Ofwat unveils 2019/20 retail market costs and introduces self supply licence fees

Ofwat will use the following final cost estimates as the basis for setting Water and Sewerage Supply Licence (WSSL) fees in 2019/20:

• Ofwat’s total costs of regulating the market will be in the region of £1.06m. 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 £0.53m; and

• The Consumer Council for Water will spend £0.58m on the WSSL regime. WSSL licensees will pick up 66% of the bill, around £0.38m.

The costs came in a conclusions document on revamping WSSL fees, published last week following a December 2018 consultation. Ofwat locked in its December proposals, which dealt with introducing licence fees for self suppliers and tweaking how CC Water’s costs for work on the non household retail market are recovered.

Self suppliers do not currently contribute to the regulatory cost of running the licensing regime but will from the 2019-20 financial year. Ofwat reasoned self supply activity had outstripped expectations and Ofwat’s work benefits these licensees as well as others. Self supply fees will be charged on the same basis 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 same three-year period 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.

Thereafter, th percentage split of costs between WSSL licensees and appointed water companies will 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 said it will publish an updated Information Notice in mid March, setting out the method it will use to allocate a fair proportion of costs to each appointed water company and the general principles in accordance with which it will determine each WSSL licensee’s licence fee. It expected to issue invoices to both wholesalers and retailers in April 2019.