Coronavirus disruption ‘will expose fragility in water retail market’

Disruption caused by coronavirus will highlight the lack of resilience in the business retail water market and force changes to be made, according to Waterscan chief executive Neil Pendle.

Pendle told Utility Week that code changes implemented by Ofwat and MOSL will protect the market through “a very tricky trading period” but said the weaknesses in the market must be addressed when the turmoil has passed.

Pendle said despite inevitable difficulties, he doesn’t believe the pandemic will be devastating for the market, but it will highlight how little resilience there is.

“Some retailers operate on very small margins and it would be impossible to leave the market to sort itself out during a shock like this. I think a consequence will be to revisit the retail margins and understand that the business retail market is a hard one and we need to build some resilience in there.”

He said the situation brought into sharp focus the lack of margins in the market and the argued that the burden on retailers should be adjusted in the medium term.

“The nature of the business is very hard work for retailers. They invoice out to customers, collect the debt, and immediately have to pay their settlement invoices. It is very much a hand to mouth existence and there’s not enough margin to build in capacity to cope with a poor collection month.”

MOSL and Ofwat approved code changes to classify a customers’ premises or site as vacant to prevent them being sent an estimated bill when they are using no water; and to permit the deferral of bill payments between retailers and wholesalers.

Pendle said the package of measures will help but admitted there is “not one silver bullet” because of the differing concerns – and proposed solutions – of wholesalers and retailers.

“It’s a time where the market really needs to come together to agree something that’s reasonable and fair, that works absolutely now because it needs to have an effect literally in the next few days,” he said.

He expects discussions to continue as the wider impacts of coronavirus on the market become clearer – particularly the collection of debt and payment of bills from customers, cashflows to wholesalers and understanding the impact of the bad debt position.

“That probably won’t happen until the crisis is over but the initial stage of measures will support the market until further interventions can be considered.”

The self-supply market is better protected from the uncertainty, according to Pendle, because the quality of data, frequency and accuracy of meter readings and use of smart loggers and devices mean customers have great accuracy of usage.

“It’s vitally important in this market for the revenues to still flow. All of our affected self-supply customers in the hospitality sector are clear that payments to wholesalers will continue as normal, but it should be reflective of what they’ve used,” Pendle explained.

Pendle said Waterscan will continue business as usual with switching and meter point activities, such as logging, carrying on wherever possible. However, activities that require more than one member of staff are only going ahead to support vital services.

Despite the number of customers likely to be impacted, Pendle said self-supply offers security at times of unpredictability.

“Customers have control to make changes as they are needed, so it becomes less of a risk now while they’ve obviously got far more important things to do than to worry about a water bill. We can show them how it will go down and what their bills will look like to within two per cent, based on models for the next three months.

“When the dust settles people will see that the self-supply community handled the disruption much more easily than others were able to, this will raise interest in it. It also goes to the heart of being in control and being responsible, which is important for these customers.

“In the future, it will be an increasingly good option to protect a business from unforeseen events.”