Multi-utility regulator may be needed after water market opening

Water market opening presents “clear opportunity” for energy players but raises “fundamental” regulatory questions

If trends towards multi-utility offerings build momentum after the opening of the non-domestic water market to competition “it could raise fundamental questions about the creation of a multi-utility regulator”, a leading utilities service provider has said.

A research paper from Gemserv said that water market opening presents “a clear opportunity for energy players” but warned that the introduction of multi-utility markets will bring regulatory challenges.

Gemserv, which also governs the energy market switching code, observed that the existence of different regulatory obligations and rules operated by Ofwat and Ofgem could cause difficulties. For instance, regulatory overlaps or gaps could lead to lapses in the provision of protection for customers who opt for bundled utility deals.

“Particularly important challenges exist with regard to cost allocation, tariff regulation, financial accounting, and the application of residual price controls. Similar issues existed when the gas and electricity markets were separately regulated before alignment began with the creation of Ofgem,” Gemserv said.

Gemserv’s research also observed that it is more likely that multi-utility offerings will emerge through energy companies entering the water market than vice versa.

This is because moves from the energy market into water are operationally “less demanding”, requiring the set-up of “far fewer” additional processes to provide customer-facing functions which already exist in energy companies.

“Customer-facing activities in water such as marketing, billing, debt recovery and other add-on services are very similar to those undertaken by the energy retailer,” Gemserv’s research paper said. “Customer needs will be similar and triple billing of utilities should not need much further administrative cost.” It added that metering and data management in water is “considerably less complex” than in electricity, partly reflecting the fact that trading and settlement arrangements are daily in water, but half hourly in electricity.

Last week, Gemserv launched a website which will give water customers easy access to the licenced water retailers in the market.

So far, the two launch partners – Anglian Water Business and Business Stream – are listed on the site, called ‘England on Tap’. Gemserv said it “fully expects” to sign up the majority of licensees over the next few weeks.