Market view: Relationship counselling

The relationship between water suppliers and retailers will be key to the success of the competitive water market – and essential to that is effective communications, says Charles Vincent.

In 2017, water market opening means a water company’s biggest customers will cease to be multi-site retailers, industrial operations or even the public sector. Its biggest customers will be water retailers. On the flip-side, the wholesalers become by far the retailers’ biggest suppliers.

This new relationship must be carefully managed like any other major customer/­supplier relationship to ensure it remains effective and win-win.

Like most areas of business, the relationship with retailers is also a relationship between individuals. Wholesalers must ensure they have the right account managers in place to deal with their different customer segments. While initially the incumbent retailer may be the only show in town, it is likely that other retailers will quickly need intensive management because customer switching tends to identify issues that need intervention far more than day-to-day incumbent operations. Considerations should include the segmentation of account managers – such as one for the incumbent and another for new entrants – with ongoing reviews to ensure this is adjusted as the market grows.

Having clear lines of communication and escalation is essential to an effective operation. It is likely that as issues arise, retailers will start to use whatever lines of communication work. This often means a mess of direct communication between various departments and managers. Ensuring that the correct lines of communication are implemented and observed, including defined lines of escalation, will ensure that commutation is efficient and productive.

The Scottish market has seen two retailers go bust. While the default wholesaler/retailer agreements contain provisions that should ensure this does not result in financial loss to any wholesaler, these provisions only work if the strict timelines are followed. If wholesalers delay instigating the formal debt proceedings in the market, there can be periods for which money owed may not be recoverable. To make sure this does not happen, strict debt management controls should be implemented and followed immediately following any failure to pay by any retailer.

For wholesale areas where there is a zero or reduced charge for vacant (void) properties, the retailer controls the settlement charging (and thus the wholesaler’s revenue) for properties by changing the vacant flag in the market. To a lesser but still significant extent this can also be done with meter reads. Here, wholesalers need to ensure they have processes in place that protect against the two scenarios that can cause this: poor retailer performance; and fraudulent retailer behaviour.

The cornerstone of managing this risk is effective settlement data analysis and audit. Historic occupancy and meter reading data should be used to ensure there is no significant deviation of behaviour after market opening. This must be done on a retailer-by-retailer basis to identify an individual retailer (especially the smaller ones) behaviour. Following on from this, a level of desk and field-based audit, based on a risk profile derived from the data analysis, will ensure that the revenues due are charged for. Key to this audit should be establishing that occupancy dates are accurate and that wholesalers are not missing out on periods of occupancy between move-in dates and identification by the retailer.

Operational performance

Poor operational performance (or behaviour) by a retailer can have a significant impact on a wholesaler. With almost all customer contact coming via the retailer, if their performance is poor then the wholesaler can be significantly impacted. Notification of incidents are now the responsibility of retailers, and if they do not conduct this effectively it can negatively affect the wholesale team’s ability to conduct repairs, etc.

In addition, frustrated customers may try to receive service from the wholesaler directly, something they are not scaled to do. Retailers with little or no water industry experience or with particular focuses may also cause issues by demanding services inappropriately.

Examples could include requesting verification of services on all properties transferred to them or failing to investigate potential de-registrations properly before submitting them. This can cause operational stress on the wholesaler and impact service levels to all retailers. The key to resolving this relates back to the relationship with the retailer discussed above and having sufficient bandwidth to support retailers with education and support if needed.

This relationship is so critical to the successful operation of the market that significant focus must be given to it by the wholesale team. Left alone it is likely to spiral out of control, causing financial and operational impacts for both sides.