Wholesale tariffs ‘should not be negotiable’

Most wholesalers do not believe wholesale tariffs should be negotiable

The majority of wholesalers believe wholesale tariffs should not be negotiable, according to research by Utility Week’s sister title Water.Retail.

A series of interviews with senior representatives from wholesale companies in the non-household water retail market have revealed that most wholesalers believe the current framework for setting tariffs is the correct approach.

Only Southern Water chief executive Ian McAulay said he believes these tariffs should be negotiable. “It’s a market,” he said. “By definition, in markets, things are negotiable. We have to be open to the way that markets normally operate.”

Thames Water’s managing director of wholesale water Sarah McMath pointed out that, as monopolies, wholesalers are required to provide services on a non-discriminatory basis and in compliance with Ofwat’s wholesale charging rules – published 24 November 2016 – which set out the framework under which wholesale tariffs are set.

“On this basis wholesale tariffs are not negotiable under the current regulatory framework,” she added. “We believe this is the correct approach.”

United Utilities’ head of wholesale market services Paul Stelfox agreed, suggesting that negotiating tariffs with individual retailers could “undermine confidence” in the market.

Anglian Water’s head of wholesale market services Don Maher said there may “still be some discussions to be had” across the industry in terms of standardisation of charges specifically to assist the operation of the market, “we do not believe there should be individual negotiation on a site-specific basis with individual retail customers”.

Northumbrian Water and SES Water stated outright that wholesale tariffs should not be negotiable. Northumbrian’s head of wholesale Martin Mavin told Water.Retail the current approach is a “fundamental building block” of the current regulatory regime.

SES’s wholesale services manager Damian Crawford said the regulated price cap, set by Ofwat, “encourages the right behaviours” and allows WOCs and WASCs to continue to invest for the future.

Other wholesalers were less against a change to the way tariffs are set, but warned that any changes would have to be “carefully thought through”. Bristol Water’s wholesale services manager Simon Bennett said: “The current wholesale charges model was not set up in this way and any other model would need careful consideration as to the implications by Ofwat.”

South East Water said it believes retailers should be involved and consulted in the development of wholesale tariffs, but these must be “cost-reflective, transparent and available to all”.

Read the full report here