Putting Ofwat’s guidance into practice

With shadow operation less than a year away future wholesalers and retailers are wrestling with the question of just what belongs in the English competitive water market.

Companies have been looking to Ofwat for help and in August Ofwat addressed this most fundamental question by publishing its guidance on which customers are eligible to switch supplier from April 2017.

Adhering to the guidance for most properties will be straightforward as they will clearly fall into the “household” or “non-household” buckets but there are difficult and time-consuming issues to work through to decide:

• whether some properties should be included in the market or not;
• how many supply points need to be registered.

Companies will find that the Ofwat guidance has provided some helpful clarification but Ofwat has clearly and firmly put the onus on companies to sort out the “difficult-to-decide” properties themselves and only come to Ofwat for a determination where they have tried to apply the guidance and still can’t decide.

That means there is a substantial risk of inconsistent interpretation by companies and/or customers if they don’t understand the subtle differences that apply in some of these difficult-to-decide cases.

Any inconsistency between companies will soon become apparent to customers who operate across England so companies and Ofwat can expect pressure to clarify difficult cases once and for all.

But in the meantime companies can’t afford to wait for that pressure to resolve issues. They need to be rising to the challenges now if they are going to be ready for the market.

One challenge for companies is the tension between different principles set out in Ofwat’s guidance. On the one hand Ofwat suggests that any customer who wants to be able to switch should be included in the market. But on the other hand Ofwat is very clear that retailers mustn’t bill household premises with the threat of prosecution if they do. Hopefully it won’t come to that but companies will need to be clear and robust in explaining to some disappointed customers why their premises aren’t eligible to switch.

Companies asked Ofwat to produce lists of property types that were definitely in or out of the market and Ofwat has chosen not to do that because there will be exceptions that don’t fit in neatly.

Looking at some examples gives an insight into the problem cases that will need to be resolved to work out exactly what belongs in the market and whether individual customers can switch.

Firstly, we have the problem of whether a building divided into different units is one supply point or many. The Ofwat guidance is clear that the occupier of every separately rated office/unit in a multi-occupancy building is eligible to switch. This will also apply to every unit within a shopping centre with shared water and foul sewerage.

However, surface water charges for large buildings are often lower than they would be if every unit was charged individually. So there will be customers who want to switch all of their offices or shops to a single retailer and want each unit registered individually and other customers who don’t want to switch and certainly don’t want to get larger bills because of competition. There is no obvious way to keep both sets of customers happy.

A second group of difficult cases will be university halls of residence. The Ofwat guidance is that where these are mixed-use properties they should be included in the market because they wouldn’t exist if there were no university.

But it’s not as simple as that: some university halls of residence are registered for Council Tax only so a different bit of Ofwat’s guidance would make those household premises.

And when is a building housing university students a hall of residence? There are now several private accommodation blocks catering exclusively for students – are these to be treated as halls of residence or as private rented accommodation?

It’s possible to construct a strong argument that all university halls of residence should be in the market no matter who owns them and how the Valuation Office Agency has classified them. But it’s also possible to take a strict view that only those that are owned by the university and classified as mixed-use properties by the VOA should be included. Perhaps halls of residence will be the subject of the first determination Ofwat has to make.

There are practical steps that companies can take to help them with the difficult cases:

• share information about how you are approaching difficult cases: consistency is in customers’ and companies’ interests alike
• communicate with customers telling them what your decision is and, if they aren’t happy, letting them provide evidence why your decision should change
• keep good, clear records where more than one set of premises is covered by a single supply point
• disaggregate multi-occupancy buildings where charges do not increase
• keep and publish records of the properties you don’t put in the market – transparency will save answering the same question many times over once the market is up and running
• rely on the Valuation Office Agency decision wherever you can – you need to have a good reason to disagree with them

Above all companies need to get to work on this now as knowing what belongs in the market is the foundation stone of accurate data, efficient operations and customer satisfaction.