Riding the Wave of 2020

It has been an extremely challenging year for the non-household water market, and as Wave chief executive Lucy Darch tells Utility Week, retailers started out with little resilience to deal with the fallout. She gives her view on how to strengthen the sector for the future and what a second lockdown means for customers.

How has 2020 been for the company?

2020 was going really well for Wave… until early March.

Our immediate priority was to set up our operation for homeworking, which went relatively smoothly. Secondly, we worked to gain support from Ofwat to ensure retailers could continue to operate and that customers get the help they needed during the lockdown period.

Through the UK Water Retail Council (UKWRC) we worked closely with Ofwat and MOSL to build schemes to help customers and retailers. As a relatively new sector, retailers did not have a lot of resilience. Wholesalers had more, so we looked for ways to get support to the customer base.

How has the company supported customers through the lockdowns?

We used the deferral payment scheme from March to October and during that time we secured additional funding through the government support schemes (CLBILS). That was absolutely critical in the short-term.

Around 45,000 customers closed in the first lockdown so we flagged them as vacant to suspend bills and remove standing charges for the period.

It let us focus on gathering meter reads to issue accurate bills because usage has changed so much due to Covid-19. We’ve worked with our third-party readers to get as many as practicable but some meters are inside and many businesses are closed so we’ve read many external meters.

We’re working with customers to arrange payment plans if they’re struggling with bills.

What support is available now for customers?

Now we are in a second lockdown, which we’re hoping will be shorter in duration – in which case we can cope. We’re considering reducing the YVEs (yearly volume estimate) for premises that are closed to alleviate the issue of estimated reads being used where the system doesn’t know a premises isn’t operating. For temporary closures we could amend the YVE down to zero for a few weeks. It’s an option but we haven’t decided if it’s the best one.

It has been widely reported that the north, where many of our customers are, has been hardest hit by the pandemic. We don’t yet know the full story about businesses that are closed but we can see payments taking longer to be received from our SME customers.

Were you satisfied with Ofwat and MOSL’s response?

Ofwat and MOSL’s measures included a 2 per cent bad debt cap, we still require clarity on how that will work in practice. We saw a 25 per cent reduction in cash flow coming into our business in earlier stages of lockdown. Our worry is how much of this will turn into real bad debt due to insolvency versus customers just delaying payments. We need to understand how the cap will work.

Ofwat is consulting on the bad debt mechanism so the sector is awaiting the clarity that will come in the new year.

UKWRC wrote to Ofwat to ask for further support. We’d received a letter from Ofwat and MOSL saying there would not be a reimplementation of the measures. These could have remained available until March, so it was frustrating they were removed. It will make the winter period extra challenging for retailers.

It remains to be seen how long this lockdown goes on for, if it’s four weeks Wave can probably manage.

What more could be done for struggling customers?

There are still around 12,000 businesses we haven’t had a proper dialogue with since they closed for the initial lockdown. The market ruled they were ‘deemed’ to be open from the 1 August but some of those we know are not open.

We’ve been pushing hard for customer meter reads to reflect their usage, but even if they aren’t being charged for consumption, they will be billed for standing charges.

Wholesalers have a varied picture of standing charges, so depending on which region a business is in they may see fairly high charges coming through on their bills even though they are closed.

It’s a tough message to communicate with customers and we’ve had some very emotional calls – customers in tears, some really angry because they are dealing with really challenging trading circumstances and sometimes our teams get the whole story. It’s great our customers feel they can talk to us but we do get the sense of how frustrating it is.

How could this be improved?

Ofwat’s State of The Market report called out wholesaler pricing as an area for harmonisation. They don’t need to all charge the same but looking at the structure and simplifying pricing would help.

That report has opened up discussions from wholesalers about what they can do to make the market succeed. We are starting to see wholesalers engaging with that agenda. 

What else would smooth the running of the market?

Retailers need to be allowed an appropriate level of margin in the SME customer segment to operate profitably and make the market work better.

This is currently the challenge that’s stifling innovation and competition in the SME segment. There is a repeated expectation for retailers to develop resilience to cope with market shocks but it’s simply not possible in the SME area where margins are so thin.

Meter reading is another friction point. There is not enough capacity or competition in meter reading services, which means the cost of “dumb” meter reading is high. There’s a mixed picture with some wholesalers moving to a smart meter rollout in the next AMP and some not. The ones that are rolling out meters will see a huge benefit in terms of bill accuracy and water efficiency. It’s important we transform that metering space, wholesalers take the lead really in smart metering rollout.

A smart rollout would be hugely beneficial for both customers and for us. Leaks can be spotted more quickly and we can reduce the inefficiency of time consuming meter reading. For the customers experiencing an estimated bill because the meter can’t be found it is a pretty poor experience for them. Locating meters has been a challenge.

What will next year hold?

Wave has been responsible for the inception of a non-household market study. We commissioned Economic Insights and under the UKWRC banner we have nine retailers involved to highlight the challenges being faced and make recommendations for how to move forwards.

Rachel Fletcher said that retailers need to step up to propose solutions, that is exactly what we’re doing. We are looking at the issues in the market and proposing solutions. The idea is to make the market work better for customers and remove some of the barriers to innovation by exploring what is preventing retailers from focusing on innovation and improving customer experience.

We’ve engaged with Defra, Ofwat, MOSL, UK Water, the self-supply community and individual wholesaler to consult as widely as possible. It launched last week and we hope to deliver early next year.