DELIVERY AGREEMENT
BETWEEN
WATER SERVICES REGULATION AUTHORITY
AND
WATER INDUSTRY COMMISSION FOR SCOTLAND
WHEREAS:
A.
The Water Act 2014 (the Act) envisages the reform of the downstream and upstream markets for
non-household water and sewerage services in England.
The Act also envisages closer
alignment of the downstream markets in England and in Scotland.
B.
The Water Services Regulation Authority (established under the Water Industry Act 1991) (the
Authority) and the Water Industry Commission for Scotland (established under the Water
Industry (Scotland) Act 2002) (the Commission) have entered into a Memorandum of
Understanding dated [ ] (the MoU) in relation to their shared interest in the effective economic
regulation of the sector and the protection of customer interests.
C.
The Department for Food and Rural Affairs (the Department) acting with the Scottish
Government has established a High Level Group also involving the Authority and the
Commission to guide the implementation of the market reform provisions of the Act.
D.
The High Level Group has established the Open Water programme (the Programme) to work on
both the upstream and downstream market reforms described above.
As part of that, it is
envisaged that the Programme will develop the Market Arrangements (defined in section 2
below) for the retail market in England. The Authority also envisages that market participants
(incumbents and new entrants) will jointly establish a market operator (the MO) for the purpose of
delivering the Market Arrangements in line with the requirements of the Programme.
E.
The Authority now wishes to appoint the Commission to provide technical assistance, as a
delivery partner to the Authority, by carrying out all of the activities required to facilitate
downstream market reform and achieve market opening including the provision of the Market
Arrangements. In carrying out such activities the Commission shall have responsibility for the
work of the Programme and shall work with Open Water Market Limited (OWML) and any
successor entity established to carry out the role of MO and with Central Market Agency Limited
(the CMA) in order to fulfil its role as delivery partner.
F.
The Commission has the resources available to deliver such technical assistance without
impacting on the Commission fulfilling its responsibilities in regulating the water industry in
Scotland.
N1158.25-03 19966662 6 EMMM
2
G.
The Commission will be accountable to the Authority’s Accountable Officer for the probity and
effectiveness of the resources committed to the Programme.
H.
The Authority and the Commission (the Parties) have agreed to enter into this agreement to set
out the terms and conditions that will apply to the carrying out of the delivery role and the Parties’
respective responsibilities.
NOW THEREFORE THE PARTIES HAVE AGREED AS FOLLOWS:
1.
APPOINTMENT, BENEFITS AND PRINCIPLES
1.1
Appointment: The Authority appoints the Commission to provide technical assistance as a
delivery partner to the Authority by carrying out all of the activities required to facilitate
downstream market reform and achieve market opening, including provision of the Market
Arrangements (the Delivery Services), on and subject to the terms of this agreement. The
Commission confirms that, given the timing of the requirement for technical assistance by
reference to the regulatory cycle in Scotland, it has the resources available to provide such
technical assistance on the terms of this agreement.
1.2
Benefits: The Parties agree that the Commission will develop Market Arrangements that can
enable the following benefits to be realised:
1.2.1
a retail market that is effective in meeting the needs of customers;
1.2.2
a seamless customer experience in England and Scotland;
1.2.3
efficiency savings in relation to the provision of non-household retail services in the
order of £230 million (present value).1
1.3
Principles: The Commission will develop Market Arrangements that are consistent with the
following principles:
1.3.1
compliance with the Water Act 2014 and other applicable water and sewerage
legislation;
1
1.3.2
consistent with the development of a level playing field;
1.3.3
proportionate, transparent and cost effective;
1.3.4
non-discriminatory and do not create a barrier to entry;
1.3.5
protective of customer interests;
1.3.6
consistent with a seamless customer experience in England and Scotland; and
1.3.7
consistent with the development of upstream competition.
See Water Bill summary impact assessment (DEFRA)
N1158.25-03 19966662 6 EMMM
3
1.4
In order to foster effective collaboration with the CMA, the Commission shall enter into an
agreement with the CMA setting out how they will work together in order to facilitate the
successful opening of the market.
1.5
The Commission shall provide copies of such agreement to the Authority, the Department and
the Scottish Government.
2.
SCOPE AND RESPONSIBILITIES
2.1
Overall scope: Subject to 2.2 to 2.6, the Market Arrangements shall include development and
delivery of the required data structures, IT systems procurement, market readiness and
assurance
arrangements,
stakeholder
management,
eligibility
guidance,
regulatory
architecture, licensing, market, operational and governance rules, codes and agreements and
supporting companies in their work to define their wholesale tariff structures.
2.2
Charging: The Commission will provide support to companies in their work to define their
wholesale tariff structures so that they are more fit for the purpose of establishing a successful
retail market. The Authority will be and remain responsible at all times for approving the levels
of tariffs set by companies and for setting any charging rules.
2.3
Regulatory framework:
2.3.1
In providing the Delivery Services the Commission will advise on, develop and draft
(as required):
(i)
any statutory code(s) relating to interim duty to supply/provider of last
resort or S66D agreements and codes (but not in relation to market exit
which shall be developed by the Department); and
(ii)
any licence or appointment changes or new conditions and any codes or
agreements referred to in such changes or new conditions.
