He told Utility Week the big six haven’t shown much interest in non-household retail because it’s “too small a market”, but that they may become interested if it included the entire domestic customer base.
The water sector is expected to see an increase in mergers and acquisitions (M&A) as the Competition and Markets Authority (CMA) and Ofwat have recently relaxed the rules, removing the need for them to be automatically referred for an in-depth phase two investigation.
If domestic competition is introduced, the “era of converging utility retail may be a step closer”, said Laikin.
“Any new entrants are more likely to come from outside of the sector than is the case in the non-household market. This will present its own licensing challenges for Ofwat and competitive challenges for incumbents,” he said in a column for Utility Week.
“We should expect significant interest from the energy sector again, but this will be tempered with healthy scepticism about timing and the political will to go all the way.”
Domestic competition was last mooted about 10 years ago, at which time British Gas became interested in water company acquisition, said Laikin. Domestic competition would change the dynamic of who might be a potential new entrant if it gets beyond the “two-sentences-on-a-piece-of-paper stage”. British Gas declined to comment.
SSE already owns a small independent water business, SSE Water, and was rumoured to have shown interest in buying Thames Water from fellow energy giant RWE back in 2006. The company declined to comment on whether it would look to buy a water firm.
A document published by the Treasury on 30 November outlined plans to boost competition in a number of sectors including water to get a “better deal for consumers”.
The announcement came as a surprise to the water industry, which has been focused on opening the market to competition for non-domestic customers in 2017 and was not expecting domestic competition to follow so swiftly.
Ofwat will review the costs and benefits of opening up the household retail market and report to the government next summer. The government will then “work with water companies to begin the transition to retail competition before the end of this Parliament”.