Water retail market: reflecting on the first year

The English water retail market – the largest of its kind in the world – has now been open for 12 months. Utility Week asks major market players how the first year has gone.

It’s official – the non-household water retail market turns one today.

On 1 April last year, after a great deal of meticulous preparation, the English water retail market opened. The change is widely deemed the biggest in the water market since privatisation, and it has created the largest open water market of its kind in the world.

There are mixed opinions about whether levels of switching are high enough, the margin is wide enough, and whether the data is up to scratch.

Many of the concerns aired about market mechanisms and other arrangements before the market opened have materialised in some form or other. But such teething issues are the norm for any new market and should not be blown out of proportion as indicators of market failure. The general feeling in the industry is one of optimism.

There are currently 25 companies which have been granted retail licences – water supply and sewerage or just water supply. However, only around 15 of these are actively engaging with customers and pursuing growth.

The market has so far experienced 112,155 supply point switches, representing about 4.5 per cent of a potential 2.6 million supply points estimated to be in the market. The switching level has divided opinion in terms of whether it constitutes success, especially since the number of actual customers which have switched is significantly lower than the supply point figure.

Some say smaller businesses are not benefiting to the extent that larger customers are.

Others worry that testing credit terms may be stifling new entry into the market – something Ofwat has vowed to review.

There is no denying that the fact the market opened on time, and without much drama, was a monumental achievement. For this, all market participants should be congratulated.

And, as was apparent at a recent conference held by Utility Week – Future Retail #1 – incremental improvements are continually underway to improve the running of the market.

Utility Week speaks to some of the major players in the market to get their views on how the first 12 months of the open water market have gone.

Jo Dow, chief executive, Business Stream

“We should reflect on the past 12 months with a sense of pride as we approach the one-year anniversary of the English retail water market. Customers are already reaping the benefits of a competitive market place through improved choice, consolidation and keener pricing. Looking ahead, we now need to focus on the remaining issues in order to create a market that can truly deliver for all customers.”

Lucy Darch, chief executive, Wave

“The first year of the new non-household water market has gone largely as expected with early adopters from the multi-site and I&C segments requesting prices and being the first to switch. New teams, office locations, billing systems and processes are all settling in and the first year has been about getting everything working properly and there are still areas in which improvements are needed such as; bilateral communications, data quality and customer engagement. The water market participants are collaborative, and I believe that working together we will optimise the market as we move forwards.”

John Reynolds, chief executive, Castle Water

“The market works. Customers who want to transfer have been able to do so. Separation of retail and wholesale has highlighted billing inconsistencies – the value of saving resulting from corrections to wholesale data exceeds discounts on prices. Sure, it could be refined further, but it works, and customers are benefiting.”

Sue Amies-King, chief executive, Water Plus

“It’s been an incredible year. While the complexity and scale of the market changes have been larger than many envisaged, our water experts have been working hard to resolve any issues this has created. Throughout the year we have also continued to invest in our systems and processes to enhance the services for our new and existing customers. There is still a lot of work to do for all participants to make the market more effective for customers.”

Nish Dattani, managing director, First Business Water

“Like any creation of a new market, the past 12 months, has seen a period of notable successes but also challenges. There is a workable framework of market rules, CMOS is functioning, and customers have been able to switch. Larger customers have benefited with consolidation across sites being the primary driver. However, there is still a significant lack of awareness, especially amongst SMEs, about the benefits the new open water market brings.”

Nathan Welch, managing director, Aquaflow Utilities

“As a genuine new entrant, albeit with experience as a business to business electricity supplier, we were prepared for the regulatory and market entry assurance requirements. However, we have been unpleasantly surprised by the paucity of data quality across the industry.

“It’s clearly a critical issue for retailers who have placed accurate billing at the centre of our offering to customers such as ourselves. Addressing this issue satisfactorily will require sustained collaboration between wholesalers and retailers alike over the medium and longer term.”

Phil Marshall, deputy chief executive, Consumer Council for Water

“We have been very encouraged by the first year of the market which appears to be working well for larger businesses. However, much more needs to be done to help smaller business customers engage with and understand the benefits of choice. Some retailers also need to raise their game on customer service.”

Steve Arthur, market performance director, MOSL

“The first year of the market has been about laying the stable foundations from which we expect it to move into a phase of optimisation and improvement. It has been positive to see that customers are switching, a range of different business models are competing successfully, and companies are using the market governance arrangements to effect positive change. MOSL is committed to working with members and stakeholders in the year ahead to improve the market for the benefit of end customers, for example by facilitating data quality improvement.”

Brendan Flattery, chief executive, Utilitywise

“MOSL’s latest figures suggest that less than 5 per cent of businesses have switched supplier in the year since water deregulation, a paltry return considering that this move was intended to revolutionise the water market.

“Deregulation should have provided businesses with an opportunity to save money, but we need to see stronger measures from Ofwat to make the market genuinely open and fair if it is going to be a success.”

Peter Sceats, managing director, Grand Union Water

“The English water retail market is a year old. It was the first multi-wholesaler competitive water market in the world. It has delivered savings to consumers, brought attention to decades of dreadful billing and overcharging, the vast majority of switching retailers goes through smoothly and it made more people think about water efficiency. By any reasonable person’s measure, it has been a success.”

Richard Stanbrook, director, Source for Business

“Competition is driving both efficiency and transparency for businesses with immediate savings available in the retail space. We expect this to continue further and for all retailers to look to innovate to remain competitive and in line with business expectations, especially when using technology and simplifying the customer journey.”

Kim Trowbridge, head of account management, water2business

“It’s been an interesting year, not least because the new market has had its ups and downs. There are some issues that need to be addressed in the coming year, such as poor data quality and market awareness. However, overall it has brought a fantastic opportunity to work with some really engaged customers and drive forward tangible cost reduction in the form of efficiencies.”

Max Langford, commercial director, SES Business Water

“While the switching figures seen so far indicate that the majority of businesses haven’t switched, from our experience, engagement levels are nonetheless positive. National multi-site businesses have led the way by consolidating their supply portfolios, but small and medium enterprises have been less active, perhaps due to a lack of awareness or because they’re waiting for more evidence of savings or customer service improvements.

“For those looking to reduce their costs and water consumption, it’s an easy win – but to reap the benefits, businesses must engage with the market, whether that’s by switching or renegotiating with their existing supplier. The open water market is an opportunity for businesses to get the right deal and to access more innovative products, get a better experience, and to make their use of water more efficient and cost-effective.”