Ofwat threatens action in autumn if incumbents don’t shape up on markets

Ofwat has warned incumbent water companies to proactively support water markets or face regulatory action from autumn.

In a letter of 28 May to English water company chief executives, Ofwat boss, Rachel Fletcher, (pictured), chastised the sector: “We see numerous, persistent examples of incumbent water companies failing to support the development of effective markets – in particular the markets for business retail and developer services.” She called the overall level of incumbent water company support for markets “unacceptable” – be it through “insufficient thought” for markets, or “actively opposing or delaying initiatives that are aimed at improving these markets”.

Fletcher gave companies to the end of October to respond to the letter setting out progress on:

• effective engagement in and support for initiatives aimed at driving improvements to the business retail market;

• supporting a vibrant competitive market for developer services; and

• effective support for the development of new markets.

She argued “the best outcomes for customers and society will be achieved by the sector working collaboratively to develop solutions”. However, should Ofwat deem industry progress insufficient, Fletcher pledged to “increase the pace and extent of pressure we exert on incumbent water companies, considering the full range of regulatory tools we have at our disposal. This includes our Competition Act and sectoral enforcement powers where appropriate”. She said in the business market, for instance, Ofwat could change the code modification process to address vested interest blocking, and/or reward and penalise performance publicly.

Fletcher thanked incumbents who are supporting markets, and said the scrutiny would include looking at whether particular companies are holding up progress overall.

Finally, she reminded the chiefs of Ofwat’s actions to spell out its expectations on markets, including recent letters on metering, credit, panel impartiality and self-lay; a call for inputs on improving wholesaler behaviours in business retail; and policy updates on New Appointments and Variations and bulk supply charging.