Future Retail #1: moving beyond the first year of the open water market

At the UK's inaugural water retailing conference – Future Retail #1 – market players of all shapes and sizes gathered to discuss what has gone well, what has gone badly, and what can be improved in the open water market.

The open water market is one year old. During the first year, we have witnessed both good and bad, and there is no doubt it has been a monumental challenge for the sector.

It was with this sentiment in mind that delegates from across the market gathered at the Hallam Conference Centre in London for the UK’s inaugural water retailing conference – Future Retail #1 – to discuss what’s gone well, what hasn’t, and what all players must do to smooth the running of the market as it moves beyond the first-year mark.

The fact the market opened on time in the first place is testament to the hard work of everyone involved. As MOSL’s market performance director Steve Arthur pointed out, although the systems “creaked a little” at market opening, they held up.

The feeling in the room at Future Retail #1 – held by Utility Week’s sister title Water.Retail and sponsored by CGI – was one of cautious optimism. True, the market has seen a slow start, but customer take-up has been far faster than it was in the early days of the Scottish market, which opened in 2008. For customers which have taken advantage of Scottish market competition, tangible benefits have been plentiful.

WICs head of competition Andrea Mancini took to the stage to talk about the lessons the English market can and should take from the Scottish market. Although it had a slow start, the Scottish market has been successful in that most non-household customers are better off. Most have renegotiated their terms of supply, and there has been an increase in tailored water efficiency advice and use of technology – both things the regulators in the English market are pushing for.

The English market has so far seen a healthy number of entrants. There are currently 25 companies which have been granted retail licences. These include retail arms of incumbent companies, entrants from the Scottish market, and entirely new players. Of these, only about 15 are actively pursuing growth in the market. However, MOSL’s Arthur hinted at a number of new players in the pipeline.

Ironing out the issues

During a six-strong panel discussion involving three retailers, two wholesalers and a senior representative from Ofwat, speakers agreed that data is still far from complete, the quality of interaction between wholesalers and retailers leaves little to be desired, and transparency of wholesale tariffs is an issue which continues to plague retailers.

Attendees that the non-household water market is still inundated with poor quality data. The retailers on the panel said they are still routinely encountering problems with data, with knock-on effects including inaccurate billing for customers. Wave chief executive Lucy Darch said data quality varied widely between wholesalers, but meter data was a particularly pressing problem. She said: “We get some meter co-ordinates that would put the meter in the sea.” Chief executive of small retailer Everflow, Josh Gill, also highlighted problems with meter reading location data, revealing the format of data in some instances meant that “as a new retailer, that data is absolutely useless.”

Another concerning issue brought up at the conference was that complaints about non-household water retail have soared since market opening, up from 730 in 2016 to 2,270 in 2017. The Consumer Council for Water’s deputy chief executive Phil Marshall revealed a staggering eight out of 10 of these complaints relate to one of the three biggest companies – Castle Water, Water Plus, and Anglian Water Business (now part of Wave).

CCWater had been expecting an uptick in complaints in the early months of the market as consumer awareness grew and teething issues were ironed out but admitted they have gone up “quite significantly more than we might have anticipated”.

Other major market concerns aired at the conference were the arrangements for bilateral communications between individual wholesalers and retailers, and the retail margin. Business Stream chief executive Jo Dow said the current margin did not reflect the costs of operating in the market, particularly those of funding the stringent working capital requirements.

The role of brokers was another hot topic in the agenda at the conference. During the final panel discussion of the day, a lively debate broke out about whether customers and retailers should use brokers which are not signed up to a voluntary code of conduct. However, most were in agreement that brokers have the potential to add value.

All in all, delegates and speakers agreed that, despite its success in many areas, there are several issues in the open market which must be ironed out as we move forward.

This will be driven in part by market performance charges, which were introduced from 1 April. These payments, which market participants are liable for if they fail to deliver against market performance commitments, were suspended for the first year of the market but will now “begin to bite”, according to MOSL’s Arthur.

After just a year of existence, the market is still very much finding its feet. The next 12 months will be an invaluable opportunity to continue to improve the running of the market, and ensure it reaches its full potential and is truly for the benefit of customers.

Key takeaways

• The first year of the English open water market has, broadly, been a success. However, there is more to be done so that issues such as poor-quality data and a lack of communication between wholesalers and retailers do not stunt the future success of the market.
• The English market has had a slow start, but it has still taken off faster than the Scottish market, where customers are now benefiting significantly from water efficiency offerings and innovative technologies. It is vital that the English market follows suit in this regard.
• Arguably, the biggest threat to the success of the market is inaccurate or incomplete data, which will provide a barrier to good service if it isn’t sorted quickly. Waiting for switching to sort this issue out will take too long – it must be purposely corrected.
• Customer complaints have risen at a worrying rate, with 80 per cent of these complaints relating to one of the three largest retailers in the market.
• The market is still finding its feet. The focus going forward will be to continue ironing out the issues which are a threat to its success.

Speakers’ views

Andrea Mancini, head of competition, Water Industry Commission for Scotland

“The irony of a successful market is that it requires all parties to work collaboratively together”

Steve Arthur, market performance director, MOSL

“Customers need to see the market as accessible. That accessibility is going to be key”

Johanna Dow, chief executive, Business Stream

“If you look at the prices that exist in the market and at the retail margin, there is no doubt that there are elements of those costs that are not reflected in the margins allowed”

Phil Marshall, deputy chief executive, Consumer Council for Water

“Complaints have gone up quite significantly more than we might have anticipated”

Josh Gill, chief executive, Everflow

“How do you define success? We would define it as a marketplace where there is genuine choice for customers, a safe marketplace where customers aren’t afraid to switch or renegotiate, and one that they can trust”

Stuart Brand, sector lead water and central markets, CGI UK

“I think the opportunities offered by the digital revolution are huge, and they will impact utility providers probably more quickly than any of us”

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