Chief executive’s view: A (very) early assessment of English water market opening

I write this with a little trepidation given that it’s only eight weeks since the English retail water market opened. At such an early stage, it is difficult to truly assess the extent to which the market is operating effectively. However, I think it is important that we do monitor progress from the outset, so that we can attempt to remedy any issues arising as early as possible.

On the whole it looks as though market opening has gone smoothly – the market opened on time; the central systems and processes are working; customers are either ­switching or accessing better deals from their existing retailer; and some wholesalers are ­proactively developing strong working relationships with retailers, all of which is positive. This is by no means an easy feat to achieve and it is only right that thanks and congratulations are extended to all those who played their part in making it happen.

Having said that, we can’t become complacent. Some of the concerns we had prior to market opening around low margins, the lack of harmonisation across wholesale regions and issues around data quality are beginning to materialise.

Switching among small and medium-sized enterprises has been incredibly low to date and there is really only one reason for this – low margins. While I accept it is still very early days, I do believe that unless the margins are widened, ­retailers won’t be able to offer price discounts that meet smaller customers’ expectations, and that as a consequence we won’t see significant levels of switching among this customer group. Higher margins would also encourage greater innovation within the sector, which will in turn help retailers to provide services which customers really value. A successful market is one that benefits all customers and not just the larger ones with increased buying power. We would recommend that this is a key area of focus in the build-up to PR19.

The lack of harmonisation, as I alluded to above, is also causing some problems. By not having consistency across all regions, in areas such as wholesale policies and payment terms, retailers are facing a more complex, and therefore costly, operating environment. The range of market readiness and policies across the wholesale regions is vast and, in our opinion, greatly limits the extent to which the market can operate effectively.

Finally, it would be remiss of me to assess the market without acknowledging data completeness and data quality.

I mentioned in my previous column that the market data will be well and truly stress-tested as the market opens and an increasing number of ­customers invite bids for new contracts. The customer switching process will expose – indeed, is already exposing – data issues. We, as an industry, need to address these issues in order to maintain confidence in the market. This is an ongoing battle but one that needs to be fought.

While it may be premature to assess and make judgements on the success of the market, let’s not wait too long before doing so. PR19 may feel a long way away but we all know it will come round quickly. It provides an opportunity to address issues, to help make the market a true success and one that we can all be proud of.