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UTILITY WEEK | 1ST - 7TH APRIL 2016 | 29 Markets & Trading that from 1 April 2016, Castle Water will pro- vide non-household retail services on its behalf, with the intention that Castle Water will compete in the market from April 2017. Severn Trent and United Utilities have said they will combine their non-household retail activities, which they say will make them "more effective in the competitive market". A number of water and sewerage compa- nies (WASCs) are already competing in the Scottish market, with part of the strategic rationale being preparation for the introduc- tion of competition in England. And compa- nies have begun rebranding their existing retail business arms, with Northumbrian Water creating "Wave", and Anglian and at least one other due to rebrand in the near future. And with every new merger, takeover or rebrand, go-live inches ever closer. Jeffs says that as the deadline approaches he is "as confident as ever" that it will be met, but he is aware of how significant 2016 will be for the industry. The design phase for the market operating system, being com- pleted by CGI, is complete and testing of that system is underway. Business Stream chief executive Johanna Dow says 2016 will be a "pivotal year" for the water industry, with many of the decisions made "critical" to determining the success of the new English market. Defra will not make the final decision until "early 2017" on whether the water mar- ket opens on schedule. But, as Dow points out, water companies cannot afford to wait until then to prepare, so "all efforts must continue on the assumption that it will". Time is short. Shadow market opening – the industry's practice run – is due to start this October, and companies without fully formed programmes now will struggle to be ready in time. WATER MARKET IN NUMBERS 2008 The year in which the Scottish non-household retail market opened. 130K The number of business customers in Scotland. £36m The approximate saving for Scottish customers since market opening. 2017 The year the English water market is due to open. 1.2m The number of business customers in England and Wales. £540m Current revenue per year of the English retail market. £2.5bn Expected revenues per year after market opening. £200m Expected saving (annual) for customers from opening the English market. "The opening of the retail market is the largest single change in the water sector since privatisation." I t is now one year until all businesses, charities and public sector organisations in England will be able to choose who supplies their water and sewerage service. The opening of the retail market represents the largest single change in the water sector since its privatisa- tion in 1989. There has been considerable attention paid to several impor- tant issues surrounding market opening: • the accuracy and complete- ness of data; • the central registration and settlement system and the estab- lishment of a market operator; • the gross retail margin and the allowed for net profit mar- gin; and • how readiness should be determined. These are all important, but perhaps the extent of debate on these issues has reduced discus- sion about some of the other fac- tors that will be essential to an effective market that works well for customers. In my view there are ten important issues that are worthy of discussion. • How do you plan to organ- ise your non-household retail activity? • Assuming that you have decided to use the exit regu- lations, what is the opening balance sheet of your new retail entity going to look like? • Can you evidence that your retail business takes decisions on their merits? • What legacy assets (bill- ing and call centre systems, vans, IT equipment, etc) will an incumbent company include on the balance sheet of its retail business? Opinion Alan Sutherland, Chief executive, Wics • What is your expected rate of return for the retail business – not in terms of a net margin, but in terms of the capital employed in your retail business? • Do you have a retail strategy? • What plans are in place to respond to the inevitable errors in data that will be uncovered by switching and the activities of new entrants seeking business in your area? • How much does your retail business expect to pay the mar- ket operator for its services? • How does the market operator/regulator evidence how much its market administra- tion fees should be and how it spends them? • What would happen to a wholesaler if a large retailer were to fail? It took us – in Scotland – a long time and lots of effort to address them – and we did not get all of them right. Fortunately, for me as the regulator, most of these questions fell to the wholesale and retail businesses of Scottish Water to address. But we, as regulator, still had to be alive to the consequences of how these issues were addressed – to do otherwise could have undermined the integrity of the new market arrangements. This would not have been in the interests of customers, either non-household or household. Ironically, a successful mar- ket opening requires all parties to work closely and collabora- tively together – in order that they can compete fiercely and fairly later. This is an extract of a longer analysis by Alan Sutherland that can be found at: www.utilityweek.co.uk