Water industry regulator Ofwat has confirmed that it has approved Dŵr Cymru’s trading and procurement code - in PR14 Ofwat introduced water trading incentives to encourage water trading between incumbent water companies.

Companies can only receive water trading incentives if they produce, and are compliant with, an approved trading and procurement code.

Dŵr Cymru was the first company to submit their code for approval in November 2015 and the consultation closed in January 2016. Thames Water was the only respondent to the consultation and was supportive of the draft code. We carefully considered this response and the code itself before making the decision to approve the code.

Welsh Water’s operating area shares a land border with Severn Trent Water and Dee Valley Water, and a water border with Bristol Water (the River Severn estuary) and United Utilities Water (the River Dee estuary). Two other companies also operate as ‘new appointees’ within its area - Albion Water, which serves one industrial customer on Deeside in north Wales, and SSE Water, which serves a housing development at Llanilid in South Wales.

The water company already has more than 20 bulk water trades already in place with some of these companies, the most significant of these by volume is the Elan Valley bulk supply with Severn Trent Water, where it exports more than 100,000 Ml per year to Severn Trent, for it to supply its customers in Birmingham.

An overview of Welsh Water’s current forecast of water availability suggests there is some scope for trading with other water companies and industrial customers. The estimated water resource position over the medium term suggests the company is more likely to offer exports than seek imports during the period, with 19 of its 24 Water Resource Zones estimated to have marginal or material supply demand balance surpluses over the period to 2040.

Welsh Water’s Water Trading Prospectus makes clear it is willing to trade with both other water companies and with third parties. However, the water company believes it is likely that, initially at least, most new water trades will be between water companies, as they respond to the water trading incentives introduced by Ofwat in the 2014 price review.

The Code conforms to a number of general high-level principles, which will govern its approach to negotiating trade agreements. The Issues covered by the principles include assignment, compliance, duration, managing emergencies, imports and exports and trading agreements.

Welsh Water has flagged up its awareness of the Ofwat requirement for qualifying trades to be new trades beginning in or after July 2013 in the Code, commenting:

“We can assure Ofwat and others that we have no intention of manipulating any of our current trades in order to exploit the financial incentives for trading. We would expect all of our trading partners to take a similar approach to the maintenance of existing trade agreements.”

The Code also draws attention to the Welsh Government’s expectation for water companies operating wholly or mainly in Wales to only agree to sharing resources and water trading where it would not be detrimental to the incumbent company and its customers, particularly where trading might be used to meet demand in England.

Ofwat said it may conduct an annual review of approved codes and provide further guidance to companies by the end of June each year.

Click here to access the Code