Leader: Thames Water gets cold feet on competition

Thames water has announced it will exit the non-domestic water retail market after extensive preparations for making a big competitive play. What does it mean for the company and the soon-to-open market asks acting editor Jane Gray.

“If customers could choose, they’d choose Thames.” Such was the motto emblazoned on the wall of Thames Water’s head office a few short years ago. When the Water Act of 2014 introduced the prospect of competition in the non-domestic water market, the maxim quietly disappeared, but still Thames talked a big game about its aspirations for business retail and poured resources into the necessary preparations for market opening.

Then, on 18 July, it announced that it would exit the non-­domestic market, selling its whole business customer base to Scottish retailer Castle Water.

The about-turn is sudden and mysterious.

Last year, Thames Water Commercial Services was talking about doubling the size of its Scottish customer base by employing an aggressive price strategy to undercut the dominant market player, Business Stream. This year there were rumours that Thames was among the bidders for Southern Water’s business customer base, and when Thames announced the successor to chief executive Martin Baggs – Steve Robertson – industry commentators nodded sagely, saying his strong commercial background made him a sound choice for a firm on the brink of broad competition.

The reason given by Thames for its exit decision is that it wants to focus on “its core regional household business”. But for many, this doesn’t wash. There is early speculation that as market opening crept closer, shareholders became nervous about the returns the competitive market will yield. Certainly, the small retail margin, coupled with an uncertain economic climate following the EU referendum, make the security of a traditional utility investment more attractive than ever, and with macquarie’s 25 per cent stake in Thames up for sale, projecting suitability is key.

Perhaps the writing was on the wall for Thames’s non-domestic aspirations when TWCS managing director Graham Southall and Thames head of business retail Rupert Kruger left in April. But with Thames such a big player in an important business region, its decision to exit has come as a shock. Following close on the heels of Southern Water’s sale of its business customer book, it sets out an intriguing – some are saying inauspicious – start to market opening in 2017.

• In other news, it won’t have escaped readers’ attention that the new government has scrapped Decc. Our analysis of the move is available on page 18 of this week’s issue.