Excerpts from THE WATER REPORT
May 2020 issue 60
FULL STORIES AVAILABLE ONLY IN THE MAGAZINE IN PRINT AND PDF
REPORT TWR Expert Forum on how regulation might take account of C19 impacts.
REPORT British Water calls chart adaptation to the new normal.
INDUSTRY COMMENT Arup’s resource marketplace platform.
INDUSTRY COMMENT Technology for resilience.
FEATURE Serving as well as supplying society during C19.
INDUSTRY COMMENT Will circular economy thinking finally have its day?
REPORT Statements of case to the CMA.
NEWS REVIEW Bentley takes top job at Thames.
NEWS REVIEW Black to become Ofwat CRO.
INTERVIEW Caroline Wadsworth, Twenty65
INDUSTRY COMMENT On the path to zero poverty.
REPORT NAO disappointed on drought.
CONTENTS full contents of the magazine
Of all the Covid impacts, the most immediate has been felt in the business retail market, where urgent actions were taken to support business customers expected to struggle to pay, and retailers from becoming insolvent overnight – principally by deferring up to half of the charges retailers owe to wholesalers for three months from March. Ofwat has consulted on its views on what to do next, including on wholesalers extending further liquidity to retailers, and on how the risk of bad debt and retailer failure should be managed.
We started by asking THE WATER REPORT Expert Forum what regulatory action is needed to help wholesalers cope with this situation. The most consistent plea was for regulatory clarity and certainty on how wholesalers will be able to recover these costs in future. One participant, for instance, called for “clarity from Ofwat on how and when the mutualisation of debt will be resolved. Assurance from Ofwat to investors.”
Customers are cancelling their direct debits and the effect is already biting and real.”
An extended timetable has been agreed with Ofwat (see table), enabling the CMA to take up to 12 months to redetermine the settlements, a six month extension to the usual six month schedule.
The extension reflects possible disruption from the Covid-19 situation, but also the scale and nature of the four referrals, which is unprecedented in water sector case history.
All parties seem to have agreed with the extension plan. One commentator pointed out the full one year allocation doesn’t have to be used but an extension can only be asked for once. The priority for the companies seems to be securing provisional findings by early December, so year two charges (from April 2021) can be based on case outcomes, rather than the FD.
One of the underlying issues from a societal level is to get people to value water appropriately, particularly if we are to implement change. If you break down all of the challenges there is an underlying issue of the value of water, particularly in a country like the UK where we turn a tap on and get crystal clear water even in the current situation we are facing where people are panicking about food supplies.“To actually get all of the changes we and others have discovered facilitated, ultimately we need a societal level change to appreciate the true value of water.
On liquidity, Ofwat said it was minded to extend the period in which wholesalers are required to provide liquidity support to retailers (through relieving them of the need to pay the full amount of wholesale bills due) until at least the end of July, and possibly longer following a review in summer. This comes on top of an expectation that retailers will first and foremost seek financial help through government schemes.
The plan is to increase the minimum retailers pay wholesalers from 50% (under the interim solution currently in place) to 70%, or a proportion equivalent to the invoices they have received from their own customers, whichever is the higher. MOSL is designing formal arrangements to monitor retailer receipts from customers for this purpose, given the need for accurate data to support the measure.
Fast forward to today’s situation, and two questions are facing Ofwat. Should Ofwat continue to closely regulate the NHH market, perhaps even using Covid-19 as a pretext to call time on what many consider a failed policy experiment. Or, alternatively, should it allow the competitive process – and the diversity inherent in a competitive market – to facilitate the least disruptive and lowest cost route out of the crisis?
At the time of writing, the signs are that Ofwat favours a highly interventionist strategy. My counsel – for what it is worth – is that if
Ofwat truly wants to save the competitive non-household retail market it must let it function effectively.