Ofwat finalises wholesale charging rules

Ofwat last month published the final version of the rules that will govern how wholesalers in England and Wales charge retailers for wholesale water and sewerage services. It made only minor amendments to its draft policy, which was published in August, and these were by and large points of clarification.

Consistent with its wider strategy, the regulator will not design or specify wholesalers’ tariffs but has proposed a rule requiring wholesalers to consider general charging principles when setting their charges. Wholesalers have been told to publish “indicative wholesale charges” – an outline of what they expect their primary wholesale charges to be – three months in advance of their final decisions. The notice period is six months if wholesalers are planning to significantly alter their charges. The idea is to give retailers more time to understand what they will be asked to pay and to develop their retail pricing strategies and engage with customers – though the timetable for all this remains very compressed given the go-live schedule.

To increase confidence in indicative and final charges being accurate and fair, Ofwat is seeking board assurance from wholesalers; for wholesalers to engage with business customers in developing their tariffs; and for an impact assessment to be produced where charges will increase by more than 5% on the previous year.

Wholesale rules comprise around 90% of the costs business customers will pay. The rules have been developed in light of guidance issued by the UK and Welsh governments. Ofwat said it sought for its rules to drive transparency and improve wholesalers’ understanding of their costs: “Our approach will also help retailers to drive efficiency in the wholesale market as they compare (and question) the wholesale charges that have been proposed.”

As part of this drive, wholesalers must:

  • Identify the different wastewater services charges that they offer to retailers – for the treatment of trade effluent, foul water, highway drainage and surface water drainage and clearly state what concessionary surface water drainage discounts may be available and how these discounts may be accessed.

  • Include information on both primary charges – typically involving meter based annual charges and/or volumetric charges for water and/or sewerage – and non-primary services – e.g. charges for disconnection, meter testing, provision of fire hydrants and pressure tests.

  • Publish wholesale charges for eligible customers with special agreements ( those based on direct agreement with the customer rather than set according to the statutory charges scheme).