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Response to Ofwat’s consultation on
changes to the WSL guidance
CCWater response
31 May 2007
Page 1 of 8
INTRODUCTION
The Consumer Council for Water (CCWater) is the consumer organisation representing water
and sewerage consumers in England and Wales. CCWater has nine regional committees in
England and a committee for Wales. This response reflects our collective view.
We welcome the opportunity to comment on changes to the WSL guidance, which reflect views
we have already expressed through Ofwat’s industry advisory groups. We hope that the
proposals will go some way to removing existing barriers to entry and speeding up access
negotiations and would welcome Ofwat’s views on what impact these amendments will have.
Key issues for consultation in sections 3 and 4 of the access
codes guidance on non-price issues
Proposal 1: Water undertakers cannot recover from licensees any costs of processing wholesale and combined
applications for access.
Question 1 – Do you agree with proposal 1?
We welcome the removal of the application fee. Licensees and Ofwat have identified this as a
clear barrier to entry and its removal would therefore help to speed up negotiations and
streamline the overall switching process for customers. We particularly support Ofwat’s
proposal that the costs of the application should be borne by the undertaker and not by the
licensee or any of the undertaker’s other customers.
Proposal 2: Water undertakers should not request security deposits, bonds or guarantees from licensees.
Question 2 – Do you agree with proposal 2?
Removing the requirement for licensees to provide security deposits, bonds and guarantees
would remove another barrier to entry and in the light of proposal 3, most of the CCWater
Committees support this proposal. The exception to this is CCWater NorthWest. They believe
that in the light of experience of the roll out of competition in the energy sector, appropriate
safeguards such as deposits are necessary to protect undertakers and customers from a new
entrant not being able to meet its obligations. CCWater NorthWest has openly supported
United Utilities on this issue.
Proposal 3: If a water undertaker has a provision within its charges scheme for requesting, and does so in
practice request, advance payments from existing large users, then the same policy may be applied to licensees.
Question 3 – Do you agree with proposal 3?
We agree that where undertakers do have existing arrangements in place for advance payments, it
would not be unreasonable for these to be transferred to the licensee, provided that they comply
with the company’s charges scheme. If an undertaker would ordinarily carry out credit checks
on customers that provide advance payments, then it would not be unreasonable for similar
checks to be carried out on licensees that will also need to provide advance payments.
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Proposal 4: The termination clause should be included within the WMA, as it will be a standard term of each
premises-specific access agreement and there should be no need to duplicate the clause in each premisesspecific schedule.
Question 4 – Do you envisage any practical difficulties with this approach?
We have no objection to termination clauses being part of the WMA. The only practical
difficulty we envisage surrounds the discretion offered to licensees and undertakers to agree
other termination clauses that they deem appropriate for their circumstances. Whilst we
welcome the flexibility this creates, we are mindful that it could create another barrier to entry if
undertakers insist on terms that the licensee deems inappropriate. We would urge Ofwat to
monitor this area closely.
Proposal 5: Water undertakers should accept customer consent forms that have been signed, or verified by the
customer as in force, no more than two months prior to being submitted at the initial application stage. We
consider it reasonable to infer in those circumstances that the customer is still interested in switching supplier.
Question 5 - Do you agree with proposal 5?
We have no objection to this proposal. We consider that once a customer has signed a consent
form, the licensee ought to be able to pass this on to the undertaker as part of its initial
application, well within the 2 month period. We would not want any reduction in this time
period as the customer should not have to keep verifying that it still wants to switch.
Proposal 6: The period of two months (for an undertaker’s offer to remain valid) no longer applies and the offer
will remain valid for up to 12 months. This will allow customers to compare offers from different licensees and
select the best deal.
Question 6 - Do you agree with proposal 6?
We see no need for the two month period to be extended to 12 months. Instead, we would
suggest that the offer should remain valid for a minimum period of two months, with flexibility
within the contract for the licensee and undertaker to agree any further time period that they
would like the offer to remain open. We note that an undertaker may change the offer during
that period if there is a material change of circumstance. It should be made clear to licensees
during negotiations, what ‘material change of circumstance’ means.
Proposal 7: The text stating “refer to Ofwat” will be removed. This will be replaced with ‘remove disputed
issues from WMA negotiations and proceed to premises-specific application’.
Question 7 – Do you agree with proposal 7?
As Ofwat cannot determine the terms of a WMA, we agree with the proposed change to clarify
this situation. We welcome the added text which advises undertakers and licensees on the
process they should follow if terms cannot be agreed, and how Ofwat will seek to resolve issues
either through informal advice or a determination.
Proposal 8: The licensee contacts the water undertaker about a possible access request and obtains a copy of its
draft WMA and confidentiality agreement from the water undertaker directly or from its website. By exception
(if, for example, the water undertaker’s website is unavailable) the water undertaker must provide these
documents within three working days of the licensee’s request.
