The government is interested in introducing choice to the residential retail water market in England and asked Ofwat to “provide an assessment by summer 2016 of the costs and benefits” of doing so. Having spent a number of months analysing this, what do the prospects look like?
Our initial view is that benefits are on offer in five broad areas. The first thing people want to know is the financial impact. Our research suggests competition could generate £2.3 billion of benefits – just over £6 per customer, per year.
Second, it could make customers’ lives easier. Multi-service bundles could be introduced, meaning you could buy energy and water, or broadband and water, from one provider. There is a greater role for technology to play too. At the moment, only a couple of water companies have an app to help you manage your account, which doesn’t suggest a sector at the cutting edge.
Third, a competitive market should see companies understanding their customers better, which could be powerful in helping to identify customers who are struggling and doing so earlier. This would help them and help to tackle bad debts, too. Competition could also drive down customer switching costs, and improve customer service.
Fourth, we see benefits for resilience and the environment. I think a competitive market could deliver real improvements in water efficiency with retailers helping conserve water and so cutting everyone’s costs. I also think there is potential on the wastewater side for retailers to work with customers to help reduce their surface water run-off. We haven’t yet quantified these benefits – but this is an important area given the impact of climate change on our rainfall.
Fifth, and importantly, customers tell us they want this, with more than half saying choice is a good thing. And even though, unsurprisingly, they want to save a lot – and, frankly, more than is realistically available – half are interested in switching and a little under half say they would switch for new offers and services, even if there was no price saving. They also want the ability to vote with their feet if their service provider falls short.
Last month, we hosted a workshop at which customer representatives and CCG chairs, company cheif executives, investors, and potential entrants gave us some really valuable feedback and new ideas.
I think there was broad agreement that potential benefits are on offer. The question is how big are the benefits and how do you secure them? In particular, how do you ensure customers are empowered, engaged, and, where appropriate, protected?
Of course, the benefits are not guaranteed. If competition isn’t effective, costs could outweigh benefits and customers could be worse off.
One thing people have stressed is the need to learn from the opening of the non-household market to retail competition in April 2017. As it will open the world’s largest competitive retail water market, they are right. Delivering that is no mean feat and it is progressing well; companies are engaging and customers are becoming more aware of the opportunities it will open for them. We also need to learn from the experience of other sectors, especially about the role of regulation in overseeing competitive markets.
This is an exciting time for the sector. In one way or another, change seems to the constant. As we work through these issues, the one thing you will hear us say to companies, investors, the government – and to ourselves – is that customers’ interests must be at the heart of what we all do. That is the way in which, collectively, we can secure their trust and confidence.