Water companies could exit retail market from October 2016

Water companies could apply to exit the non-household retail market from October next year, under draft regulations published by Defra last week.

Companies that wanted to exit at the time of market opening in April 2017 would need to apply no later than 1 November, the regulations said.

The clarity, and the ability to exit prior to market opening, will be welcomed by those companies considering an exit. It also likely to blow the starting whistle on M&A, with incoming companies or ambitious incumbents buying customer books from those companies planning to exit.

In recent research into companies’ strategies around market opening, one chief executive told Utility Week: “The first transaction in the sector is going to be really interesting, to see what the price of a customer really is in the market.”

Defra has sought to cut the red tape surrounding market exit – for example, by simplifying the default terms, or “deemed contracts”, that incoming companies acquiring customers from exiting incumbents would have to offer.

Defra says that under the current legislation, a company that exited the market would not be able to merge with or be acquired by one that had not. It is seeking consultee’s views on whether this legislation ought to change.

The government introduced retail exit to the Water Act 2014 at the eleventh hour, following an sustained lobbying effort by peers in the House of Lords, regulators and some water companies, who all believed it that the proper functioning of a competitive market required companies to be able to exit if they wished.

A Defra spokesperson said: “We are on track to open up competition in the water market from April 2017, giving businesses the opportunity to choose their supplier for the first time – as part of that our proposed retail exits will give water companies more choice around how they operate in this new market.”

The industry has until 15 October to respond to the draft regulations surrounding market exit.