Consultant presses regulator alliance to develop standard contracts to boost water trading

Nera Economic Consulting has recommend that the Regulators’ Alliance for Progressing Infrastructure Development (RAPID) encourages the industry (through Water UK) to develop published, standardised contract forms to encourage water trades and reduce the transaction costs of organising deals.

RAPID had commissioned Nera to study the role of contract design in promoting the efficient bulk trading of water in England and Wales, paying particular attention to standardisation, pricing and the mitigation and allocation of risk.

Nera recommended the standard contract forms include among other things references to the Drinking Water Inspectorate’s water quality standards and protocols, and a provision for penalties in cases where the seller fails to deliver contracted volumes of water.

Nera has also advised Ofwat to: issue guidance on the pricing of bulk supply contracts for water; enhance obligations on companies to advertise spare water resources as part of the water resource management plans; and provide a trading incentive by allowing a mark-up on the pricing of bulk supply contracts above the cost of supply, rather than through a separate water trading incentive.