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UTILITY WEEK | 7TH - 13TH APRIL 2017 | 29 Customers The regulator's chairman, Jonson Cox, said "careful thought" had gone into how the margins were set in 2014 and evidence was taken from a range of sectors. "To be quite honest, I think the market is going to Ofwat has le the door open for the margin to be raised in the newly opened non-domestic retail market, which market observers say could happen aer 2020. It's all about the margin Has Ofwat allowed a sufficient profit margin for an effective market? And will it be raised at the next price review? answer it for us as to whether that was set correctly, and we will see," he told Water.Retail at Water UK's City Conference on 9 March. Industry observers suggest the upcoming price review, PR19, would be the opportune time to raise the margin. Accord- ing to PwC water sector analyst Richard Laikin: "There is a school of thought that says that if the non-household market is not very active, and lack of available margins appears to be a concern, then Ofwat will find a way of increasing them at the next price review. "This could be done by seeking to move more customer- facing activities into retail or by adjusting the balance between wholesale and retail margins as [Scottish water regulator] Wics sought to do in Scotland. But the PR16 default tariff settle- ment means this would be very difficult to do until PR19, that is, April 2020." The question of if and when the margin will go up has domi- nated the market ever since it was first planned. The regulator has previously insisted that the average 2.5 per cent margin it will allow companies to make on non-domestic retail would be adequate for encouraging competition. "In terms of the concern around the level of margin, we thought about this quite hard during PR14. We have been through a robust process," said Ofwat senior director David Black back in 2015. Not everyone agrees, and many have predicted that a low margin will limit the direct sav- ings that switching can yield for customers. BEHIND THE HEADLINES Retailers in the non-household water market all claim to offer a "bespoke" service on leakage, but the first of an exclusive se- ries of market surveys by Water. Retail has raised questions about the level of innovation in the new market. Water.Retail spoke to 11 retailers, all of which detailed their offerings, including leak detection – both onsite and off-site, leakage reports and bespoke repair packages. All retailers offer the same services. Independent expert David Lloyd Owen, managing director of water management consultancy Envisager, says that, so far, "there does not appear to be a great deal that differentiates the various offerings". "There is an open door here for innovat- ing thinking, especially in developing an integrated approach towards supply and efficiency," he adds. Ofwat insists retailers should offer bespoke value-added services in the new competitive market, for example, auto- mated meter reading, site visits, leakage reports and repairs – all of which appear in our matrix below. Ofwat chief executive Cathryn Ross tells Water.Retail: "A new market for water retail services means cus- tomers will demand more bespoke and spe- cialised services and technology, DEEP DIVE and retailers will need to respond to that. In a competitive market, we would expect to see more value-added services be- ing offered based on what customers want." As the business retail market beds in, responsibility for any leaks on the distribution network remain with the wholesalers. For leaks on the property of a customer, responsibility rests with retailers. All retailers are doing what Ross has asked of them and offering the minimum value-added service. However, as yet, none have come for- ward with a truly innovative offering. Wholesale firms have individual targets for leakage but retailers don't. First two issues of Water.Retail available free at: utility-week.co.uk/retail Therea er, a one-year digital subscription for UK subscribers costs just £507 This is an excerpt of an article from the first issue of Water. Retail This is an excerpt of an article from the first issue of Water.Retail No innovative offerings to tackle leakage • Is this the best the market can do? Surely there is room for innovation on leakage • Any retailer that develops a unique offering will enjoy a competitive advantage • With apparently little room for differen- tiation in services coupled with a low margin, how can retailers compete for business? WE SAY December 2015 – Portsmouth Water becomes the first incumbent to exit business retail August 2015 – OWML's activities are transitioned into MOSL and Ofwat, MOSL responsible for delivering the core IT systems October 2016 – 'shadow market' begins, to test the ability of the system on key functions April 2016 – incumbent water companies supply MOSL with data from 2.4 million eligible premises (this has since risen to 2.6 million) March 2017 – Northumbrian and Anglian say they will join forces to create retail business Wave 1 April 2017 – the non-household water retail market opens in England March 2017 – MOSL chief executive Ben Jeffs announces he will step down in the summer July 2016 – Thames Water unexpectedly announces its exit June 2016 – Southern Water says it will exit the market March 2016 – Severn Trent and United Utilities create business retail company – later named Water Plus July 2015 – Defra publishes details of retail market exit mechanism February 2015 – MOSL is set up by Anglian, Northumbrian and United Utilities, Ben Jeffs is put in charge February 2015 – Ofwat asks to appoint Wics to oversee the programme, but the Wics board vetoes the proposal 2017 2016 2015