Utility Week

UTILITY WEEK | APRIL 2022 | 27 Water front and centre is the right approach but more details are needed about how this will impact PR24: "At PR19 we saw a focus on a ordability and big reductions in bills for household and non-household customer. "If we're now saying the environment is the priority, I want to see how the trade-o s will be managed between a ordability and investment. It's going to be interesting to see how that pans out, especially when you look north of the border at Scottish Water's investment plans." The most recent price review in Scotland saw environmental interests trump economic concerns when it comes to investment deci- sions. While recognising the need to protect customers and those struggling with price and cost of living increases, Cleave says he hopes to see a similar attitude adopted in England: "We've got to make sure we do the right thing, but if we focus entirely on low prices then we will not get the outcomes we need on the investment side that will allow us to hit the various targets around net zero or water scarcity that the whole industry‡faces." Cleave also lauds the call for more compe- tition rather than more regulation to deliver better outcomes for consumers. "At the moment the balance isn't right between regulation and competition," he says. "It's really important where we have markets in place that we should be using competition in those markets to drive better customer outcomes rather than reverting to regulation. "There's a lot of talk about how we want it to be a competitive market but it's more the case that regulation is prohibiting customers from accessing the market, rather than that competition hasn't worked yet. "Competition hasn't been given enough chance to drive the right outcomes, whether that's on a customer engagement per- spective, better service, or some of the environmental outcomes. With the right competitive drivers and funding structures the non-household market can make a real contribution to some of the targets we're seeking to meet as a sector. We're very much investing in those areas at the moment but there's much more to be done." Cleave says what's now important is how the SPS is interpreted for price reviews: "That will be where the rubber hits the road and we ˆ nd out where the balance actually lies. The SPS encourages the use of markets to drive outcomes for customers, as well as ensuring the smallest customers in the non-household market are protected. We believe competition can do both and can achieve these key objec- tives better than regulation can. "Our view is that the reason customers aren't switching isn't because of market fric- tions but because the market hasn't been allowed to introduce enough competition. The regulation is the thing strangling it," he‡adds. Wave chief executive Lucy Darch likewise welcomes the emphasis on competition: "That is ticking all our boxes. We like that very much. The non-household market can deliver for customers. We don't think that's going to be too di' cult." Similarly to Cleave, she acknowledges the need to address market frictions but says the biggest risk would be Ofwat not taking the opportunity to move towards a more com- petitive market solution rather than a very regulated market. "At the moment the restriction of cost recovery and the lack of adequate mar- gin in the retail space is really meaning the market isn't able to do as much as it could," says Darch, who sits on the market's Strategic‡Panel. She explains the priorities of the panel are, ˆ rst, getting the basics right around metering, data and billing. "Second, we need to get the money right to make sure retailers are able to make money," she says. "Having all retailers loss- making is a big risk to the market. It is an inhibitor. We need to be able to have a cost allocation that lets us address the market frictions and data issues. We need money to address those issues to be able to get things right for customers." The SPS needs more detail around meter- ing, speciˆ cally smart metering, Darch believes. At present not all wholesalers have short-to-medium rollout plans for smart metering, so older assets will be required to work for longer. "The sector broadly makes up 30% of the water consumption so it's important to be measured and controlled. Smart metering rollouts take a long time so we are going to be relying on the current assets for longer than was anticipated so we need wholesalers to focus on the assets being ˆ t for purpose." Beyond these, Darch wants to see more opportunities in the market for value-added services such as high consumption or leak- age alerts for customers as a means to man- age usage: "We are all aware the wholesalers are under pressure for water scarcity. A lot of people who really care about the environ- ment work in the retail sector and very driven to save water, help customers save water." Aiding customers to save water is para- mount to self-supply agent Waterscan's o er- ing to high-consumption business users. Managing director Neil Pendle tells Utility Week the company is "very much onboard" with the emphasis on net-zero programmes, e' ciencies and supporting the competitive market. "We're very supportive of Ofwat's drive to get the beneˆ ts of the retail market mov- ing, which have been di' cult to realise up to now. Hopefully we'll see a di erent pace of change – that's what's needed in the mar- ket and hopefully what we will see delivered now we are getting to a new reality a› er the pandemic." However, you can bring a horse to water retail but not make it drink, as Pendle points out: "Ofwat can agree the strategic priorities, MOSL can support the priorities but even- tually trading parties have to change their behaviours." To Pendle, this means prioritising ˆ nding and reading meters, which he insists is not di' cult but requires time, money and drive. Pendle says the SPS is so comprehensive there is a risk it could be di' cult to priori- tise what needs to be done now. "Defra has given Ofwat this clear framework and vision and it's now down to the Strategic Panel to turn that into an action programme for the non-household market. There's a lot in there with plenty of work to be done but the track record of making progress is not fantastic. That's probably the biggest danger." For Waterscan, the resilience of water supplies is the most important point. "It might not be a problem now but if we don't act now it will be such a big problem by the time we get to it. We really need to get ahead of the curve otherwise in ˆ ve years' time interruptions will be a matter of course and we will all be chasing our tails again. That keeps me awake at night." Ruth Williams, water correspondent "The restriction of cost recovery and the lack of adequate margin in the retail space is really meaning the market isn't able to do as much as it could." Lucy Darch, chief executive, Wave "The restriction of cost recovery and the lack of adequate margin in the retail space is really meaning the market isn't able to do as much as it could."

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