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 • Four parts: – The Act – The role of the Commission and other market participants – Regulatory tools - licences and directions – Regulatory tools - industry codes and agreements 2
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 20 June 2005 to use supply systems; allows creation fees scheme 2 Fully establishes Commission 1 July 2005 3 Allows creation and licensing of SWBS; activates Commission power 7 September 2006 to give directions and all other licensing related sections 4 Allows licensing new entrants 2006 3
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 other unfair trading conditions" • Essential facilities in downstream markets • "Other legal requirements" exemption • SGEI exemption 4
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 5
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 or 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." 6
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 7
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 8
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 9
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 10
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 11
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 12
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 13
The Scottish water market Licensed Central Wholesale Regulators providers Market business Water Industry Authority Water & Commission sewerage for Scotland providers Scottish Water Waterwatch Business Scotland CMA Scottish Stream Water Water services SEPA providers Drinking Water Sewerage Quality services Regulator providers 14
Market participants Licensed Central Wholesale providers Market business Authority Water & sewerage providers Scottish Water Business CMA Scottish Stream Water Water services providers Sewerage services providers 15
Market participants – information flows Licensed Central Wholesale providers Market business Authority Water & sewerage providers Scottish Water Business CMA Scottish Stream Water Water services providers Sewerage services providers 16
Market participants – financial flows Licensed Central Wholesale providers Market business Authority Water & sewerage providers Scottish Water Business CMA Scottish Stream Water Water services providers Sewerage services providers Wholesale charges CMA charges 17
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 18
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 19
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 20
Tools - Introduction • Limits of statute • Certainty & clarity • Flexibility • Different tools, different purposes 21
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 22
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 23
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 24
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 25
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 26
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 27
Tools - Market code • Will cover all new activities required for market opening – Registration and switching rules – Aggregation rules – Governance and change control arrangements etc • Establishes and sets out the CMA role and duties 28
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 29
Future Development • Full commencement • Determination standard licence conditions • Market code consultation 30
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