Retailers press for a price appeal mechanism

(by Karma Loveday)

As arrangements for wholesale water price control appeals undergo reform, water retailers have argued that retail price controls also need an appeal mechanism. That was among the points raised by the UK Water Retailer Council (UKWRC) in its response to Ofwat’s Retail Exit Code (REC) review.

The Council recognised creating an appeal mechanism for retail price caps is not in Ofwat’s gift, and that Defra has decided not to progress a legislative route for a retailer right of appeal at this time, pending wider work to align appeals mechanisms across utility sectors. However, this leaves retailers in limbo. The UKWRC said: “We must record our disappointment and concern with this position. This is not merely a question of harmonising existing processes; it is a fundamental gap.”

The UKWRC raised among the following other points in its response to Ofwat:

• Appropriate protection – UKWRC questioned the rationale for continuing protection for business customers who are unprotected in other markets, and urged that the threshold for taking customers out of price caps be further reduced. It said it had previously evidenced the rationale for a 1Ml threshold, and now there is a “strong case” for a 0.5Ml threshold. 

• Uncertain and evolving costs – The next REC period will be characterised by change with as yet uncertain cost implications. This includes from re-platforming CMOS, the creation of a single water regulator, and the cost of creating and joining the new water ombudsman. Retailers said: “Ofwat’s approach relies too heavily on historic costs and does not adequately reflect future market and regulatory developments.” In addition, the rollout of smart meters means it is “inappropriate to set a single sector-wide meter-reading allowance and leave it unchanged for three years”; similarly a single sector-wide financing allowance fixed for three years is not suitable given that retailers’ financing costs vary. UKWRC said: “There needs to be a clear mechanism for recovering these costs. Retailers believe the specific cost allowances should be reviewed 18 months after implementation (i.e. in September 2028), with any changes taking effect from April 2029.”

• No need for a ‘no worse off’ principle – Retailers noted this was subjective, inconsistently applied and that any gaps in existing non-price protections should be addressed through revisions to the Customer Protection Code of Practice (CPCoP). Should the principle be retained, they argued “a clear definition of ‘welfare’ is essential". 

Elsewhere, the UKWRC recognised that Ofwat had taken account of many points previously raised by retailers, including by lowering the Group 2/3 threshold; benchmarking ‘no worse off’ against current terms and conditions rather than those pre-2017; and consolidating non-price protections in the CPCoP.