Water industry regulator Ofwat has today published its draft terms of reference for reviewing the costs and benefits of providing competition for retail water services to household customers in England.

In November, Ofwat welcomed the Government’s decision to look into the benefits of such competition. The Government asked Ofwat to carry out the review, reporting back in the summer.

By undertaking the review now and reporting back to the UK Government later this year, the regulator expects to be able to factor the UK Government’s conclusions and decisions into the next price review in 2019.

The review will consider the opportunities for introducing competition for the provision of water and sewerage retail services to household customers and the different scenarios through which this could happen. It will include an assessment of the costs, benefits and the factors that will influence them. In doing so, it will consider the possible options for introducing competition to household customers, including the ‘do nothing’ option for household retail competition.

Competitive retail market scenarios outlined in the terms could be expected to include:

• A “thin” retail market: where the scope of the market activities was limited to providing core retail activities, such as billing and payment handling;
• A “thick” retail market: one which includes a wider scope of activities (risk and opportunity) that retailers could undertake, including resource procurement, local distribution networks, meter provision and metering, new connections and more customer interactions;
• A “narrow” market: one in which a specific sub-set or sub-sets of household customers are contestable. This would for example allow different regions or segments of the market to opened at different times;
• A “wide” market: one in which all household customers are contestable.

Ofwat intend to publish its r initial findings in July for comment. It also proposes to publish specific evidence or analysis at early stages if we consider it raises important issues where it would be helpful to understand stakeholder views earlier in the process rather than wait.

It will then publish its review in full by September which will then inform decisions on policy that will be taken by the UK Government.

"Quantifying the benefits of competition, in particular the more dynamic benefits of competition such as innovation can be notoriously hard"

Introducing the terms,Ofwat said there is a wealth of evidence from other utility sectors and the broader economy that market forces can deliver a range of significant benefits to customers. However, Ofwat has also pointed out that "quantifying the benefits of competition, in particular the more dynamic benefits of competition such as innovation can be notoriously hard."

Cathryn Ross, Ofwat Chief Executive said:

“At Ofwat we take very seriously our duty to protect customers and ensure they get the best possible deal. That’s why we welcomed the UK Government’s decision to explore whether water services to households in England could and should be opened to competition.

“Business customers and other organisations will be able to choose their retail supplier from April next year. There are eighteen times as many household customers in England who could also potentially benefit from a well-functioning market. Yet we also need to identify the barriers to getting a better deal for customers and making sure all customers’ interests are considered.

“Opening up choice is a decision for government. We have committed to a rigorous review that is open, transparent and evidence based. We will look to learn from other sectors and want to hear a wide range of views. This will be crucial in delivering a comprehensive review that takes full account of the best interests of customers and wider society.”

Given the constrained timeline Ofwat will also publish its final terms of reference, as well an early call for evidence, by the end of the month. A period of engagement with stakeholders will follow to understand the evidence submitted and issues raised.

Ofwat will then publish its initial findings in July 2016, with the final report submitted to Government in September 2016. Once the review is complete, it will then be for the Government to decide if and when it wants to give household customers a choice.

Key dates for the review are as follows:

15 January Publish draft Terms of Reference for comment
18 January Publish Call for Evidence.
28 January Deadline for comments on draft Terms of Reference.
17 February Deadline for Call for Evidence
January-April Evidence gathering and analysis supported by stakeholder engagement and customer research.
July Publish draft findings.
July – August Stakeholder engagement to discuss draft findings.
September Submit final report to Government.

Comments on the draft Terms of Reference should be emailed to Ofwat at  This e-mail address is being protected from spambots. You need JavaScript enabled to view it  by 28 January 2016.

Click here to download Ofwat's Draft Terms of Reference