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14 | 11Th - 17Th AprIL 2014 | UTILITY WEEK Market view Policy & Regulation R etail competition for business custom- ers will be a transformational change for the English water market, provid- ing an enabler for customers to drive cost and water efficiency. The Market Blueprint consultation issued by the Open Water Pro- gramme in January 2014 sets out the pro- gramme's recommendations for the high level design. Among other things, the Open Water Programme considers the establish- ment of a market operator to provide a range of market facilitation services to support the competitive retail market. These include reg- istration and switching, financial settlement, data exchange and governance. History has proven in many markets that the overriding theme is the absolute require- ment for good governance. Get it wrong, and the arrangements could fail. Get it right, and the key decisions will be informed, engen- der stakeholder buy-in, and will deliver the desired outcomes. The challenge for industry will be in the next phase of the programme, developing appropriate governance arrangements that balance the tension between accountability and responsibility while placing the correct incentives to spur competition. The proposals to establish a market oper- ator are to be welcomed, and the arrange- ments being put in place to procure the central systems for registration, settlement and the industry data exchange. However, careful consideration needs to be given to the market operator ownership, commercial and governance models for 2017 so that it can facilitate the government's wider aims for upstream competition. In particular, the governance proposals outlined in the blue- print feature a breadth of stakeholders like no other, involving wholesalers, retailers, inset providers, new entrants, network pro- viders, and abstractors and resource provid- ers (see Proposed governance model, below.) The details of the governance arrange- ments have yet to be developed in full, but the breadth of the reforms and the mix of stakeholders mean that trying to govern both the retail and wholesale markets under one roof could be unmanageable and possibly a step too far. The blueprint also considers a model where the IT and data services of registra- tion, settlement and industry data exchange sit side-by-side with the governance ser- vices. In practice market arrangements could be further improved by providing for clear separation. Most recently, in 2013, the Department of Energy and Climate Change (Decc) introduced new arrangements that separated market IT facilitation services from governance for the national smart metering programme. Within both the electricity and gas mar- kets, retail governance arrangements and central IT services are provided separately. Conversely, the Scottish Water market fea- tures a single market operator (the Central Market Authority) providing retail govern- ance services and central IT services, but this model does not currently feature any whole- sale or upstream competition. For separation to be effective, the correct incentives need to be placed on the parties to deliver the benefits. It is questionable whether a market operator, as outlined in the blueprint, that oversees large central IT systems is best placed to promote inclusive, accessible and effective consultation and administer arrangements in an objective, transparent and cost effective manner. Indeed, building on this, the central IT facilitation arrangements in the electricity and gas markets have come under the spot- A better governance model Water retail competition is welcome, but Paul Witton-Dauris says there needs to be a clear separation between governance and operations for the market to function properly. EnhancEd GovErnancE ModEl – 2017 ProPosEd GovErnancE ModEl Other stakeholders, Defra, Welsh Government 2017 Open Water Markets Ltd Open Water Markets Ltd Registration Registration Wholesale settlements Abstraction trading Outsource Service providers Own Fund Insource Future requirements Stakeholders IDEX IDEX • retail only Codes governance Market governance • Performance assurance • Disputes • New entry • Change management • End-to-end market processes • Data catalogue Market liaison Network providers (22) Abstractors/ resource providers (>1,000) Retail settlement Retail settlement Governance 2019 Market operator Market operator Governance Wholesalers (22) Retail licensees (22) Retail new entrants (?) Wics Ofwat DWI EA Ofwat Wics Members (all market participants) Ofwat Wics Wholesalers (22) OWML Retail licensees Retail governing body Inset providers (4)