LFIG Workshop Scottish Water Market Development Water Industry - - PowerPoint PPT Presentation

฀ LFIG Workshop – Scottish Water Market Development

฀ Water Industry Commission for Scotland 22 November 2006

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Introduction

• Introduction to and overview of the

Commission's work implementing the Water Services Etc (Scotland) Act 2005

• Four parts:

– The Act – The role of the Commission and other market participants – Regulatory tools - licences and directions – Regulatory tools - industry codes and agreements

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The Act - History

• Water Services Etc (Scotland) Act 2005

– Passed 9 February 2005 – Royal Assent 17 March 2005 – Commencement:

Wave Provisions Date 1 Partially establishes Commission; make offence non licensed/non SW to use supply systems; allows creation fees scheme 20 June 2005 2 Fully establishes Commission 1 July 2005 3 Allows creation and licensing of SWBS; activates Commission power to give directions and all other licensing related sections 7 September 2006 4 Allows licensing new entrants 2006

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The Act - Why?

• Article 82 EC Treaty / Chapter II Competition

Act 1998

• Abuse of dominance - "directly or indirectly

imposing unfair purchase or selling prices or

• ther unfair trading conditions"
• Essential facilities in downstream markets
• "Other legal requirements" exemption
• SGEI exemption

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The Act - Scottish response

• England & Wales Competition Act challenge
• Risks to Scottish water industry

– Public health & common carriage – Environmental protection – Scottish Water's revenue

• Prohibition common carriage & controlled

licensed, regulation

• No competition law vires

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The Act - What it requires, 1

• Criminal offence (Ss. 4/5)
• Licensed participation (s. 6)

– "make arrangements" for the supply of water; provision of sewerage

• r disposal of sewage

– "fix, demand and recover charges …"

• Commission licence grant (s. 7)

– "ability to perform adequately the activities authorised by the licence" – "knowledge, expertise, experience and financial acumen and business viability"

• Commission duty to exercise functions (s. 11)

– "secure participation"; – "in an orderly manner"; and – "not detrimental to the exercise of SW's core functions."

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The Act - What it requires, 2

• Scottish Executive/Scottish Water - create &

populate the "undertaking"

• Scottish Water - agree wholesale terms

licensed providers; Commission determine disputes

• Commission - produce disconnections code;

determine cost disputes

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The role of the Commission

• Licence grant
• Monitoring and enforcement
• Securing participation

– In an orderly manner – Not detrimental to the exercise of Scottish Water’s core functions

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Our objectives

(from “The licensing regime” consultation)

• Establish an effective market
• Improving levels of service and cost efficiency
• A transparent, orderly and accountable process
• Proportionate regulation

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Establishing an effective market

• Retailers able to enter and exit the market
• A level playing field for all Licensees
• Effective communication between Scottish

Water and the Licensees

• Clarity regarding the responsibilities of market

participants for particular market functions

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Improving levels of service and cost efficiency

• Retail competition should deliver increased

efficiency

• Both household and non-household customers

should benefit

• All non-household customers should receive

services on terms not unduly discriminatory and, subject to geographic harmonisation, cost reflective

• Wholesale charges should be similarly cost

reflective

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An accountable, orderly and transparent process

• Application process (and assessment of

applications) should be transparent and accountable

• Applicants and Licensees should have enough

information to allow them to predict how the licensing regime and market will operate

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Proportionate regulation

• Aim to limit regulatory burden to the minimum

consistent with promoting customers’ interests

• We will use our regulatory powers under the

regime in a proportionate manner and only where necessary

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The Scottish water market

Scottish Water Business Stream Water services providers Sewerage services providers

CMA Scottish Water

Water & sewerage providers

Licensed providers Central Market Authority Wholesale business Regulators

Waterwatch Scotland SEPA Drinking Water Quality Regulator Water Industry Commission for Scotland

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Market participants

Scottish Water Business Stream Water services providers Sewerage services providers

CMA Scottish Water

Water & sewerage providers

Licensed providers Central Market Authority Wholesale business

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Market participants – information flows

Scottish Water Business Stream Water services providers Sewerage services providers

CMA Scottish Water

Water & sewerage providers

Licensed providers Central Market Authority Wholesale business

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Market participants – financial flows

Scottish Water Business Stream Water services providers Sewerage services providers

CMA Scottish Water

Water & sewerage providers

Licensed providers Central Market Authority Wholesale business

Wholesale charges CMA charges

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Market participants – the Central Market Authority

• Operate, maintain & develop central market

systems

• Manage accession, resignation and market

entry testing

• Assist with governance of market code
• Record & maintain market code and CMA

website

• Monitoring of market participants

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Market participants – Scottish Water

• Provide water and sewerage services to

Licensed Service Providers’ customers

• Provide meter operations services, including

installation, repair and maintenance

• Comply with provisions of the market code

– Provision of information – Payment of fees to CMA

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Market participants – Licensed Service Providers

• Provide retail services to non-household water

and/or sewerage customers – Billing and debt management – Call & correspondence handling – Liaising with wholesale business

• Compliance with market code

– Provision of information including meter readings – Payment of fees to CMA

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Tools - Introduction

• Limits of statute
• Certainty & clarity
• Flexibility
• Different tools, different purposes

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Tools - Licences

• One each for water and sewerage services
• Terms set out basic details; licensee; scope; duration

etc

• Standard conditions - generic
• Ordinary conditions - licensee specific
• Provisional v Permanent

– Provisional - ends 31 March 2008; – Permanent - SWBS & new entrant equal footing; – SLCs to be determined

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Tools - Directions

• Section 11 - "orderly manner … not detrimental",
• To Scottish Water; licensee or potential licensee
• Alternative or supplemental to licence
• Codes & services

– Production of & compliance with operational code – Commission approval WSA

• Intra-group

– Ring fencing – Intragroup contracts & cross subsidies – Compliance officer

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Tools - Industry codes and agreements

• First consultation proposed the use of codes and/or

agreements

• Second consultation gave further indications of scope

for various codes

• Third included draft versions of

– Operational code – Wholesale services agreement – Disconnections code

• And also discussed the development of the market code

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Tools - The operational code

• Covers existing processes
• Allows an arms-length relationship to develop

between Scottish Water and non-household customers

• Sets out the respective responsibilities of

licensed service providers and Scottish Water in each process

• Code parties are licensed service providers and

Scottish Water

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Tools - Wholesale services agreement

• A standard bi-lateral agreement between

Scottish Water and each licensed service provider

• Satisfies the requirements of s.16 of the Act
• Sets out commercial arrangements between

parties – Payment terms and conditions – Service standards to be delivered

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Tools - Disconnections code

• Differs from other documents as it is ‘owned’ by

the Commission

• Satisfies the requirements of s.18 and s.19 of

the Act

• Sets out processes to be followed for debt

recovery and disconnections initiated by licensed service providers

• Separate guidance will be published

– Disconnections not covered in code – Reconnection of supply

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Tools - Market code

• Will cover all new activities required for market
• pening

– Registration and switching rules – Aggregation rules – Governance and change control arrangements etc

• Establishes and sets out the CMA role and

duties

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Development of codes and agreements

• With the licensing of Scottish Water Business

Stream, the following became effective: – Operational code – Wholesale services agreement – Disconnections code

• We will be issuing a draft market code for

consultation in January 2007

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Future Development

• Full commencement
• Determination standard licence conditions
• Market code consultation