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Question 8 – Do you agree with proposal 8?
We welcome this proposed amendment, which clarifies the process and sets clear deadlines for
undertakers to follow.
Key issues for consultation in section 6 of the access codes
guidance on access charges and in appendix 3 on calculating
access charges
Proposal 9: We propose to modify Table A3.1 within the existing guidance that covers Retail ARROW costs
and customer numbers to include the following.
 retail costs for sewerage customers
 retail costs for all water customers
 retail costs for unmetered water customers
 retail costs for metered water customers
 a breakdown of retail costs based on customers’ annual consumption across the following volume bands
>=50Ml/yr
>=20Ml/yr and <50Ml/yr
>=10Ml/yr and <20Ml/yr
>=5Ml/yr and <10Ml/yr
>=1Ml/yr and <5Ml/yr
<1Ml/yr
<1Ml/yr household
<1ML/yr non-household
 Water volume used by customers in each of the above categories.
Question 9 – Do you agree with this proposal?
We welcome the amendment of table A3.1 to include a breakdown of retail ARROW costs by
customer type and volume. This should enable better comparisons of ARROW costs across
companies, creating a more transparent pricing process that is more easily challenged by
licensees. We would welcome clarification on what Ofwat will do with this information. We
would expect that Ofwat would seek to engage companies in debate on the prices in order to
achieve consistency of approach across all companies.
Proposal 10: We propose that water companies provide Ofwat with a detailed commentary that explains the
specification of the retail services that are provided to different groups of customers and how this specification
drives costs. This commentary should also detail the extent of any indirect costs and overheads allocated to
each of these categories of customers and the rationale used.
Question 10 – Do you agree with this proposal?
We agree that companies should provide detailed commentaries to Ofwat. To date there has
been little transparency around how companies calculate their costs and what is and is not
included in the retail price. This makes it difficult for licensees to be able to ensure that they are
getting the best price possible for customers. We would welcome guidance from Ofwat on how
it intends to use this information and whether it will be in the public domain. We would expect
Ofwat to carry out a comparison of the information and seek to ensure consistency of approach
across the companies.
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Proposal 11: We propose that water undertakers provide details of recent and planned capital expenditure
directly associated with retail service assets. These assets typically have very short asset lives (< 5 years). This
information is needed to ascertain the level of current and future sunk costs and should detail the year of
expenditure and the assumed asset life.
Question 11 – Do you agree with this proposal?
As this proposal seeks to improve the level of information available about sunk costs, we have
no objection to these amendments.
Proposal 12: The current version of our access codes guidance does not specify the specification of the service
that water undertakers should assume that they would provide to licensees when calculating indicative access
prices. We propose that water undertakers should assume that licensees require a “minimum” service from the
water undertaker and calculate indicative access prices on this basis.
An example of this “minimum” service can be drawn from the assumptions that one water undertaker made
when preparing its indicative access prices in 2005.
These assumptions were:
 The licensee would provide the water undertaker with monthly meter readings
 The license would undertake customer billing, meter reading, maintenance of customer account
information, payment handling, advice on water efficiency and quality and account management activities
 No costs would be incurred by the water undertaker in licensee billing except for computer time relating to
calculation processing
 No costs would be incurred by the water undertaker on meter reading as it would not be able to charge the
licensee for any check readings carried out.
 The water undertaker would still have to maintain customer account information
 There would be no change in the costs of payment handling
 Costs associated with the water undertaker handling and resolving customers’ calls, correspondence and
complaints would halve. The water undertaker assumed that the licensee would be able to respond fully to
half of its customers’ enquiries without recourse to the water undertaker but that it would still have to
provide information to the licensee to enable it to address the remainder
 There would be no change to the costs of debt collection if a single customer was replaced by a single
licensee
Question 12 - Do you agree with this proposal and are the assumptions set out above
sufficient to form the basis of “minimum” service?
We agree with this proposed amendment as it would add clarity to the pricing process and
ensure that all companies are consistent and, as a starting point, offer the same service to each
licensee. This should make it easier for licensees to compare prices across different water
companies, ensure that there are not any hidden costs and allow for the negotiation of a different
standard of service if required. From our experience of complaint handling, where billing,
charging and metering complaints are most common, we would suggest that it might be more
reasonable to assume a reduction by two-thirds, recognising the fact that some enquiries will still
need input from the undertaker.
Proposal 13: We also think that companies will see economies of scale when providing services to licensees
with more than one customer in a water undertaker’s supply area. We propose to modify the format for
published indicative access prices to recognise this.
Question 13 – Do you agree with this proposal?
We agree with this proposal as it is likely that economies of scale will emerge where a licensee
supplies more than one customer, especially if and when the threshold is lowered.
