The Regulators’ Alliance for Progressing Infrastructure Development. (RAPID) has launched a consultation on commercial arrangements for enabling new water resources.
At the 2019 price review Ofwat announced a £469 million ring-fenced development fund for companies to investigate and develop strategic water resource solutions that benefit customers, protect, and enhance the environment and benefit wider society.
The partnership consists of of three water regulators: Ofwat, the Environment Agency and the Drinking Water Inspectorate (DWI) - Natural Resources Wales (NRW) is involved in an advisory capacity and has a decision-making role for any strategic water resource solutions involving Wales, Welsh policy and legislation.
RAPID provides advice and recommendations on the development of strategic water resource solutions to the partner regulators and NRW.
The consultation sets out RAPID’S further thinking and assessment of policy options on commercial frameworks, specifically in relation to commercial / contractual models including bulk supply water transfer agreements and associated policy, such as charging.
Several water companies are developing solutions which will help address the water supply deficits in the coming years. Many of the proposed solutions are regional schemes and multi-party in nature, with more than one water company involved in the supply and transfer of water between regions.
According to RAPID, developing regional, potentially multi-party infrastructure of this scale and complexity inevitably leads to challenges and issues for the existing regulatory and commercial frameworks. Pointing out that historically, the sector has not had to deliver such a significant programme of major infrastructure at one time, RAPID comments:
“This means they may not have the necessary skills or capacity in-house for delivering these projects and there may be opportunities for accessing different funding models. As a result, we are of the view that for the RAPID programme of projects, significant benefits could be derived for customers through competitive tendering of major infrastructure projects. This would allow third parties to design, build, finance, and potentially operate and/or maintain major infrastructure.”
Commercial frameworks for solutions
The consultation papers says that current regulatory and commercial frameworks are not fit for purpose to support the delivery of these solutions and that the multi-party nature of solutions, and the use of competitively appointed third parties are new elements which will require adaptions and development of existing regulatory and commercial frameworks.
RAPID says it needs to provide the sector with information as to how solutions will be regulated and how it expects commercial arrangements to be structured to deliver solutions which are in the best interests of customers, society and the environment. Commercial frameworks include contractual and charging arrangements, as well as operational arrangements.
The partner regulators in RAPID are now consulting on its current thinking with regard:
- Commercial delivery models, including a preferred model for solutions. RAPID is proposing to focus the competitive procurement on delivery of infrastructure and for each solution to be driven by a lead water company, to ensure clear and appropriate allocation of responsibilities and risk;
- Contractual arrangements for water transfers. RAPID is proposing to produce updated guidance on bulk supply transfer agreements for RAPID solutions which will also consider the standardisation of contract provisions, operation of solutions at times of drought or other operational incident, charging guidance and possible future use of statutory codes and / or charging rules.
RAPID is aiming to have finalised policy positions on the areas set out in the consultation by early summer 2024, consult on the draft new guidance on bulk supply agreements for RAPID solutions in summer 2024, before finalising the guidance by late 2024.
Deadline to submit comments to the consultation is Thursday 29 February 2024.
Click here to download the consultation paper
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