Image © Getty Images

Trust in water 14

Retail market opening

Retail market opening involves opening the retail market to competition for 1.2

million business customers in England in April 2017

22 M

illion h

ousehold

s

1.2

Millio

n

busin

ess

custo

mers

2016

Regional companies

supply all residential

and most business

customers in their

area so there is no

choice.

April 2017

Households will still be

provided by one

regional supplier with no

choice

1.2 million business

customers can choose

from many retailers

26,000 business

customers with >5Ml/yr

can choose

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• MOSL MOSL is the system market operator. It co-ordinates

all of the transactions between companies that allow

companies to switch. It is not involved in any price

setting, legislative or regulatory activity.

• Ofwat We are the market regulator. We make sure that

companies obey legislation and meet the standards

we set, and we ensure that compliance is as required.

We also ensure that consumers do not incur any

economic detriment.

• Defra Defra is in charge of the legislative framework for the

water sector.

Who does what .. Welcome to Openwater

The Open Water programme was set up by the UK Government to deliver the

competitive market by April 2017.

Trust in water 16

Go live

Key parts of the regulatory framework

switched on and used ‘as live’

Defra/Secretary of State introduce final

parts of legislation and sign off codes

Market operator runs shadow market

as live to ensure that companies and

systems can operate on a day to day

basis.

Systems updated as required

All companies should be engaged with

shadow market operations.

Overview of the plan to market opening

Design and build Testing Shadow

Ofwat to draft key elements of the

regulatory framework (codes, licences

etc).

Market operator to plan and build the

central market operating system

Defra develops licences and

commences key parts of the legislation

Ofwat to consult and finalise its

regulatory framework.

Market operator (and users) test the

market operating system

Companies finalise own systems and

start to upload data into system

Defra finalises key regulations on retail

exit and appeals

April 2016 October 2016 April 2017

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Protecting customers in the new market

How will TPIs be regulated in the new retail market?

1. General consumer law

The Business Protection from Misleading Marketing Regulations

(BPMMRs) prohibit misleading advertising and sales activities

(Ofwat is not an enforcement body)

2. Customer protection code of practice

• All retailers to comply with a new CPCoP

• Third parties acting for Retailers: retailers to take all reasonable

steps to ensure that these third parties are aware of, and

understand and comply with, the provisions of the code.

• Third parties acting for Business Customers: Retailers to obtain

written confirmation – known as a letter of authority (LoA) –

from the relevant Customers that: (a) the named third party is acting on their behalf;

(b) the extent of the third party’s authority; and

(c ) how the third party’s fees are being paid.

Where the business customer is also a micro-business, the written

confirmation shall be in the form of a template(see draft on our website).

3. Voluntary TPI codes of conduct

Customer protection code of practice (which binds only retailers: licensed and appointee)

What role could the TPI play?

Awareness

Route to market

Contract management

Specialist knowledge

We will consult later this month on our TPI policy.

We will use our monitoring framework to pick up any future issues - we

are aware of potential teething problems in the early years but we will

make sure our policy is fit for purpose.

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Innovation – in service and technology

New markets, resilience and water

efficiency – a virtuous circle for

customers and the environment

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Customer data: new markets and the evolving sector

Business retail

market opens April

2017

Water resources &

sludge markets

Monitoring &

assuring company

performance

Customer data has a key role to play as the water sector evolves

Possible future

residential retail

market

Driving efficiencies

and improving

resilience

Customer data can bring huge

opportunities: it can help companies

address bad debt, reveal customer

preferences and drive innovation

Good customer data is key for

markets to work effectively: in

particular with the opening of the

new business retail market in April

2017 Customers should have trust and

confidence that companies are

effectively and appropriately using

their data

Inclusive service for all: ensuring that all customers are treated fairly

Trust in water 20

Competition for Residential Retail – Our overall assessment

Photos © DWP, Lumix2004, Hortongrou, Brian Norcross, Adriana Herbut, Getty Images

We adopted a scenarios based approach to our cost

benefit analysis, recognising that no one can accurately

predict the future. Our scenarios reflect how key features

of a competitive market could develop.

We have set out in our view the prospects for competition.

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Trust and confidence – our vision for the sector