Utility Week

UTILITY Week 18th November 2016

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Page 8 of 31

The Topic: Competition UTILITY WEEK | 18TH - 24TH NOVEMBER 2016 | 9 Q2 2016 DOMESTIC ELECTRICITY SUPPLY MARKET WHAT'S IN THIS ARTICLE? l Cathryn Ross, Ofwat, p9 l The energy market, p10 l Q&A: Lawrence Slade, Energy UK, p11 l Water retail, p12 l Water wholesale p13 l Alan Sutherland, p13 l Q&A: Ian Smyth, UKPN Services, p14 l Ofto and Cato, p14 T his is an exciting and challenging time for the water sector. With population growth, threats from climate change and customer expectations increasing, the sector must deliver more for less to maintain customer legitimacy in the face of combined challenges of service delivery, resilience and affordability. As the regulator, we want to inform, enable and incentivise a transformation that really delivers benefits for customers, the envi- ronment and society. This means aligning the interests of companies and investors with customers to deliver better outcomes over the long term. At Ofwat we've moved away from a model that was administra- tive, one size fits all, towards one that is more framework-based, more proportionate and better targeted. One that makes use of mar- kets to reveal information, create options and enable choices. We're working with others to support existing markets such as that for new connections, where developers can choose their provider, driving more customer-focused, efficient and innovative services. It's a time of opportunity, businesses in England next year being able to choose their water and wastewater supplier. The sector has done a fantastic job in getting ready for this. Shadow market opera- tion is working well, and we are working with companies and Water UK to ensure authoritative, independent information is out there so that customers know they can choose their supplier and how to do this. This new market will reveal customer preferences and give incentives for providers to respond and drive down retail costs. It should also lead to improvements in customer service and account management. The government is yet to decide whether to extend choice to residential customers in England. But we expect the English business market to reveal frontiers in customer service and retail cost efficiency for the part of the market that isn't currently competitive, for residential customers and the majority of businesses in Wales. As part of our Water 2020 programme we're backing new markets in bioresources (treated sewage) and water trading, which could be worth £1.6 billion. Bioresources can be used to generate low-carbon electricity and fertiliser. We want to see third parties enter the mar- ket, and bioresources traded to unleash innovation and efficiencies. We're also encouraging trading of water between companies, leading to smarter use of reserves and better demand management. These changes create opportunities in the market for corporate control. As markets emerge and reveal information we will be less reliant on comparisons between incumbents and could take a more nuanced approach to the loss of a comparator. Another area we're driving forward is direct procurement for customers. This is about learning from the experience with the Thames Tideway Tunnel, which shows the benefits of having third parties bidding to provide both finance and delivery of significant new projects. The sector is building a good track record of embracing change. As water companies head into business planning, I look forward to seeing how they will take advantage of the opportunities we are creating to become more customer focused, drive improvement and innovate. Cathryn Ross, chief executive, Ofwat Comment: "This is an exciting and challenging time for the water sector" "Where markets are dysfunctional, we should be prepared to intervene." • Prime minister Theresa May "If the industry does not deliver on the CMA remedies and get competition back on track, plans to regulate electricity and gas prices more widely may go back on the table." • Ofgem chief executive Dermot Nolan "Ironically, a successful market opening requires all parties to work closely and collaboratively together – in order that they can compete fiercely and fairly later." • Alan Sutherland, chief executive, Wics Source: Ofgem British Gas EDF Eon RWE Npower Scottish Power SSE First utility Ovo Others 23% 12% 15% 10% 11% 15% 3% 2% 9%

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