WICS to pull the plug on self supply in Scotland

The Water Industry Commission for Scotland has provisionally decided to pull the plug on self supply in the Scottish water market.

Its agument comprised three main strands.

• Customers in the round could suffer from the permanent removal of more profitable customers from the market, in making the market less attractive to retailers and therefore curtailing choice. It also said that the exclusion of customers with low payment risk would increase the overall level of bad debt risk in the wider market, increasing operating risk for retailers. Ultimately, this could lead to “increases in customers’ bills in the long term as prices adjust to reflect the higher level of risk across the market”.

• Self supply transfers customers’ bad debt risk to Scottish Water. In the rest of the market, bad debt management is undertaken by retailers and there is no allowance in wholesale tariffs for any costs associated with late or non-payment. The Commission added Scottish Water would need to proactively monitor the creditworthiness of each customer, increasing its costs. “Therefore, self-supply arrangements have the potential to increase the risks faced, and the costs incurred, by Scottish Water.”

• Self supply has the potential to bring reputational damage to the retail market if a self-supplier does not fully understand the costs and risks associated with failing to meet the terms of its licence.

WICS suspended its consideration of self supply applications in June 2018, pending review. It is now consulting until 28 November and will make an initial decision in December. Its final decision will come as part of the comprehensive review of the non household retail market it announced in September 2018, expected to be completed next year.

Self-supply licensing arrangements were introduced at market opening in Scotalnd to encourage new entry. Since 2008, however, the Commission has granted only one self-supply licence – to Earls Gate Water, in 2016. It said it would work with Earls Gate on an orderly transition should self-supply licences be phased out.

More recently some other customers have expressed an interest in self-supply. WICS said: “This appears to mirror experience in the non-household retail market in England. The terms of trade in that market are, however, quite different.”