Water Marketplace Deregulation – Will it live up to its potential?
Will non-domestic water retailing have the desired effect?
The 2014 Water Act had a section dedicated to introducing competition into the water sector. Water retailing will be introduced in April 2017. This radical move means that customers in the non-domestic marketplace (the domestic market may open in 2020) will only be able to buy their water from a licensed retailer, rather than the monopolistic water company in their area.
At this point it is important to note that the water retailer will have no link to the supply of water - that service will still be provided by the water company. This means the retailer will be responsible for the billing service and will be permitted to charge a fee up to a maximum percentage of the water bill. The retailer, like third party intermediaries in the power market, can choose the amount they wish to charge, as long as the customer is happy to pay, and the retailer’s price does not exceed the maximum profit set out by Ofwat. The complication is that there are a number of different tariffs in different areas due to the very different costs the water companies have to meet to supply water.
Another interesting point is that there are no clear figures on how many water meters in the commercial sector are AMR, but it could be as little as 20%. This means that water usage is difficult to manage because of a lack of data from meters. Ofwat has ruled that meters will still be the property of the water companies not the retailers, especially their own retailers who have to have no preferential connection to the wholesalers. However, with more and more customers needing the data on a real time basis for the prevention of leaks this position could well change.
So who will the new retail companies be? At present the majority of players in the marketplace will be the retail arms of the present water companies. Most water companies have set up retail arms and in April next year all customers will be transferred to these companies. A number of the companies, such as Business Stream, have already been active in the Scottish retail marketplace.
From April 2017 you will get a bill from a new entity that will manage your water bill. If you are not happy with the service you will be able to switch to any other retailer, however you will not be able to move back to the original water company in your area as they can only sell to water retailers, not directly to customers. Most customers will transfer and carry on as if nothing has happened which is probably going to be the way most customers act in the first instance. For some customers, for example Thames and Southern customers, the water companies have decided to exit the retail marketplace. This simply means they have decided not to set up a retail arm and have transferred their book of customers to another water retailer, in these cases Castle Water, a Scottish based company.
A significant proportion of the EMA membership is responsible for water and could just change the details for their water retailers but if this was simply a procurement matter then there will be little point in even undertaking this. The EMA believes there is a potential for major savings that could be driven through the retail market, however this would require enough competition in the market. Indeed unless there is quite a lot of competition there will be little downward pressure on prices.
The most successful of the water retailers should hopefully not just offer a reduction in cost but also look at ways to reduce the amount used. Climate change is already having a negative effect on water supply through droughts and floods. These events will increase the amount of the country suffering water stress and the cost of water provision. Whilst water is currently one of the lowest utilities costs the future cost will be far from irrelevant - water retail based on reducing use will not only save money but may well be environmentally vital.
This very topic will be discussed at EMEX 2016, taking place on Wednesday 16 and Thursday 17 November at ExCeL in London.
For the last 3 years, EMEX organised in partnership with the Energy Managers Association (EMA, www.theema.org.uk), has established and built partnerships between business, third party intermediaries, training suppliers, government and public bodies to accelerate the adoption of energy efficiency measures in order to reduce energy demand. We do this by providing an event platform across which stakeholders can share knowledge, technologies and expertise, and identify innovative solutions to the challenges businesses are facing by the rise of energy prices and by the legislative framework to reduce carbon emissions rapidly.
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Member of the House of Lords, CEO of The Energy Managers Association and Co-Organiser of the Energy Management Exhibition (EMEX)
