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Utility Week research Looking at the results in the round, it is clear there is a significant degree of unpreparedness in the industry despite legislation being in the making. About one-quarter to one-third of respondents indicated that plans were yet to be made on most issues they were questioned about. That said, there is acceptance across the industry that retail competition is a reality and, subject to the passage of the Water Bill, is daily approaching. Tata Consultancy Services has summarised the strategic options available to water companies in the competitive market in the four-box model shown. Any incumbent intending to be a serious, successful player in the competitive retail market has three-and-a-half years to ensure that it has robust technologies, e fficient usiness processes, able people and b a onspicuously retail culture. c To learn more about TCS' solutions for the water industry and access a form to download the full report, visit: http://info.tcs.com/Water.html Option 2 Defend Option 4 Compete Option 1 Do nothing • Focus on wholesale business "Businesses have told us they want more choice and better services, which is why we have introduced the Water Bill. Our reforms will make the industry more resilient and boost the economy by £2 billion over the next 30 years" – Defra "Through the Open Water project, all key players, including companies, have the opportunity to help shape the implementation of the agreed reforms and make sure that they deliver the best deal for customers" – Ofwat • Focus on defending existing customers in area Option 3 Defend & compete • Defend existing customers in area • Expand retail business starting with customers with out of area interests • Compete nationally for retail water business TCS' view of the 2017 water market "Based on the market/model created by Open Water and in documents published by Ofwat that detail what functionality they expect to see in wholesale and retail businesses, we have derived a more detailed market/model for the competitive market for discussion. The model is shown below. Regulator New process Policy Monitor Enforce Central Market Authority Other wholesalers Customers Other retailers Water company wholesale Production Asset Metering Wholesale market liaison Water quality Network mgt Developer services Wholesale market settlement Supply Wholesale services Settlements Water company retail (contestable) Operational requests Sales & marketing Billing Debt mgt Tariffs Water efficiency Leakage Developer services (cust) Switching HR Finance PR & comms Tariffs Debt mgt Cust side leakage Value added services Water efficiency Developer services Water company shared services IT Billing Retail market liaison Meter reading Meter reading Vendor/ partner mgt Water company retail (non-contestable) Added Customer Meter value services reading services? Customer service Retail market settlement Registration Corp Legal & regulatory Key quotes Procurement "The assumption is that there will be a new body, modelled somewhat on the Central Market Agency that operates the Scottish water market. Each water company will need to interface with these market arrangements, and to operate in a compliant manner with the market rules as set out in yet to be developed codes and agreements. "We have assumed that both retailers and wholesalers will have to interface with the market to achieve settlement and to provide services to the end customer. We have further assumed that, with separation achieved through effective data security and defined roles across the organisations, we will end up with: • Water company wholesalers: these will extract, treat and supply water to retailers; bill for wholesale water; and own and operate the existing above and below ground asset base. They will also contain the business-as-usual retail operation looking after domestic and non-contestable commercial customers. • Water company retailers: these will offer retail services to business-contestable customers and will defend the existing customer base. Depending on the selected retail strategy, they may also look to acquire customers in other regions. • Shared services: water company wholesalers will also own and operate a number of shared services (such as IT, HR and so on) which they will offer at a market rate to the water company retailer." "Retailing is an economies of scale business – for instance, when you are talking about things like investment in CRM and billing systems." – Mark Powles, chief executive, Business Stream "In our experience, to support a functioning market from day one it's critical to look at what you have to do as a wholesaler, in line with market design, and to develop and implement plans for achieving that. That's what we did in Scottish Water… A wide range of business areas are affected by the market processes." – Belinda Oldfield, general manager, regulation, Scottish Water "There is a huge amount of design work to do over the next three years… and we must avoid the problems that have surfaced in energy. The legitimacy of the water industry would definitely be put at risk if problems emerged soon after market opening" – Deryck Hall, head of policy and research, CCWater "When talk of retail started, I was pretty neutral… That disinterested attitude is changing. There could be significant opportunities in the retail market. We're spending some time and effort looking at the way the market is developing; asking what we could offer to differentiate us" – Jerry Bryan, executive chairman, Albion Water "Competition for supply may only give marginal customer benefit in terms of cost reduction. Savings are more likely to come from a market shift whereby utility retailers consolidate. This could be the best mechanism for delivering value to customers, as larger retailers could give economies of scale through their back office functions for billing and customer service, thereby lowering water bills" – Greg Bradley, utilities sector partner at EC Harris For more comments and views, see the full report. Contact TCS at: http://info.tcs.com/Water.html UTILITY WEEK | 1st - 7th November 2013 | 11