Ofwat considers introducing self-supply licence fees

Ofwat is consulting on introducing licence fees for self suppliers and tweaking how the Consumer Council for Water’s costs for work on the non household retail market are recovered.

In a December paper on changing how Water Supply and Sewerage Licence fees are set, Ofwat put forward plans to get self suppliers to contribute to the regulatory cost of running the licensing regime from the 2019-20 financial year. At present, they are not charged anything. Ofwat explained self suppliers “are having a more significant market presence than our initial expectations” (eight licences had been issued at the time the paper was written). It added: “Ofwat’s work to monitor and help ensure the market is working well for this group of licence holders has increased and we expect it to continue to do so going forward. This is why we consider it appropriate to start setting licence fees to WSSL licensees limited to self-supply.”

The plan is to use the same model for self supply fees as for other WSSLs: a fixed element and variable element based on market share (percentage of wholesale charges paid).

Self suppliers will remain exempt from contributing to CC Water’s costs, though other changes on this will be introduced. At present, 10% of the watchdog’s costs are allocated to the WSSL regime (based on the percentage of non-household customer complaints it received as a proportion of all complaints over the three-year period from April 2014 to March 2017 and an assumed increase in complaints due to the new market). This 10% share is split 64% to WSSLs and 36% to appointed water companies (based on analysis of the nature of the complaints data over the three-year period from April 2014 to March 2017 and estimates of policy and research costs).

In 2018-19, there was an increase in NHH complaints as a proportion of all complaints, and a rise in those regarding retail issues, rather than wholesale issues. In order to fairly reflect this, 12% of the watchdog’s costs will be allocated to the WSSL regime in 2019/20.

CCWater has also proposed that the percentage split of costs between WSSL licensees and appointed water companies should be adjusted year-on-year from 2019-20 onwards, using the proportion of complaints that are about retail issues over the previous full three years complaints data plus the estimates of policy and research costs. In 2019-20 approximately 66% of costs will be allocated to WSSL licensees and approximately 34% to appointed water companies.

Ofwat estimated the following costs for the 2019/20 financial year:

• Ofwat’s total costs of regulating the market will be in the region of £1m. In line with the existing approach, 50% of these costs will be allocated to the WSSL licensees and 50% to appointed water companies, giving a total estimated cost to the WSSL licensees for 2019-20 of £0.5m; and

• CCWater will spend £0.58m on the WSSL regime. Under the new 66%/34% split plan, the total estimated cost to the WSSL licensees will be around £0.38m.

The consultation runs until 21 January. Ofwat expects to publish an updated 2019/20 cost estimate in February along with consultation comments, and to issue invoices for 2019-20 licence fees to WSSL licensees by 30 April 2019.