On 10 October, Ofwat published a report into the market for new appointments and variations (NAVs). The NAV regime has been in place in England and Wales since the 1990s and enables a company to apply to Ofwat to replace the incumbent as the monopoly provider of water and/or wastewater services for a specific site. Typically, a NAV takes wholesale water and waste water services up to the boundary of its site from the incumbent in whose area it sits.

The NAV market has the potential to deliver significant benefits for developers, end-customers and society by enabling sites to be served at lower cost, enabling multi-utility developer services and by enabling innovation in how water and waste water services are provided. However, it has not developed as widely as Ofwat had hoped, with only 68 NAV sites operated by 8 new appointees, serving 60,000 residential customers and 700 businesses.

Last year Ofwat commissioned Frontier Economics, in association with Addleshaw Goddard, to investigate how this market is working and to consider the extent to which any factors currently act to prevent, restrict, or distort prevent the market for achieving its full potential. Ofwat also asked for options to address any such issues.

The study, which drew on published information and extensive stakeholder engagement, along with case studies of the comparable electricity and gas sectors, identified a number of potential barriers faced by NAVs wishing to participate in the market. These barriers include:

• Process – regulatory, policy and administrative issues faced by applicants for a new appointment or variation;
• Behavioural – the transparency of information and the timeliness of the provision of input services by incumbent water companies to NAVs; and,
• Pricing – the impact of incumbents’ charges on the margin that NAVs are able to earn.

Ofwat has considered the report's findings and has outlined a number of actions to address the concerns raised by stakeholders and cited in the study. These include:

• Reviewing policies and processes to minimise regulatory and administrative barriers;
• Consulting on changes to rules on new connection charging and on updating the guidance on bulk supply charging; and,
• Challenging the water sector to improve access to information and the delivery of services to NAVs.

Ofwat will also be considering what further steps are needed to raise awareness about the NAV regime among developers and other regulators involved in the application process.

The full report from Frontier and Addleshaw Goddard is available here 

The paper setting out Ofwat's next steps is available here.