2.3.2
The Authority will at all times have final approval of and be responsible for issuing any
statutory codes, charging rules or licence or appointment changes and new
conditions following such final approval.
2.3.3
By way of example, the Commission will provide a draft licence condition and interim
governance statement (in relation to membership of OWML and its governance
following the regulator members stepping down from the OWML board) for approval
by the Authority and the Authority will carry out the required consultation process.
2.4
The Parties anticipate that the Department:
2.4.1
will consult on and issue guidance on charging;
2.4.2
will consult on and issue retail exit regulations;
2.4.3
may issue regulations setting out a right of appeal on certain matters to the
Competition and Markets Authority;
N1158.25-03 19966662 6 EMMM
4
2.4.4
will commence the relevant legislation and make any transitional legislative
requirements;
2.4.5
will make the final decision regarding the launch of the market in advance of the “go
active” stage following receipt of appropriate market readiness assurance from the
Authority.
2.5
Assurance: In providing the Delivery Services the Commission will provide market readiness
assurance to the Authority setting out its views on the readiness of the MO and market
participants prior to the “go active” stage and the basis on which it has formed those views.
2.6
Final decision making: It will remain for the Authority and the Department to take any final
decision on the implementation of the English retail market and for the Commission to approve
any changes to be made as a consequence to the rules of the Scottish retail market.
3.
WORKING WITH THE AUTHORITY
3.1
Regular updating and dialogue: The Commission and the Authority recognise the importance of
working closely and will have regular update meetings and discussions which will include
discussion of:
3.1.1
the Commission’s view of progress to date and against overall timetable towards
market opening;
3.1.2
any views the Commission has regarding market participants’ market readiness and
market assurance;
3.1.3
any aspects of the Market Arrangements that the Commission or the Authority believe
may overlap with the current work plan of the Authority; and
3.1.4
any issues arising from the Authority’s forward looking work plan, where the
Commission will respond in a timely manner to requests for information.
3.2
Stakeholder engagement: In providing the Delivery Services the Commission will engage
constructively with stakeholders on the development of the Market Arrangements including
through:
3.2.1
regular meetings or discussions with the Department and the Drinking Water
Inspectorate, CCWater and the Environment Agency;
3.2.2
dialogue with any interim code panel;
3.2.3
workshops and other discussions with market participants; and
3.2.4
dialogue and meetings with senior management of market participants.
N1158.25-03 19966662 6 EMMM
5
4.
FINANCE , REPORTING AND PEOPLE
4.1
Budget: The Commission shall provide the Delivery Services within the approved budget
(financed via licence condition and held by OWML) and shall select its delivery team and
contractors in accordance with applicable legislation.
4.2
Accountability: The Commission is a public body and works within public finance rules and
under the scrutiny of its audit committee. The Commission shall be responsible to the
Authority’s accounting officer for the efficient and economical conduct of business and will
safeguard financial propriety and regularity in connection with the Delivery Services. The
Commission will provide written confirmation to the Authority’s accounting officer confirming its
approach to and effective stewardship of the approved budget.
4.3
Reporting:
4.3.1
The Commission will provide standard quarterly reports on the progress of and key
issues arising in providing the Delivery Services to:
4.3.2
(i)
the Department;
(ii)
the Authority;
(iii)
the High Level Group; and
(iv)
any interim code panel;
The Commission will report to the OWML board via the Chief Executive Officer of the
Authority until the Authority ceases to be a member of and to appoint a director to the
OWML board.
4.4
Personnel: The Commission shall be free to organise and manage the Programme and
introduce a team of appropriately skilled personnel to lead or work within the Programme as it
sees fit. In addition the Commission would be keen to include any secondees offered by the
Authority or the Department to the Programme team.
4.5
In relation to the provision of the Delivery Services, any Commission personnel providing
management or other support to the Programme will at all times remain employed by the
Commission and will not transfer to the Authority. The Commission will at all times remain
responsible for any employment costs and liabilities associated with said personnel (except to
the extent that the Authority has agreed to be responsible for any of the Commission’s costs).
On completion of the Delivery Services, all Commission personnel will return to full time work
for the Commission and, in the event that any employee of the Commission alleges that their
employment has transferred to the Authority by virtue of TUPE, then the Authority will be
appropriately protected.
5.
GENERAL PROVISIONS
5.1
The Parties acknowledge that they have a shared interest in the successful development of the
English retail market which will benefit consumers in both jurisdictions. The Parties agree that
it is not intended that either Party should be able to make a claim in damages or any other
N1158.25-03 19966662 6 EMMM
6
claim of a financial nature against the other in relation to any breach of this agreement or any
matter arising in relation to the subject matter of this agreement. Accordingly each party (to the
fullest extent permitted by law) waives any such claims against the other Party and releases
the other Party from any such liability whether arising in respect of any breach of this
agreement or in tort (including negligence) or otherwise.
5.2
This agreement may be amended by agreement in writing between the Parties and may be
terminated on one month’s written notice by either of the Parties to the other.
5.3
Neither Party may assign or transfer any or all of it rights or obligations under this agreement.
5.4
Nothing in this agreement shall be construed as giving rise to the relationship of partnership or
joint venture.
5.5
This agreement shall be governed by English law and the Parties submit to the exclusive
jurisdiction of the English courts.
[Execution formalities]
N1158.25-03 19966662 6 EMMM