Ofwat looks to boost developer services market with bulk supply cost guidance

Ofwat has proposed new, additional guidance on bulk supply tariffs charged by incumbent water suppliers to New Appointments and Variations (NAV) suppliers in a bid to kick start what it sees as sluggish competition in the developer service market.

Ofwat said new guidance was needed because: there are issues with competition in developers’ services; stakeholder concerns about current bulk charges; and the new markets and controls that will come with PR19 would limit the information available to set charges and the charges set by NAVs. The regulator said: “Our view is that the market is not delivering the best outcome for developers or end-customers, nor providing appropriate incentives for innovation that would benefit end customers.”

And it noted that water was lagging behind its energy counterparts: “We understand that the proportion of new developments built and operated by NAVs is very small when compared to that provided by equivalent third parties in gas and electricity,” said Ofwat.

The regulator said sought through its guidance to provide a level playing field between incumbent water companies, self-lay organistions, developers and NAVs. It was, Ofwat said, was part of its strategy to ensure trust and confidence in the sector.

It said also that sought to ensure that “more intense competition and the benefits are passed on to both developers and end-customers in the form of lower prices, better quality services and more innovation,” through increased choice for developers.

In its consultation document Ofwat promoted a wholesale-minus approach would be preferable.

in setting bulk charges over a cost plus approach. It listed among its advantages a lower risk of error in the wholesale-minus method arising from the smaller number of cost under consideration in cost-plus.