Utility Week

UTILITY WEEK | 18TH - 24TH MAY 2018 | 9 Policy & Regulation The water market a year on: reflecting and refining PR19 is an opportunity to address the key issues that impede the success of the market. Chief executive's view Johanna Dow, Business Stream W ell, we've made it. The English retail water market has now been operating for a full year. This was no mean feat for the industry and it's fantastic to see custom- ers now able to reap the benefits of a competitive market, either through switching supplier or by accessing a better deal from their current provider. There is of course still much to do to ensure the market is operating as effec- tively as possible and that all customers – regardless of size or location – are benefiting. At the recent Open Water – One Year On event, Ofwat reflected on the successes of the first year and the chal- lenges ahead, with acknowl- edgment from Emma Kelso at Ofwat that there is more work to do to ensure the market works for customers. The creation of the UK Water Retailer Council, which met for the first time in February this year, is a welcome step. The council has been set up to pro- vide a unified voice for the busi- ness retail community and to address the key strategic issues that affect retailers and their customers in the new market. The council will have represen- tation from almost 90 per cent of market participants and has already received strong support from Defra, Ofwat, the CMA, Wics and MOSL, all of whom have expressed an interest in engaging directly with the group. This strong foundation should help ensure that the council can become an influential body within the industry and help deliver tangible improvements to the market. There was consensus among members at the first meeting about the key issues the mar- ket faces. The complexity of the marketplace, the quality of mar- ket data and the lack of consist- ency across wholesalers' policies and performance were all high- lighted as priorities. The council provides a platform for retailers to collectively agree and propose working solutions for each of these issues. Another topic that was dis- cussed by the council was PR19 (the water industry's next price review) and the impact it will have on retailers and their cus- tomers. As part of the price review process, Ofwat will be setting wholesale price controls for water and sewerage compa- nies for the period from 2020- 25. This will determine, among other things, how much custom- ers pay for their water services. With wholesale costs repre- senting more than 90 per cent of a customers' retail charge, it was encouraging to see the direction of travel on the cost of capital and wholesaler costs, because downward pressure will help drive down prices for customers. PR19 provides an opportunity to address one of the key issues that impedes the success of the market – ensuring SMEs can truly access its benefits. To date, the complexity of wholesale tariffs and lack of transparency on retail prices – coupled with the very low margins and the comparatively high cost to serve – has resulted in very little switching in the SME sector. A modified version of the current controls, coupled with a reduction in wholesale costs, would help increase the margin available to fund customer dis- counts and value added services, such as water efficiency meas- ures, which would be positively received by all customers, not just SMEs. Of course we don't have to wait for the outcomes from PR19 to make a difference; there are things we can do now to help the market operate more effectively. By addressing some of the pri- ority issues identified by the UK Water Retailer Council, includ- ing improving the quality of mar- ket data and reducing wholesale tariff complexity, we can reduce retailers' costs and in doing so, help more customers access the market. Ofwat has acknowledged that the market has got off to a good start, but there is still more to do. The one-year anniversary of the market gives us the opportunity to accurately reflect on the expe- riences to date, to understand what has worked well and where improvements are needed. By using these experiences to help address the outstanding issues, we can ensure the market is working for all customers and reflect back in years to come on a true success story.

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