Utility Week

Utility Week 10th January 2014

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Comment Chief executive's view Mark Powles, chief executive, Business Stream No time to waste The English water market is moving slowly towards reform in April 2017 but there is much that could be done now within the scope of the existing structure to improve choice for customers. I t's a new year and already we're at the next stage of reforming the English water market. The Water Bill had its third reading in the House of Commons on 6 January, taking us one step closer to market opening. All being well, that will happen in April 2017. The Open Water Programme published its blueprint on how the market will work on 2 January – there's a real sense of momentum. Customers, we've been assured, are at the centre of the plans for reform of the nondomestic water market – how that ultimately looks will be in the hands of policymakers, regulators and industry participants. But let's assume April 2017 brings a reformed market set up for the benefit of customers who have long suffered water services being done to rather than with them. That's great news for businesses in England, but what happens in the meantime? If a week is a long time in politics, three years is a lifetime in business. Can we maintain the momentum for three years? I suspect that anyone not directly involved with the water industry will start to lose interest after a while. We have in effect taken businesses to the altar but aren't ready to say "I do". But there are things that could be done now to maintain and even increase customer engagement in reform while delivering early benefits to businesses without having to change any legislation. They could be implemented within the existing market structure as long as all parties work together and focus on the needs of the end customer. To understand what can be achieved, we first need to consider what an effective competitive market looks like compared with where we are today. First, there needs to be an attractive market that participants can freely enter and in which they can expand. Under the current five megalitre threshold, only 27,000 sites (out of an estimated one million) are eligible to switch, and there is no data on contestable sites. Even if a challenger company can identify a site, it must negotiate a wholesale price (called an access price) with the incumbent, which doesn't tend to produce a commercially viable margin for the new retailer. 6 | 10th - 16th January 2014 | UTILITY WEEK Second, market facilitation costs need Creating the conditions for a proper comto be low. Currently, customer switching is mercial margin will also provide greater a laborious and expensive process, due to incentive for retailers to get involved in the things such as the negotiation of customer market – again, this could be done prior to contracts with incumbents. 2017. It would require the cost principle to Third, customers need to know what's on be abolished and a regulated pricing strucoffer and that offering must deliver value. ture to be put in place. Similarly, it would be Customers must be aware they have a choice. possible to establish a system of regulated A key driver for reform is that existing pro- access for new entrants, including a more visions don't create the conditions for these streamlined switching process, which would things to happen. With such a small and inject much-needed verve into the market. unappealing market, and eligible services But what of customers themselves? Expelimited to water only (ie, not sewage), retail- rience in Scotland tells me that a successful ers don't compete and customers non-domestic water and waste don't have a choice. water market cannot operate on Finally, market structures must the basis that if you build it they provide a level playing field. As it will come. stands, everything is weighted in Although I'm sure it pains favour of the incumbent, from the those of us working in the secswitching threshold and negotitor, water will never be at the top ated market access to poor visibility of the priority list for most busiof customer data and the lengthy nesses. However, that doesn't switching process. mean the appetite for choice isn't As competition goes, it isn't "Creating there, and  time and again cusa great picture right now. So the a properly tomer insight demonstrates there ongoing parliamentary process is desire for change. functioning is aWhether change comes now, a clearly welcome. The good news is there are plenty of steps within the market year from now, or if nothing hapscope of the current system that doesn't pens until 2017, making customers could be implemented now and happen aware that choice is available will in the lead-up to 2017 to move us be a fundamental part of the sucovernight" towards a customer-centric market. cess of a competitive market. That In December 2011, Ofwat has taken time in Scotland, and it reduced the switching threshold from 50 will take time in England. It will also require megalitres to five, increasing the size of the serious effort. market tenfold – even if only to the 27,000 None of this should be interpreted as customers referenced above. We need to impatience. Creating a properly functionmake switching as attractive as possible for ing market doesn't happen overnight, and these customers. They would be more likely needs to be taken seriously if we're to get it to consider switching if waste water was an right. But in turn that shouldn't unduly delay eligible service, reducing the added adminis- reform if there's an opportunity to get things trative burden to customers of splitting water moving before 2017. We should give customand waste and increasing the opportunity for ers the time to get used to choice before the the new retailer to add value. market opens completely. To overcome the problems of market visAs far as I can see – and most definitely ibility, creating and publishing a market data from a customer perspective – there's no set with customer information would make reason to delay. We should do everything we it easier, cheaper and quicker for retailers can to accelerate the wheels of reform now to sharpen up their service offerings with a so customers don't have to wait any longer clearer view of their preferred customers. for the choice they want and deserve.

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