Ofwat is seeking to simplify licence conditions for water companies, including proposals to shift the current focus on the bureaucratic form of a Code of Practice on issues including leakage to focussing instead on the information to be provided to customers.

The regulator has launched a new consultation on its proposal to simplify and modernise licence conditions for water companies, while maintaining the protections for customers and the balance of risk for companies.

Introducing the proposals, Ofwat said:

“We have been working with the sector to identify where the licence can be simplified and streamlined, and this is a package of changes which we would like to make to all licences as a step towards modernising licences.”

The regulator’s aim is to deliver a licence that allows for key obligations and requirements to be clearly stated in a way that is, as far as possible, easily understood by companies and interested stakeholders. Ofwat also wants a licence which enables it to:

• regulate in accordance with its regulatory model and facilitate delivery of its strategy
• allow for evolution in regulatory approach and is adaptable to changes in sector structureand the regulatoryenvironment

Ofwat is proposing to simplify the language and structure of the licence, together with removing conditions or reducing and rationalising conditions which are identified as being no longer relevant or no longer reflect the environment in which companies now operate.

However, the proposals do not extend to introducing new conditions, addressing existing, substantive differences between individual companies’ licences or altering licence requirements in anticipation of long term deregulation.

As part of the package of proposals, Ofwat is seeking to modify three licence conditions which require companies to provide Codes of Practice on various subjects and set out arrangements for making them:

• Condition G - Core customer information
• Condition H - Procedure on leakage
• Condition I - Code of practice and procedure on leakage

Ofwat said the existing separate conditions represent a considerable amount of duplicated material in the licence which it now wants to streamline by consolidating parts of Conditions G, H and I which deal with providing a Code of Practice into one new Condition G.

The paper says:

“We are also moving away from focussing on the bureaucratic form of a Code of Practice to focussing on the information to be provided to customers. The proposal brings the condition up to date with current practice by removing the provisions about Ofwat approving the Codes of Practice.

“We have revised the condition to make it clear which information we expect to be provided to all customers and which information need only be provided to those customers who are not eligible to take part in the business retail market.”

Ofwat also proposes to remove ambiguity in part of the current scope of Condition I which covers procedures for charging in the event that leakage is discovered which has led to “an inconsistent application of the condition by companies.”

The regulator said it was important that the scope of the condition is consistently understood and applied and would resolve the ambiguity by restricting the scope of the new condition to customers in domestic premises.

Proposal to remove inconsistency in compensation payments to customers for supply interruptions in event of drought

Ofwat is also proposing to revise Condition Q which makes provision for companies to make a payment or credit if customers’ water supplies are interrupted while a drought order is in force.

The paper says that one of the important parts of the Condition which was “ripe for simplification” was the provision which stated that no payment or credit was payable if ‘the circumstances were so exceptional that it would have been unreasonable to have expected the interruption or cut-off to have been avoided.’

Ofwat said it did not consider that this exception was helpful given that a drought order, when the condition applies, can only be made ‘by reason of an exceptional shortage of rain’, commenting:

“There is therefore a lack of clarity which could lead to inconsistency in the extent to which companies pay compensation to customers.”

“Our view is that it is that the Appointee should not be required to make payments where it took all reasonable steps to avoid the circumstances which gave rise to the making of the drought order.”

The consultation paper says Ofwat expects to see “significant intangible effects” and greater regulatory clarity for companies, itself and other stakeholders which will make it easier for:

• companies to understand what is expected of them
• Ofwat to determine whether companies are complying with their obligations
• stakeholders to understand what Ofwat will hold water companies to account for

Deadline to submit comments on the proposed modifications by 19 October 2018. The water companies are also required to notify their acceptance or otherwise of the proposed modifications. Subject to agreement, Ofwat is aiming to amend the companies’ licences by 19 December 2018.

Click here to download the consultation paper