The Water Act 2014, which received Royal Assent on 14 May 2014, has introduced major reforms to the UK's water industry.

The main aim of the Act is to reform the water industry to make it more innovative and responsive to customers, and better able to cope with natural hazards such as drought and floods.

Changes to the water industry will no doubt have the greatest impact on water supply companies, whose legal obligations have become more onerous with the duty to secure the long-term resilience of water supply and sewerage systems. Businesses with water intensive operations, including those in manufacturing and food and drink industries, will be particularly affected and are likely to benefit from increased market competition between suppliers and the opportunity to switch suppliers.

This brief analyses the commercial implications of the Act for non-household consumers.

Increased market competition

The Act amends the Water Industry Act 1991 to increase retail competition in the non-household sector from April 2017. This means that new companies could apply to enter the water supply market.

Retail services include all customer-facing activities of a water company, such as providing meter reading, billing and handling customer queries.

Competition in upstream services, which involve the sourcing and distribution of water supply, as well as treatment and collection of sewerage services are expected to open in 2019.

Of particular significance to non-household consumers is the removal of the threshold which sets the usage limit for when customers can switch water supplier. The option to switch also applies in relation to sewerage suppliers. This means that businesses, charity and public sector customers will be able to tender for water and sewerage services at a competitive rate. Larger companies operating multiple sites across England, Wales and Scotland will also benefit from the opportunity to contract with just one supplier, and receive a combined water and sewerage bill for all their offices and buildings.

The Act also develops a national water supply network which will enable water companies to trade water with each other through bulk supply agreements. Owners of small-scale water storage will also be able to supply excess resources to the public network.

Retail exit

The final stages of the Parliamentary process saw the approval of retail exit provisions which will allow the Secretary of State to pass regulations allowing water undertakers to apply to exit the non-household retail market.

Currently, all incumbent water companies are required to provide retail services to their customers. If retail exit is allowed, this would mean that water companies could choose to stop providing these services to current or future business customers. They would instead be able to transfer the duties to retail licensees who are authorised to supply water and sewerage services. Exit would be irreversible.

Streamlined permitting

The Act streamlines the environmental permitting framework to allow operators to apply for a single permit rather than multiple permits to include licensing schemes for water abstraction and impounding, fish passes and flood defence consents.

Abstraction reform                                                                        

The Act also amends the current abstraction regime. From 14 July 2014, water and sewerage companies will no longer be entitled to receive compensation when an abstraction licence is modified by regulators on the direction of the Secretary of State or Welsh Ministers.

Further plans to overhaul the abstraction regime are underway. This is likely to take place by 2019, when the Secretary of State must report on government progress on the management of water abstraction reform in England, rather than the early 2020s as previously indicated.

Future gazing

According to Defra, the Act presents cost saving opportunities for 1.2 million businesses, charities and public sector bodies, who will be able to shop around for the best water and sewerage deals from 2017.

However the breadth and cost implications of abstraction licensing reforms remain unclear and further proposals for consultation are eagerly awaited.