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Proposal 14: We think that more information should be provided for significant investment schemes scheduled
to contribute to the supply-demand balance within the next 10 years so that the cost of providing for a range of
supply volumes can be better understood. In particular water undertakers should publish indicative cost
estimates for scaling back planned projects.
Question 14 – Do you agree with this proposal?
We have no objection to this proposal. The provision of more detailed cost information should
add clarity by identifying the range of investment options available and the impact on resource
availability, which together should improve the clarity of the pricing process and make it easier to
assess the impact that a licensee’s introduction could have on investment.
Key issues for consultation on condition R
Question 15 – Do you agree with the proposed change to condition R about the
confidentiality of information?
We welcome the proposed change to condition R, which prevents undertakers from using
information for any other purpose than it was furnished. We are aware that business customers
have been particularly concerned about undertakers misusing information and we consider that
this change will address their concerns.
Question 16 – Do you agree with the idea of Ofwat developing a compliance code? If
yes, what issues do you consider a compliance code should cover?
We agree with the development of a compliance code by Ofwat. This would provide clarity to
undertakers about what Condition R does and does not allow them to do with customers’
information. Guidance from Ofwat would also be beneficial in ensuring a consistent approach
across all companies.
We would expect the compliance code to contain specific guidance to prevent the misuse of
customers’ details, such as who can access the information and how it can be used, particularly in
relation to data protection. It should also seek to provide clarity around the sharing of
information between an undertaker and its own associate licensee. Associate licensees should
not obtain unfair competitive advantage.
Key issues for consultation in the guidance on eligibility
Proposal 1: In order to allow some premises that may be ineligible under the current interpretation of “principal
use” to be potentially eligible, we propose to amend our interpretation of the ‘principal use’ criteria. We
propose to do this by decreasing the threshold of non-household consumption of water in mixed-use premises
from ‘at least 80%’ to ‘more than 50%’.
Question 17 – Do you agree with proposal 1?
We welcome this proposed amendment as it may increase the eligible customer base.
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Proposal 2: We propose to amend the list of premises that are likely to be household or non-household for the
purposes of WSL for clarity and to allow a small increase in the number of premises potentially eligible to
switch supplier. Instead of listing ‘caravan parks’ and ‘mobile home parks used as static homes’ separately, we
propose to combine the two types of premises and list them under both household premises and non-household
premises. However, we will make it clear that such premises are ‘household premises’ where a person has his
principal or only home and ‘non-household premises’ where the premises are used for the purpose of holiday
homes, i.e. are run as a business and a single customer is liable for the water bills in respect of those premises.
Question 18 – Do you agree with proposal 2?
We have no objection to this proposal. However, we would support MEUC’s argument about
university halls of residence being ‘non-domestic’. It is questionable whether a student hall of
residence is a student’s principal or only home when they are required to vacate the
accommodation during university holidays in order for the university to rent the rooms out for
business purposes.
Key issues for consultation in the licence application guidance
Ofwat’s proposal: Ofwat propose some minor changes to the guidance to add clarity to the process. For
example, licensee to discuss application before submitting it, application to include organisation structure,
statements to be provided in headed paper, financial projections to include a quarterly breakdown. No specific
question has been asked about these proposed changes, but a question has been asked about a new section on
compliance in relation to the relationship between undertakers and their associate licensees.
We have no objection to those proposed changes that are procedural and simply add clarity to
the application process.
Question 19 – Do you agree with the proposals on compliance?
We welcome the addition of a section in the guidance outlining the relationship between an
undertaker and its associate licensee and the steps Directors should take to ensure clear
separation. However, we remain concerned about the sharing of skills and expertise and how
this is costed.
The proposed text states that any services procured from the undertaker should be properly
charged and accounted for between the licensee and water undertaker. It adds that any service
should be charged at an appropriate market rate and should be clearly illustrated in the financial
records of the licensee. Ofwat advises that all such transactions should comply with RAG 5,
licence condition 7 and condition of appointment R5. To ensure clear separation of activities
and particularly costs, we would like to see further guidance included in the paper that sets out
how Ofwat will verify that the costs are appropriate. We assume that this would be done by the
transfer pricing team.
The guidance states that Ofwat does not prohibit the sharing of Directors, and that it is up to
the Directors to satisfy themselves that conflicts of interest do not arise. We are concerned
about the sharing of directors and particular the costs of this. We do not think that the
guidance offered by Ofwat is prescriptive enough. We would welcome further guidance from
Ofwat on how it will actively ensure that Directors are ensuring clear separation of their
duties and whether the sharing of Directors should in fact be disallowed once a licensee is
fully operational and beyond its ‘starting up’ phase.
CCWater – 31 May 2007
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Enquiries
Enquiries about this response and requests for further information should be addressed to:
Alison Dedicoat
Consumer Council for Water
Victoria Square House
Victoria Square
Birmingham B2 4AJ
Tel: 0121 345 1011 Fax: 0121 345 1010
Email: [email protected]
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