Ofwat plots path to better NAV market

Ofwat has issued a set of actions for itself and the industry to boost the New Appointments and Variations (NAV) market, following the publication of a review by Frontier Economics and Addleshaw Goddard.

The regulator announced the review in November 2016, on the back of modest activity and NAV complaints about difficulty operating. As of September 2017, just eight new appointees had entered the market, with licences granted for 69 sites, to serve approximately 61,000 residential customers (once the development sites are completed).

Frontier reported NAVs saw significant barriers to competition from:

  • Regulation and process requirements

  • Incumbent company behaviours – particularly the transparency, timeliness and effectiveness of information and service provision.

  • Pricing – the margin that NAVs are able to earn, including the underlying methodology of the incumbents’ charges underpinning those margins, and whether there is a level playing field between NAVs, self lay providers and incumbents.

Ofwat outlined a number of actions in response, including:

  • Reviewing policies and processes to minimise regulatory and administrative barriers.

  • Consulting on changes to rules on new connection charging and on updating guidance on bulk supply charging.

  • Challenging the water sector to improve access to information and the delivery of services to NAVs.

It added: “If we consider that the response is not sufficient, or if issues are not being addressed quickly enough, we may decide to take further action, using the full range of tools available to us.”

The Frontier report also highlighted a number of other issues and longer term impacts, including cherry-picking and price deaveraging; the impact of retail and upstream market opening; and incumbent incentives to operate out of area.

Ofwat said: “In coming months we will be giving further consideration to a) the strategic role that we anticipate NAVs to play in the sector in future years; b) the benefits that a successfully functioning NAV market could deliver to customers in terms of competitive diversity, efficiency and innovation; and c) the way that we regulate the sector to ensure an appropriate balance between facilitating and promoting effective competition and protecting customers.”