New connections – a watershed moment

By John Marsh, GTC’s Water Director

The deregulation of the water retail market for non-domestic customers has received considerable attention. There has been less fanfare, however, about another important opening up of the water market in England and Wales, that of the market for new water and wastewater connections. Measures to introduce genuine competition into this market come into force this April and represent a significant opportunity for any public-sector organisation involved in development, especially local authorities and housing associations building new communities of social housing.

Following what Ofwat and industry experts are describing as a major change, independent water network providers, such as GTC, will be able to offer developments of all sizes a real choice of provider. The water market will be liberalised in the same way that the electricity and gas markets have been. Indeed, the majority of new electricity and gas connections are now carried out by independent network providers.

Until now, there have been very limited opportunities for developers to source their water networks from anyone other than their local water company. This was because the old rules did not anticipate competition.  As a result, the tariff and charging structures operated by the water companies hindered competition.  Following an investigation into how the market was operating, Ofwat has now introduced a number of measures which will sweep away the barriers to competition, with the anticipated result that newly robust market competition will bring lower prices, a wider choice of providers, better customer service and innovative supply solutions.

What choices does a developer have?

In England and Wales, water companies supply domestic water and wastewater services on a monopoly basis within their specific geographical areas. They provide services to the majority of households in their regions and are referred to as the ‘incumbent’ water company.

For new connections, however, developers do have a choice:

  1. To use the existing ‘statutory’ offer from the incumbent water company to deliver the new connections.
  2. To choose a competing water company, referred to as a NAV – a ‘New Appointment and Variation. NAVs are licensed by Ofwat and own the site network.  NAVs can install the site network or adopt networks that are installed by Self-Lay Providers (SLPs). To date, NAVs have been restricted to large sites, but the opening of the market means full competition with NAVs operating on all sizes of development.
  3. To employ SLPs to install the site water network. The network can then be adopted and owned by a NAV or the incumbent water company.  In a similar way, NAVs can own the site wastewater networks installed by the developer.

Although the option to appoint an independent water company has been available since 1997, developers and housebuilders have been wary of the process and it has only made financial sense for independent providers to supply water and wastewater networks on larger developments. The new rules change this, with hundreds of new NAV licences expected to be processed in the next few years and developments of as few as 50 houses being able to benefit.

The changes and what you can expect

The first difference that a developer considering appointing a NAV will notice is that it will be easier to establish exactly what the incumbent water company will charge to connect the new development to their existing network. The charges will also be fairer, with new connections not paying for pre-existing network issues.

In addition, developers will benefit from a speedier licensing process. Ofwat has undertaken to streamline the NAV licence application process and significantly reduce the amount of time it takes for a licence to be granted. The greater degree of certainty over timescales will mean that choice of supplier will not be determined by concerns that delays in the licensing process will impact the delivery of the overall project.

Independent providers are also expected to bring fresh thinking and a more flexible approach to network implementation. They also bring experience. GTC, for example, is already responsible for more than 8,000 live water and wastewater new connections with an order book of 40,000 more homes.

Finally, the opportunity for adopting a multi-utility approach will bring significant benefits to housing developments. All of a development’s utilities – water, wastewater, electricity, gas, and superfast fibre broadband – could be handled by a single network provider. Utility procurement is simplified with only one company to deal with and a single project manager to co-ordinate the installation of all the utilities, making scheduling more reliable and delivering valuable cost savings.

Making the most of the new environment

Everyone involved in commissioning or specifying utilities for new developments needs to consider how these changes can work for them. Even where a quotation has already been received, options can be reviewed under transitional arrangements designed to protect existing business cases.

Genuine competition is about to arrive in the new water connections market. Expect change, innovation, and new ways of working. It is a watershed moment for the water industry.