Regulatory protections will be needed to protect customers from potential abuse from “substantial market power” in the transition to water market competition, Ofwat has said.
As part of a review of non-household retail price controls, the regulator said it wants to make sure new market arrangements don’t disadvantage certain customers.
It said while price controls mustn’t “create undue barriers to entry or expansion”, basic protections must be put in place to “promote trust and confidence” in the delivery of water and wastewater services.
Ofwat said default tariffs, a form of back-stop protection for customers in the non-household water and wastewater retail market, “remain appropriate”.
However, problems have been highlighted in the energy market, which became competitive 15 years ago, such as the average cost serve to non-household customers being higher than the allowances made in setting the default tariff caps.
In the water sector non-household retail costs rose in 2014-15, the regulator said, and the non-household retail price controls set in December 2014 “did not include a sufficient allocation of costs or margins”.
The regulator wants companies to engage with customers to develop their default tariff caps proposals. It is also consulting on how to improve transparency in the mapping of tariffs to the default tariff caps.
The consultation will close 11 December.