Next steps for water market opening: Responsibility shifts to the companies

The publication of MAP3 – the third iteration of the draft market architecture plan – for the opening of the water market was a significant moment for the industry.

Not only does it represent the most detailed set of plans to date on how the non-domestic water retail market will look and operate when it opens in April 2017, it also marks the point where responsibility starts to shift away from Ofwat, to the individual water companies.

The Water Industry Commission for Scotland (WICS) chief executive Alan Sutherland, who has been a central figure behind the market opening programme, told Utility Week: “Over the next few months, the emphasis of the work moves from being quite centrally orientated – the writing codes and rules and procurement of systems and all that – to become a very much company specific workload. It’s not that the level of intensity is going up, it’s just the direction of that intensity is changing.”

With this shift now placing more responsibility, and accountability, on the water companies, they have a number of key areas to focus on to ensure everything goes smoothly ahead of the market opening go-live date. These are: data; system testing; and business separation.

South West Water regulatory director Iain Vosper told Utility Week that data, in particular the issue of data cleansing (the process of detecting and correcting or removing corrupt or inaccurate records from a data set) is something the water companies need to continue to work very hard on to improve.

“The requirements of producing a market compliant data set, and being able to upload that data effectively into the market operating system, are significant. A large number of data items need to be cleansed and validated prior to being uploaded,” he adds.

Yorkshire Water head of business retail Nick Topham agreed the data quality issues have to be rectified because “with shadow market opening on a certain date, we want to see company able to send and receive data by this point”. Something that will not successfully happen if the data issues have not been resolved.

Wessex Water chief executive Colin Skellett also said that data is still an area where work needs to be done. However, unlike Vosper and Topham, he is in favour of assurance tests so the progress being made by the companies can be monitored.

“It will be helpful to have regime assurance checks as a measure of where you are. It is stupid to proceed on hope; we need to proceed on the basis of measuring at key points because this will show if you are on track or not, and allow you time for mitigation,” he said.

Ofwat is currently following a more hands off approach to assurance, something Topham called “self-policing principles” and more “carrot than stick”. This gives the companies the responsibility to ensure they are going to be fully ready, without simply completing a tick sheet.

The responsibility for testing the data, the codes, systems, and new interfaces is being laid at the door of the companies, although Sutherland agreed with Skellett that some external “readiness tests” would be beneficial.

“That process of readiness is something that does need to be hands on I think,” he said. “You’ve got a year between the system developer delivering a working system and the market opening according to the plan.

“That gives you in effect six months of practice time and uploading data and making sure the interfaces are all working correctly, then a six month parallel running phase before go active.” Sutherland says this is “doable” but adds it is crucial to allow the companies a chance to fully test their systems, not only internally, but also with other parties.

How this interaction between the parties involved relies on the structures the water companies put in place. A number of companies, including Wessex Water and United Utilities, have reorganised their companies, splitting out the wholesale and retail elements.

Skellett raised a concern over the separation and the new systems that will need to be created. He said the decision needs to be taken as to whether retail customers are divided into two separate systems – one for households the other for businesses – or whether one new system needs to be created. The importance of these changes, by separating out the retail and wholesale sections of the business, is to demonstrate a level playing field and that one company’s wholesale arm is not favouring its own retail arm over others.

Business Stream chief executive Johanna Dow said ensuring there is a level playing field in practice, as well as one that is seen to be fair, is vital for the sector.

She said this restructuring of the water companies needs to happen “to remove any doubts over how the market will operate”. Dow also warns “there is still a lot of work to be done ahead of market opening”.

It is this work, in the areas of data, testing, and business separation, which must be completed, by the entire industry, by April 2017. The onus on doing so now rests largely with the water companies.

As Skellett warned: “Reputation of industry rests on getting this right. If a chunk of customers can’t participate it will be difficult for them and gives the perception we can’t organises ourselves.”