The risk and reward of brokers in the competitive water market

As preparations ramp up for the opening of the non-domestic retail water market on 1 April, brokers are anticipating a boom in business. Utility Week provides an in-depth guide of the utility broker market as it stands, and considers how it is likely to change after market opening.

The brokers are coming. “Hundreds, if not thousands” look set to capitalise on the water market when it opens, according to Business Stream chief executive Johanna Dow.

Anecdotal evidence suggests as many as two-thirds of transactions in the non-household water retail market could be intermediated. Energy brokers are set to move into water in force – but to succeed in a market with such thin margins, these brokers must offer efficiency advice and negotiating skills rather than just a simple transactional service. What is more, as water deregulation approaches, a row has broken out over the place of brokers in the market, with some saying they could introduce “Flash Harry” business tactics that put customers at risk.

Undeniably, water market deregulation will be a significant opportunity for brokers, and many of those already in the energy market look set to move into water, or risk leaving themselves open to their competitors offering a complete utility service.

Brokers will aim to offer an “expert eye” for customers, and will be able to compare proposals on a like-for-like basis to make sure customers make the right choice of retailer. As this is a new, immature market, buyers may not have the confidence to take on the task, so brokers will add “real value”, argues Orchard Energy commercial water manager Chris Quinn.

However, if a broker’s sole focus is on procurement it is unlikely to be successful, for the first few years at least. “If you are more concerned about holistic costs, and therefore the consumption side and all the other services that go around it – for example, the forecasting and budgeting – then I think there is significant opportunity for brokers to play a valuable role for customers in helping them engage with that market,” says Inenco chief commercial officer Dave Cockshott.

Some have gone as far as to claim that the traditional brokering model has “no place” in the water market. Waterscan managing director Neil Pendle told Utility Week back in January that he did not believe the brokering model was the best one for the non-domestic water market.

In Scotland, many businesses have achieved “impressive” cost savings – both through switching and by focusing on water consumption reduction – since that market opened in 2008. However, if margins are as low as projected in the English market, the benefits are going to have to be about more than just the ability to switch, and brokers will have a duty to help project this message. It is imperative that customers are offered more than merely a switching service.

Grand Union Water managing director Peter Sceats agrees with this mantra. He does not see much of a role for exclusively running tenders, and says the successful water services broker needs to be active on bill validation and audit side as well. “Brokers need to be full service rather than just component part focused.” And Cockshott says water has become the “forgotten utility”, because proportionally the spend is not as great as electricity and gas. The opportunity in water, therefore, is more in making sure the customer’s account is properly managed. The opening of the market, and the opportunity to be served by one retailer as opposed to several, he argues, will ease the administrative burden on multi-site customers, which are currently faced with multiple bills.

There are many different types of broker, both currently operating in the energy market and likely to join the water market. There are those which will offer water as a complementary service alongside an existing energy offering, but for whom water will never become a core activity, such as Inprova Energy. Then there are those which have started up with the purpose of focussing 100 per cent on water services, such as Grand Union Water.

The imminent influx of brokers into water has sparked concern about the behaviour of some, which could mar the reputation of the rest and derail consumer trust in a market that is comparatively well respected. In the energy market, brokers are unregulated and unchecked and this, Sceats argues, has encouraged some of the most “dreadful” customer service he has ever seen. “I call them Flash Harry business tactics and they are at play in the energy market every single day.” He insists that energy brokers “should be and should have been” regulated by Ofgem, and that those looking to enter the water market (so the majority) should be regulated by Ofwat.

Ofwat’s position

Many agree, and water regulator Ofwat itself has called for formal powers to regulate these third party intermediaries. It says that the involvement of these parties in the business water retail market could provide “many direct benefits” to customers, and support market development by facilitating higher levels of customer engagement and potentially encouraging a multi-utility market. However, it warns that there is a risk that the activities of some third party intermediaries may cause harm to customers, especially small businesses, and insists that formal market regulation will be important in ensuring customers are treated fairly.

Whatever happens, it looks inevitable that brokers will be “part of the fabric” of the newly created non-household water retail market and, as Water Plus chief executive Sue Amies-King writes in a blog for Utility Week: “Retailers have a role to play in building knowledge and understanding among the broker community.”

To download a pdf of full article as if appeared in Utility Week, click here