Deregulation of the Water Industry
Friday 14th October 2016
From April 2017, the retail water market in England is due to be deregulated, meaning that around 1.2 million eligible business, charity and public sector customers will be able to shop around for their water and wastewater retailer. This is the next stage on from water privatisation in 1989 and follows the example of Scotland which became the world’s first deregulated market in 2008. Essentially, water deregulation means that business can switch water provider, as is the case for other utilities – electricity, gas and telecoms. The Welsh Government has opted out of deregulation other than for very high (50m3+) users.
The deregulation of the water market has been supported by the regulator OFWAT because of a perceived need for competition and the desire to counter any complacency in incumbent monopoly retail / wholesale providers.
What to expect:
The Scottish example suggests that England will see significant changes to water supply following deregulation. There will be consolidation of existing large retailers – for example two of the biggest water suppliers (United Utilities and Severn Trent have created a Joint Venture called Water Plus. Other large providers who have successfully operated in Scotland are bringing this expertise south – e.g. Business Stream and Anglian Water. We have seen other large utility providers enter the market, such as the gas and power giant SSE. We should also expect to see new niche entrants, specialising in specific business sectors. What has happened in Scotland also suggests that the market will be split into I&C and SME sectors, much like is seen in energy. The main factors determining price differences are size of supply, demand profile and geographical location.
Prices are not expected to vary dramatically from current providers rates. This is due to OFWAT setting rates on a five-year cycle. Basically, all deregulated retailers will be getting the same rate as each other from the local wholesaler and supplier margins on water are very narrow.
Whilst large industrial water users will see some cost (£/m3) benefit from switching (as these represent the most attractive customer type for retailers), the main benefits for water customers will be derived from improved efficiencies that the retailers can provide. These will include:
- Superior Customer Service (as retailers will now have to work to retain your business)
- Tailored services to meet individual customer requirements, e.g. consolidated billing for multi-sites, electronic billing, billing frequency, read frequency
- Value-added services, e.g. support on trade effluent and return to sewer calculations and help on renegotiation if required, leak reduction, water audits, help on maintenance of environmental standards
It is apparent that water deregulation will be of most benefit to multi-site business customers. As is the case with gas and power, having sites consolidated under a single provider offers significant administrative efficiencies in terms of billing and query resolution.
In conclusion, there is no necessity to switch come 1st April next year. Businesses are not obliged to seek a water supply contract as the incumbent local supplier will remain appointed (albeit with a possible name change as certain wholesalers exit the retail market). However, as the market evolves, so the incentive to switch will increase as has happened across other utilities.
One of the main barriers to switching is perceived hassle. Third parties like E2 will take the hassle out of the switch by tendering the water portfolio to retailers and analysing the pros and cons of their offers. Water contracts will typically be for a 12-month duration with 28 days notice provided prior to any future switch. Finally, it should be noted that whilst no contracts exist with incumbent suppliers, Water contracts from 1st April will be subject to the same credit stipulations as found with gas and power.