Deregulated Water Market 2017 – The Facts
Background
The opportunity to switch water supplier in the UK is currently limited to non-domestic properties in Scotland and for very high water users in England and Wales who use in excess of 50,000m3 per annum.
There are also opportunities to apply for “Inset Appointments” to vary the statutory remit of the Water Companies although generally this is only financially beneficial for large landowners, developers or the largest sites.
The retail market de-regulated in Scotland in 2008 when “Business Stream” were given 100% of the retail market. From 2010 other licensed providers were allowed into the market to provide competition to Business Stream. When deregulation occurred the retail margin was 12% and on the face of it it seemed that other retailers could not meet all the market conditions, motivate customers to switch and operate a viable business. This view have been proved correct as to date Business Stream have lost less than 2% of their market share to competitors. The Water Industry Commission for Scotland have recognised the problems and have negotiated further retail margins, so it is hoped that before long there will be real competition in Scotland with positive impacts on price and quality of service.
OFWAT have closely followed the deregulation model in Scotland and will hopefully have learned many of the lessons before widespread deregulation of the Water Industry is applied to England and Wales which is likely to happen in 2017/2018.
Satisfaction With Current Service Provision in England
For the majority of businesses across the size spectrum, their baseline satisfaction with their water company is good. Most feel that the product they receive is fine, judged by a consistent supply of potable water and a reliable sewerage service. They further feel that it offers a joined up process which is considered to be efficient.
Most customers believe that this is a relatively simple service that requires little input from them e.g. the water company is perceived as being quick to resolve problems. Most consumers consider their bills to be pitched at a reasonable level – not as high as other utility bills. The service is regarded as being perfectly fine. In fact for many the current lack of competition in the water industry simply reduces their need for any involvement in the decision making process regarding their supplier. Hence their water relationship does not really dominate their thoughts.
However, when talking to consumers specific issues around billing do emerge, with the main concerns mentioned as a lack of bill consolidation for multi sites or multiple meters. Accurate bills are key to businesses and consumers mention among their many concerns an over reliance on estimated bills, a low penetration of smart meters and a low frequency of meter reading.
Respondents prefer a move to online billing solutions and variation in the billing cycles that align with their own business needs Further, there is a call for greater bill clarity, most particularly relating to surface water drainage and associated calculations All respondents call for fairer pricing structures
So what will happen in 2017?
As in the energy sector, when the market deregulates non-household customers will be able to switch water suppliers to any company that is a licensed provider. This would be a seamless transition without interruption to supply.
Response to the competitive market will be influenced by bill spend and number of sites. Four core segments emerge:
- Single site customers with a high spend
- Multi site customers with a high spend
- Single site customers with a low spend
- Multi site customers with a low spend
It is generally believed that segments 1 and 2 of the above list will be the most motivated to switch as they will potentially have the highest potential gain.
According to the Consumer Council for Water (CCW) baseline satisfaction with current water suppliers is high although a number of retail issues have been identified, including a perceived lack of technological innovation, lack of account management and fundamental lack of communication.
Most businesses are quite prolific in their switching behaviour in non water markets – most notably in energy, insurance and mobile telecommunications sectors. Price is a big motivation for switching although other important factors emerged including possibility of a better product/service, reducing consumption and Corporate Social Responsibility issues
Non-household customers articulate a number of benefits a competitive market could deliver, provided it reflects their needs and protects them against adverse market conditions
Conclusion
What is clear from reading all the information and speaking to industry experts is that no one can really say for certain what will happen when the water market deregulates.
Despite optimistic hyperbole from the market leaders, the reality seems to be that whilst non-household customers welcome market competition there is genuine concern about switching away from their incumbent supplier and many businesses would prefer to renegotiate with their current supplier than switch.
Many non-household customers have said they wish to wait and see how the market develops before becoming involved in the market and have concerns about not knowing enough about who the new retailers are, stating that a known water retailer is preferred in the early stages of competition. Customers want to know about the retailer’s trading history and experience in retail services before entering into discussions, and as things stand at the moment brand awareness is low.
Despite the apparently low interest in making a decisive move away from existing suppliers, the deregulated market is causing real concern among the major water supply companies and this can only have a positive impact on service delivery as the key players seek to retain customers by adding value, improving services and simplifying the billing process. This can only be good news for the customer as they will reap the benefits whether they decide to move, or not.
Resources
Read the full Consumer Council for Water Presentation here:
Ernst & Young Report – Energy Lessons For Water:
Water2business website:
Business Stream website:
