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

lfig workshop scottish water market development
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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 Introduction Introduction to and overview of the Commission's work implementing the Water Services Etc (Scotland) Act 2005


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฀ 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