What are the Challenges Facing the Retail Water Market?
The opening of the retail water market in the UK on 1st April 2017 will change the water sector on a fundamental level. This will enable most businesses to choose their own suppliers, which will present those suppliers with both opportunities and risks.
The current statutory charging schemes will be replaced by express supply agreements or “deemed contracts.”
The Retail Exit Code, recently released by the Water Services Regulation Authority (OFWAT), stipulates the regulatory requirements that suppliers’ deemed contracts must meet. Deemed contracts in the water industry are slightly different to the already well-established deemed contracts in the gas and electricity markets.
One of the specifications is different pricing requirements for deemed contracts for inherited customers including SME customers and non-SME customers. The Retail Exit Code defines an SME solely by reference to the number of employees (less than 250), which is often not within a supplier’s knowledge, so could pose a compliance risk.
Problems in ascertaining the true occupier of premises (the actual counter-party to the deemed contract), multiple occupancy and shared supply between multiple premises could also create issues for the supplier in enforcing the deemed contract and securing payment.
The new dispensation means that water supply companies will have to ensure that they train all employees in the fundamentals of contracts, the potential pitfalls and the key differences of dealing with different types of legal entities in an attempt to avoid problems, including large corporations or “buying groups” attempting to impose their own framework agreements.
The supply of water to customers is protected as an “essential supply” under the Insolvency Act 1986I, which means that customer insolvency issues could also cause major problems for suppliers.
Phoenix companies, which are commercial entities which have emerged from the collapse of another through insolvency, could also pose problems, as could data protection issues.
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