Ofwat consults on updated water trading guidance

Ofwat is consulting until 29 March on new guidance for water trading and procurement codes, which it has updated to reflect market and regulatory developments since PR14.

The regulator introduced incentives at PR14 – to both increase rewards for water exporters and to lower costs for water importers – to encourage new water trades. Companies had to produce, and comply with, an Ofwat-approved trading and procurement code to claim the incentives. The regulator provided guidance which set out its requirements of, and principles for, company trading and procurement codes.

These incentives and code requirements remain in place for PR19. Ofwat said its PR14 principles remain relevant but it has added four further principles that will apply to trades that start on or after 1 April 2020. These additions concern: trading dates; the allocation of incentive payments between the water resources and network plus water price controls; the production of bid assessment frameworks relating to third party supply or demand bids; and evidence of assurance.

In addition, Ofwat is consulting on streamlining its approach to public consultation on company trading and procurement codes, after public consultation on six codes received only two responses. It is minded to shorten the public consultation period from six to four weeks, and if no comments are received, to automatically approve codes.

Since privatisation, water trading between water companies has remained static at around 4-5% of water into supply, while at the same time water companies have invested heavily in linking up their networks and trading water internally.