Final determination of business retail price controls
To aid water market opening at the start of April 2017, Ofwat published their Final Determinations on the non-household retail price controls.
The water regulator has an obligation to set the price limit of the service packages that companies must deliver. These price controls affect the bills paid by consumers for both water and sewerage. They set the total allowed revenue that a retailer can earn for a given customer type. The overall price controls effectively set the benchmark by which competitive prices will be assessed. The most recently released non-household price control covers the three years from April 2017.
Ofwat has introduced a couple of changes in comparison to the 2014 price control review. The regulator simplified the form of control applied to larger customers in both England and Wales by adopting a uniform cap on the allowed retail revenue, which will not include the wholesale costs faced by all market participants. Ofwat set a margin of return at 5% for medium water usage (between 5Ml and 50Ml) and 3.3% for large water usage (more than 50Ml) for all companies. This introduces greater flexibility to incumbent suppliers as they will be able to set different tariffs and pricing structures for customer falling under this category. The 2014 price control used a default tariff cap to calculate the price limit for all users.
For small companies and microbusinesses, consuming less than 5Ml of water per year, the form of control will remain default tariff caps.
The reason behind this is to ensure that those businesses feel protected. Ofwat considers that SME customers would be less able to take advantage of the competitive market.
The business retail price controls will ultimately serve as a comparison point for customers in the now open water market.