Ofwat is seeking comments on its proposal that South West Water should replace Bournemouth Water Limited as the water supplier for Bournemouth Water’s area as a result of last year’s merger of the two companies.

The regulator said the proposal has been made with the support of the boards of both South West Water and Bournemouth Water. Bournemouth Water’s licence will be terminated and South West Water’s licence will be varied to supply the Bournemouth area.

On 5 November 2015 The Competition and Markets Authority gave the go-ahead in November last year after finding that the merger did not prejudice Ofwat’s ability to make comparisons between water companies.

Following the CMA’s findings, South West Water told Ofwat it wanted to operate as a single licensed company covering the existing South West Water and Bournemouth Water areas.

The board of South West Water has pledged to its customers, amongst other things, to:

• ensure that South West Water and Bournemouth Water customers will not be worse off as a result of the merger;
• continue to engage with customers to ensure the benefits to customers resulting from the merger are transparent and demonstrable – progress and delivery against its pledges in respect of the merger will be published and scrutinised by the independent Customer Challenge Groups of the merged South West Water and Bournemouth Water;
• return the small company premium on the cost of finance (which was part of the 2014 price determination for Bournemouth Water), reducing customer bills for Bournemouth Water by £1 from April 2016; and
• maintain a tariff differential between South West Water and Bournemouth Water.

Commenting on the tariff differential, Ofwat said that because there will be only one licensed company, the constraint on the total amount that can be recovered from customers will need to be set at the company level. This will require a change to the licence to ensure that South West Water cannot recover more in aggregate than the separate price controls for South West Water and Bournemouth Water would have allowed.

This will be a transitional provision which will apply until 31 March 2020 for wholesale and household retail activities and 31 March 2017 for non-household retail activities because after these times only one set of price controls will be set for the merged company.

The impact of merger specific savings is expected to reduce South West Water and Bournemouth Water customer bills through existing regulatory mechanisms.

Ofwat added that it will also be working with South West Water to address the implications for its licence that it will be establishing a new retail non-household business which will be legally separated for market opening in 2017. This will also be subject to a separate consultation.

Deadline for submissions of responses is 14^th March – click here to access the consultation document.