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UTILITY Week 28th October 2016

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6 | 28TH OCTOBER - 3RD NOVEMBER 2016 | UTILITY WEEK People & Opinion Would you switch for £8 a year? The retail water market cannot deliver the savings on bills that domestic customers expect. Chief executive's view Tony Smith, chief executive, Consumer Council for Water A lmost a year on from first tabling its proposals, the government may soon make a decision that will have big implications for the water industry and its customers. Giving households in Eng- land the freedom to switch their water retailer would represent a major shi in the water con- sumer landscape, eclipsing the impact of non-household com- petition – which will open up choice to 1.2 million eligible cus- tomers from next April. Last month Ofwat published its review of the costs and ben- efits of household competition, which is likely to be instrumen- tal in shaping the government's final decision. But instead of providing clear answers for min- isters, one could argue the regu- lator's findings have muddied the waters. So we have written to Ofwat setting out our concerns. What is indisputable is that most households have told us and Ofwat they want choice. On that basis we would love to see a thriving, active market deliv- ering better prices and services for customers. But the inescap- able truth is that the retail water market cannot deliver the bill savings that customers want. Ofwat's own research revealed as little as 2 per cent of custom- ers would be tempted to switch for an annual saving of £4 to £8. This is the amount that house- holds might reasonably expect to save from retail competition and was used in the customer research carried out by Ofwat and CCWater. Our research sug- gested around 6 per cent might switch for the same amount, and most customers would want to save at least £40 – the whole of the retail component of the bill. But this compelling evidence appears to have been almost overlooked in Ofwat's final analysis and the four poten- tial scenarios it has presented to government. Some of these contain very optimistic assump- tions. How likely is it we will see up to 12.5 per cent of customers switching for a saving of £8 a year? Switching rates in gas and electricity markets have run at around 12 to 18 per cent, despite energy offering savings that can run into hundreds of pounds. Surprisingly, Ofwat also doesn't make clear which of the four scenarios it considers the most likely. Given that two of them could result in a very mar- ginal gain or an increase in bills for customers, the government should be given clearer direction on what it thinks are the most likely scenarios. Low switching rates could dilute any competitive rivalry in the market and increase the risk of poor service, more complaints and higher prices. This might mean that it's necessary to con- tinue to regulate the market. Our greatest concern is that without the lure of substantial savings, very large numbers of customers – and particularly the most vulnerable and expen- sive to serve – will not engage. That could result in higher bills for these households. A market that doesn't work for all custom- ers would also damage trust and confidence in the sector, as it has done in energy, and damage the reputation of those regulating it. Ultimately it will be for the government to decide the way forward but the opening of the non-household market in England next April presents us with the chance to make a more informed choice. We have a golden opportunity to watch and learn from how small and medium-sized businesses engage with the market. This would provide us with more robust evidence to inform the timing and development of a household market that works for all customers, not just the few who might engage with it. Analysis, p24 "Is Energy UK sufficiently resourced and empowered to do this job, and how can non-member suppliers be brought into the fold?" Ofgem senior partner for consumers and competition Rachel Fletcher speaking at Utility Week Congress (see page 21 for full coverage) "With Brexit we may not have the same access to skills in Europe that we currently have." Wessex Water chief executive Colin Skellett speaking at Utility Week Congress (see page 21 for full coverage)

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