Ofwat has issued further clarification of its Water Supply and Sewerage Licence (WSSL) application guidance for prospective applicants looking to enter the business retail water sector.
With the impacts of Covid-19 being felt across the whole of the UK economy, Ofwat said that “understandably, this is a time of considerable uncertainty for all market participants”
The regulator is seeking to ensure that it continues to protect the interests of customers in the business retail market – which includes ensuring prospective licensees provide robust evidence and assurance of their financial stability.
Ofwat guidance sets out that under certain circumstances the regulator may decide to suspend the WSSL application process. Where the processing of an application is suspended, Ofwat will set out its reasoning for this and provide the applicant with the opportunity to address the concerns raised.
If the regulator is then satisfied that the applicant has responded fully and satisfactorily, the application and timetable will resume from the point at which the application process was suspended.
Ofwat also has the option of refusing to progress a WSSL application if, for any reason, the applicant has not provided sufficient evidence to demonstrate that it is suitable to be granted a WSSL, including where the applicant has not submitted a viable business plan.
Ofwat goes on to further clarify its approach, saying:
“Given the challenges posed by Covid-19 and the potential impact of adverse economic conditions on the business retail market, we will apply our guidance to only grant licences where applicants provide compelling evidence of robust capitalisation and strong financial resilience.”
“This should be demonstrated by substantial shareholder investment that is clearly ring-fenced for that applicant with no recourse to market liquidity support measures.”
The regulator will now only progress applications where applicants provide sufficient evidence to demonstrate they have taken into account the impacts of Covid-19 on their business plans.
WSSL applicants will be required to include impacts on financial projections and evidence of testing against a number of scenarios (such as a possible reduction in customer numbers and/or adverse customer growth).
Ofwat says it also expects applicants to provide evidence that they are keeping up to date with developments in the business retail market.
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