Locking down retailer protections

The second lockdown has forced many businesses across the UK to close once again. However, the full suite of protections for non-domestic water customers have not been reinstated. Utility Week talks to the chief executives of Business Stream, Castle Water, Water Plus, Waterscan and Wave, among others, about their concerns on how the latest restrictions will affect an already fragile market.

Almost a quarter of UK businesses have closed or temporarily paused trading since April due to the pandemic, which hit the non-household water market hard. Retailers operating on tight margins have little headroom to extend support to customers, so temporary code changes in March and April were a much-needed lifeline.

Meter reads reflecting accurate consumption have never been more important to save customers from unfair bills, but coronavirus restrictions make accessing meters more difficult. Ofwat paused performance charges in light of that difficulty, which could mean bills remain inaccurate and the backlog of reads grows.

Flagging concerns

One code change introduced in the spring was to flag business premises as vacant, so customers did not receive bills or standing charges during lockdown. A second allowed the deferral of wholesaler payments to let retailers secure alternative funding and adjust to the situation.

Following Ofwat’s announcement that such measures would not be reimplemented, the UK Water Retail Council (UKWRC) has written to the regulator to request further assistance.

Some retailers raise concerns about what they could pass on to billpayers this time. Jo Dow, chief executive of Business Stream tells Utility Week: “It’s difficult to explain to customers why the same level of support with their water charges is not available during this second lockdown. We would welcome protections such as the temporary vacancy flag scheme being re-introduced to provide customers with relief from charges.”

She explains the UKWRC recommended that arrangements to help customers are put in place and remain until there is a material change in the environment.

Dow expresses concern that business customers still reeling from the impacts of the first lockdown will struggle to stay afloat without help being extended.

“During the initial lockdown, the water industry worked quickly and effectively to develop a practical tool kit of measures to provide much needed support to customers, and share the financial exposure between retailers and wholesalers. Even with those in place, we know many customers are continuing to struggle financially as a result of the first lockdown and they are likely to be even less resilient to a second wave.”

She says in the absence of the temporary vacancy scheme (or an alternative), retailers will now be the only source of assistance for business customers.

“Whilst it is right that retailers continue to support their customers, unless this responsibility is shared then it will become unsustainable, negatively impacting both customers and retailers.”

Lucy Darch, chief executive at Wave Utilities, points to 45,000 of her customers who were flagged as vacant with charges cancelled and bills paused during the first lockdown.

“The slight frustration is the measures around temporary vacancy flags used in the first lockdown could have been maintained. Wave initially suggested they remain available until the end of March next year, so it was frustrating they were removed sooner and has made the winter period quite challenging for retailers.”

To protect customers and the market from the risk of systemic retailer failure, operators had the option to defer wholesaler payments until March 2021. Ofwat says the move gave retailers a chance to arrange finance without impacting customers. With uncertainty continuing retailers would welcome another alternative.

“Hopefully this lockdown will be shorter in duration so our view is that we can cope with a shorter period,” Darch adds. “The north of England has been disproportionately hit and our concern is we might not know the whole story yet about businesses that are closed, but we can see payments taking longer from our SME customers.”

She says the company is considering amending billpayers’ yearly volume estimate (YVE) to zero for four weeks for premises that are closed to alleviate the issue of estimated bills getting higher.

Water Plus chief executive Andy Hughes agrees more help may be needed as retailers continue to face challenges due to the impact of the pandemic.

“In a small margin business, it is increasingly difficult for retailers to continue to support customers and be flexible around repayment arrangements for water and wastewater services, without retailers having similar support and flexibility,” he says. “In the first lockdown we saw how intervention measures helped our industry, reducing the impact on customers who faced unprecedented and unexpected financial challenges.”

Hughes believes it is right to keep monitoring the situation closely and consider other interventions that let retailers build a stronger market and continue to help customers struggling with cashflow.

Despite the tough trading time, others say Ofwat’s approach remains consistent and John Reynolds, chief executive Castle Water feels it is the right move not to extend protections. He believes that from a customer perspective reintroducing measures is unnecessary, creates extra admin and is essentially counterproductive in a short-term period. Flagging a premises as vacant generates a bill for “opening” and “closing”, which would likely offset reductions for the short-term closure.

Neil Pendle, managing director at Waterscan describes the vacancy flags as “a real nightmare”, despite the benefits they brought.

“We took advantage of the temporary vacancy rule but after changing back we are glad not to use it again because it was very admin heavy and creates problems when trying to get sites back to proper billing,” he explains.

Water flow requires cash flow

Cashflow in the market remains a concern of all and Reynolds warns that while everyone agrees customers should not have to pay more than their fair share, the network needs money to operate and provide clean, safe water supply.

“It would be prejudicial to public health and safety if all money stopped coming into the networks, there needs to be a baselevel of revenue coming in, but you need to make sure that it’s fair,” Reynolds says.

He adds that if charges were suspended the money would need to come via government funding or risk jeopardising the networks, which would be an unlikely move.

There was broad backing for the initial protections Ofwat and MOSL introduced to safeguard both customers and the market. Hughes says it meant Water Plus could focus on helping customers and that teams were now working hard to ensure meter reads were up to date – essential for accurate bills.

Kicking the can down the road

Maintaining and improving meter read data has long been a bone of contention, with complaints about long unread meters still haunting the sector. Therefore suspending market performance charges for meter readings was met with mixed reviews – some say it exacerbates an already problematic matter.

Pausing fines will help in the short term, but Pendle fears any hiatus in readings will widen the data hole.

“It is helpful that Ofwat and MOSL suspended these fines, but it kicks the can down the road for meter readings. Meter read data was not great previously and now data quality is regressing. There are understandable reasons, especially with many using out-sourced contractors.”

He describes the long unread meter situation as “still awful” across the sector resulting in customers receiving estimated bills that do not accurately reflect fluctuating usage.

Wave, which outsources reading, has seen 10 per cent more meter reading skips than usual because of Covid-19 so welcomes the pause in charges. Darch hopes the suspension will last at least until the end of December to give all parties the chance to catch up without penalisation, but that is not yet confirmed.

Emerging stronger

Efforts to aid customers through the pandemic helped one retailer to raise consumer satisfaction, Lois Gill head of regulation and compliance at Everflow says the positive action resulted in a “huge boost” to net promoter scores. She says the company sees an opportunity in the turbulence of 2020. “We see the pandemic as a catalyst for change in the water retail market. We now understand the problems faced as a wider industry better than ever, but we need to work together as a market on fixing them. We are ready and waiting to be part of the solution.”

Pendle shares the optimism, adding: “We all want a thriving market; at the moment it is a really tough market and retailers are doing their upmost to do the best for their customers. Lockdown has been a wake-up call for everyone to look at working practices and think about how they do things. Ofwat and MOSL have been really helpful: they want retailers to do their best and come out the other side stronger.”