Assurance Framework and Readiness

Retail Market Opening 2017: market readiness, company readiness and assurance framework

Background: expanding the market for water and sewerage retail services

The Water Act 2014 enables the creation of a new market that will allow all non-household customers in England to choose their water and wastewater retailer from April 2017. Open Water is the name of the programme that brings together Defra, Ofwat and MOSL with the relevant companies to oversee the design and delivery of the new market.

Assurance Framework

To enable the market to open, all those involved in creating and running the market will need to complete programmes of work and be able to demonstrate that they will ready when the market opens. At regular intervals throughout this process the Secretary of State for Environment, Food and Rural Affairs will require formal assurance that all parties are on course for retail market opening in April 2017.

In order to provide a structured approach to the provision of this assurance, the Open Water programme commissioned Deloitte to work with stakeholders on the development of an Assurance Framework. This was adopted formally by the Retail Market Opening Management Group (Management Group) at their meeting in July 2015.

The Assurance Framework sets out the areas where formal assurance will be required to support decision making in the run up to market opening. The underlying principle is that the party responsible for delivery of any part of the programme must provide assurance over its delivery. This will be delivered through formal letters of assurance. The content of which will inform advice to the Secretary of State.


Market and Company Readiness

Market and company readiness are two key components of the assurance framework. The July meeting of the Management Group agreed a set of Market and Company Readiness Principles. These principles set out an agreed approach to the work MOSL is taking forward with market participants to create a detailed Market and Company Readiness Plan by the end of the year.

Market Readiness is concerned with the question of whether the market as a whole will be in a position to open. This includes the framework of regulation, licences and codes and will involve a series of judgements about the readiness of all parties, including market participants, MOSL, Ofwat and Defra.  The Secretary of State’s decision will be informed by evidence provided through the formal letters of assurance from each party. It will also take account of input from the Management and Assurance groups; and have regard to the views of MOSL and Ofwat in relation to the specific aspects of market readiness for which they are responsible.

Company Readiness is about the readiness of individual market participants to participate in the new market arrangements. Each market participant is accountable for ensuring that they are ready to participate and for providing assurance on this. Market participants will be required to demonstrate that they have appropriate planning, governance and technical capability in place, in line with the Market and Company Readiness Plan.

Letters of Assurance

The Assurance Framework sets out a phased reporting hierarchy. In the run up to market opening in 2017, the board or equivalent body of each wholesaler and retailer, Ofwat, MOSL and Defra will need to provide three letters of assurance supported with reliable evidence.  A short Advice Note has been produced setting out issues for the organisations providing assurance letters to consider at each phase of the process. 

Template letters of assurance to be provided by all partiesMarket ParticipantsMOSLOfwatDefra
Assurance Letter 1: Effective PlanningMarket Participant letter 1 due 12.02.16MOSL letter 1 due 12.02.16Ofwat letter 1 due 12.02.16Defra letter 1 due 19.02.16
Assurance Letter 2: Interim PreparationMarket Participant letter 2 due 07.10.16MOSL letter 2 due 14.10.16Ofwat letter 2 due 14.10.16Defra letter 2 due 21.10.16
Assurance Letter 3: Market ReadinessMarket Participant letter 3 due 03.02.17MOSL letter 3 due 10.02.17Ofwat letter 3 due 10.02.17Defra letter 3 due 17.02.17

A summary progress report will be published on the Open Water website following the completion of each phase of the framework.

Company Readiness Plan and Transitional Licence Condition

In addition to the high-level requirements of the assurance framework, market participants will need to undertake a range of detailed readiness activities, such as completion of market trials or the testing of data integrity. These activities will be coordinated through the company readiness work being led by MOSL as part of their Market and Company Readiness Plan.

In their June Licencing Consultation Ofwat set out proposals to put in place a transitional licence condition requiring all market participants to contribute to the delivery of that plan. After analysis of the responses to that consultation, Ofwat have decided to implement a general readiness condition in both the current Instrument of Appointment and Water Supply Licences.

The proposed condition requires companies to undertake reasonable activities including preparation of data, development of their own systems and processes and participation in programme testing, readiness and assurance activities. This will support the confidence of all contributors to the market opening process and also send a clear signal to customers and other stakeholders of the commitment to market opening.

The new condition will be issued for formal consultation following the Ofwat Board in October and after allowing for the necessary period of consultation, should be implemented during December.

Assurance Group

Defra plans to establish an Assurance Group to support them in the provision of advice to the Secretary of State to inform the decision to open the non-household retail market for water and sewerage services. The group will provide a route for external scrutiny, challenge and debate from a broad range of stakeholders.

Members of the group will be asked to provide independent views on the probability of the market delivering against the Open Water vision and success criteria. This will expand the breadth of the advice provided to the Secretary of State beyond those directly involved in programme delivery. The qualitative challenge provided by the Assurance Group will both complement and be informed by the more quantitative aspects of the wider Assurance Framework, such as the letters of assurance, and by the Market and Company Readiness Plan.