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Monday, 27 July 2015 11:04

Defra regulations could see water firms exit retail market from October 2016

The Department for Environment Food and Rural Affairs has launched a new consultation on the draft regulations which would enable the water companies in England to apply to exit the non-household retail market from October 2016.

The exit provisions in the Water Act 2014 enable the Government to introduce regulations that allow undertakers to exit the competitive part of the retail market with the consent of the Secretary of State. Those companies choosing to exit the non-household retail market will be able to transfer their non-household customers to a licensee.

The Government is now introducing the draft regulations that will allow the incumbent water companies to cease to offer retail services to non-household customers in the run-up to the market opening for competition in April 2017.

Defra is now seeking views on the draft regulations and exit application process.  The scope for the retail exits policy was shaped by the parliamentary debates during the passage of the Water Bill, during which the Government made a number of key commitments:

  • Retail exits must be voluntary – it will be a choice for the boards of companies whether or not to exit.
  • Exit will relate only to the part of the retail market that serves non-household customers.
  • All customers that are transferred as a result of an undertaker’s decision to exit will have access to an appropriate level of protection.

The policy driver for enabling retail exits is to ensure a well-functioning competitive market. In enabling exits, the Government wants to ensure that the customers of an exiting water company have access to the same standards of protection that they would have had if they had remained with them. The draft regulations achieve this by establishing the basis for:

  • A deemed contract securing fair price and non-price terms for the transferred customers of an undertaker that has exited the market.
  • A Supplier of Last Resort regime to address cases of insolvency
  • A parallel Supplier of First Resort pool to ensure that new non-household customers in an area where the undertaker has exited can always secure a retail service.
  • Requirements on both undertakers and licensees to communicate effectively with customers both before and after an exit takes place.

The consultation document also includes a draft exit application form which water companies will use to apply to exit the market.

The document says that the applications process needs to be fit for purpose for the long-term. However, the Government is also aware that a number of companies may wish to exit at the point that the market opens in April 2017 – and they will want as much advance notice as possible in order to prepare for exit prior to market opening.

In order to provide this Defra says the Government is committed to opening the exits applications process as soon as possible, following the completion of the necessary Parliamentary processes.

Subject to approval by Parliament, the applications process is expected to open on 3 October 2016. Applications for exit at Market Opening would need to be received no later than 1 November 2016. Defra is aiming to announce exits decisions in early December 2016, four months ahead of retail market opening in April 2017.

The consultation, which started on 23rd July, will run for 12 weeks, ending on 15th October 2015. Once it has concluded and the regulations have been amended in response to feedback, the draft regulations will then be sent to the Environment, Food and Rural Affairs Select Committee and other interested Parliamentarians to provide them with the opportunity to comment on them before they are finalised. Defra will subsequently lay the regulations in Parliament in May 2016 which will also allow further Parliamentary scrutiny.

The regulations, subject to Parliamentary approval, will then come into force so as to allow for the submission of exit applications from 3 October 2016 and to allow retail exits to take place from market opening onwards.

Click here to access the consultation document  for ‘The Water and Sewerage Undertakers (Exit from Non-household Retail Market) Regulations’ online 

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