Utility Week

UTILITY WEEK | 24TH - 30TH MAY 2019 | 15 Policy & Regulation levels of turnover necessary to make a profit. Furthermore, efforts to raise additional fund- ing via institutional investors were unsuc- cessful. With insufficient cash to meet the monthly payments to the wholesalers, the company had no option but to cease trading, as failure to pay wholesalers constituted a breach of their licence." Powell adds: "It is too early to say if this situation is a market trend – Aqua- flow Utilities was one of the early entrants into a brand new market and wasn't able to establish its customer base quickly enough. While this could happen in any sector, the stringent regulations around licensing are in place to ensure a company's financial sol- vency to operate, leaving no margin for error. Therefore, any business in this market must be adequately financed and confident they will be able to establish a significant and stable customer base within the requisite timeframe." Market operator MOSL says that while this is the first instance of its kind since the water retail market opened, it believes it is "to be expected" in a maturing competitive market. "Indeed, we would expect to see retail- ers both enter and exit, and MOSL will con- tinue to fully support companies as they go through either process," a spokesperson confirms. Official farewell Aquaflow contacted Ofwat on 18 March and stated that its "shareholder will be unable to provide it with funding" for the next finan- cial year (2019/20). The retailer provided the regulator with information which indicated "it had not yet paid invoices from wholesalers" that were due for April 2019 and which should have been paid by 18 March. On 25 March, Aquaflow told Ofwat it was "no longer carrying out its customer-facing functions" and provided documentary evi- dence it could no longer pay its debts. The regulator subsequently published a "notice of revocation" on its website in rela- tion to Aquaflow, which came into effect at 3pm on 28 March. When Clear Business was named as the chosen company as part of the interim sup- ply process, Earle said: "Ofwat selected Clear Business based on the assurances we provided in ensuring the smooth transition of services for customers, supported by our extensive experience of managing large- scale customer base transfers. "Despite the unfortunate circumstances surrounding this, we are delighted to wel- come affected customers to our business." "Unfortunately, it did not build a sufficient number of customers to generate the levels of turnover necessary to make a profit." HUW POWELL, PARTNER, BEGBIES TRAYNOR "The interim supply code was put in place to ensure customers are protected in situations such as this." OFWAT Market activity Business Stream Prior to Ofwat revealing who would come to the res- cue of Aquaflow's customers, Business Stream con- firmed to Utility Week that it would not be putting itself forward. The company said that its "key prior- ity" was to ensure the smooth transition of the non- domestic customers it had purchased from Kelda Group. Scotland's largest business water retailer says the move to acquire the customers of Yorkshire Water Business Services (YWBS) and Three Sixty, both part of the Kelda Group, will double its market share and "cement its position" as one of the top three retailers in the UK water market. The deal, the value of which has not been revealed, is expected to take effect this summer, sub- ject to regulatory approvals. It will see Business Stream manage water and wastewater services for around 140,000 new cus- tomers in the Yorkshire area. Business Stream previously doubled its customer base in 2016 when it acquired Southern Water's non- domestic customers ahead of the opening of the English retail water market. The English market paved the way for 1.2 million businesses and public bodies in the country being able to choose their water supplier for the first time. In the relatively short time the market has been open to competition it has already shown signs of consolidating. Castle Water Castle Water, another of the largest retailers in the market, has also been active in the world of acquisitions. The company bought the business customers of Portsmouth Water when the latter become the first English incumbent to announce it would exit the market and in 2017 it also took over the business customers of Thames Water. It has since gone a step further by acquiring fel- low non-domestic water retailer Cobalt Water and more recently Invicta Water for an undisclosed sum. Invicta Water traded as Water Choice and was taken over by Castle in May last year. The shape of the non-domestic water market will continue to evolve, and further consolidation could be on the cards in the coming months and years. Now the shock of the first failure has been felt, the next will be less of a surprise. It's just a matter of when.

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