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WSL Publications
WSL 03/07 2 May 2007 Dear Colleague WATER SUPPLY LICENSING (WSL) – BEST PRACTICE We published the outcomes of our internal review of market competition on 4 April 2007 and have initiated a number of workstreams as a result. You will separately have received our consultation on some specific aspects of our WSL guidance, and we will publish a wider consultation paper in June. In the meantime, this letter sets out examples of best practice in the operation of WSL and encourages appointed water companies and licensed water suppliers (licensees) to follow this when negotiating access agreements. The policy set out in the sections below has been developed following bilateral and trilateral meetings with appointed water companies and licensees, our industry advisory group meetings and taking account of our responses to competition enquiries. We are consulting on some parts of this policy and proposing further amendments to the WSL guidance in our 'Consultation on changes to the water supply licensing guidance', which we published today. That consultation explains the changes we are proposing to make to our guidance on access codes, eligibility and the licence application process, and a proposed modification to Condition R. This WSL letter is intended to encourage appointed water companies and licensees to apply best practice with immediate effect. Our current view of best practice could, however, change as a result of stakeholders' responses to our consultation. Publish Wholesale Master Agreements (WMAs) and confidentiality agreements As explained in section 3.2 of our access codes guidance, we envisage that an access agreement will comprise the WMA and a premises-specific schedule. The function of appointed water companies' access codes is to set out the matters that we would expect to appear in a WMA. Section 1.2 of our access codes guidance states that "Access codes will contain the standard policies common to all water undertakers and any specific terms for access to a particular water undertaker's supply system. Access agreements (which will incorporate the terms and conditions set out in the access code) are required by section 66D of the Water Industry Act 1991 (WIA91) to be made in accordance with this guidance". Few WMAs have been signed, owing to disagreements between licensees and appointed water companies during negotiations. We consider that licensees should be able to understand how different appointed water companies approach issues so that they can enter into negotiations for access on a more informed basis. Our access codes guidance currently states that, at the licensee's request, the appointed water company should provide a draft WMA and a draft confidentiality agreement within 15 working days. However, to help negotiations we now require appointed water companies to publish draft WMAs on their websites by 18 May 2007. Confidentiality agreements should also be included in appointed water companies' published access codes. As well as increasing transparency, this will eliminate the delays experienced by licensees in receiving these documents, and reduce the overall time to agree a WMA to a maximum of 25 days. Before publishing the WMA, each appointed water company should review and, if necessary, revise its draft WMA to reflect the best practice set out in this letter. We will continue to work with our Operations Advisory Group (OAG) to develop principles for standard WMA clauses in the longer term. We have clarified the requirement for appointed water companies to publish a draft WMA and a draft confidentiality agreement in our consultation on changes to the water supply licensing guidance. Application fees At present an appointed water company is entitled to recover from a licensee the reasonable costs of processing a premises-specific application for access, up to a maximum fee. The maximum fee is £2,500 for a combined supply application and £250 for a wholesale supply application. In the September 2006 consultation responses document we stated that we remained concerned that application fees, even at these levels, could be a barrier to licensees entering the WSL market and that we would review the temporary, maximum fee in the light of practical experience. Experience since then confirms that application fees, particularly for wholesale supply, remain a barrier to entry. We propose, therefore, to abolish the application fees payable by licensees to appointed water companies for wholesale and combined applications. Whilst we are consulting, we would encourage appointed water companies to process access applications without charging licensees a fee. We will continue to review this new arrangement in the light of practical experience. Security deposits and advance payments Some licensees have expressed concern over appointed water companies requesting security deposits, bonds or guarantees, stating that they consider the approach to be unreasonable where the approach is not consistent with the appointed water company's policy of requiring the payment of such security payments from large users. Our consultation on changes to our water supply licensing guidance proposes that appointed water companies should not request security payments from licensees. We have seen no evidence that appointed water companies currently require security payments from their large users and we have not been persuaded that the risks that licensees pose justify the payment of security. However, we will keep this under review as competition in the market develops. To speed up access negotiations whilst we are consulting, water undertakers should not request security from licensees. With regards to advance payments, if an appointed water company has a provision within its charges scheme for requesting, and in practice requests, advance payment from existing large users, then the same policy may be applied to licensees (in respect of the same customer), if appropriate. We have clarified this in our consultation on changes to the water supply licensing guidance. Duration of an access agreement The duration of an access agreement and the circumstances in which it can be terminated have been matters of disagreement between some licensees and appointed water companies. Our OAG has agreed best practice principles on the duration of the agreement. As a result we have proposed to amend our access codes guidance to state that WMAs should be of indefinite duration. They should also contain a clause allowing parties to review the WMA after a material change to the regulatory and/or legislative regime affecting the competition model has occurred since signature of the WMA and for an automatic review every five years. Termination of an access agreement Appointed water companies and licensees have sought clarification on the circumstances in which an access agreement may be terminated and whether the termination clause should be part of the WMA or the premises-specific agreement. The OAG was unable to agree the approach to these issues and asked for our advice. We are consulting on our approach to termination in our access codes guidance. We propose that the termination clause should be included within the body of the WMA, as it will be a standard term of each of the premises-specific agreements and consider that appointed water companies should adopt this approach now. We consider that there may be customer-specific reasons (eg non-payment of its bill to the licensee) in which termination of an access agreement might be appropriate. There may also be general reasons why the licensee will no longer supply any customers at all (for example, it intends to exit the market), so that termination of all access agreements is appropriate. Therefore, there should be a termination clause in the WMA enabling the parties to terminate all access agreements between the appointed water company and the licensee in certain circumstances. In addition there should, again within the body of the WMA, be a premises-specific termination clause, which could be used to terminate an individual premises-specific agreement. Unauthorised use of water We have received queries from licensees about the approach that some appointed water companies are proposing to take in the case of unauthorised use of water. The appointed water companies in question were proposing to hold the licensees liable to pay for water taken unlawfully from the appointed water companies' supply systems, which the licensees felt was unreasonable. Appointed water companies should pursue (if necessary by civil and/or criminal proceedings) the person responsible for any illegal actions, such as the operation of a meter bypass, illegal connections and unmetered/illegal standpipe use. Appointed water companies may not make the licensee responsible for such actions of a third party. Supplier of last resort Some customers are concerned that they are not guaranteed a supply from the appointed water company if they wish to switch back to that supplier after having switched to a licensee. Customers are protected by the interim supply duty (section 63AC WIA91) on appointed water companies to continue to supply customers if their licensed supplier stops supplying them, although that duty is not unqualified. The circumstances in which this duty does not apply are the same as those that apply to the duty under section 55 WIA91 to provide new supplies of water for non-domestic purposes. We explained these concerns in more detail, as well as the interim supply duty and strategic supplies designation process, in our paper on the outcomes of our internal review of competition. Generally, at the current stage of market development, we believe it is undesirable for appointed water companies to refuse to supply a customer who wishes to return to the appointed water company after having switched to receive a retail supply under section 66A WIA91 from a licensee. We also believe it should be possible for appointed water companies to give some measure of comfort to customers who may switch away to licensees for retail supplies, to assure those customers that they would be able to switch back to them easily. Yours sincerely Phillip Dixon Head of Competition  |
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