Improvements that have been made since the water retail market opened for competition on 1 April 2017 deserve recognition, but things need to move faster, was a key take away message from the Future Retail #2 conference in London last month.
As the market was nearing its second anniversary, leading retailers, wholesalers, regulators, consultants and customers came together to explore how far the market has come and how much further it may need to go before it can truly be deemed a success.
The opening of the non-domestic water retail market in England was hailed as the biggest transformation in the water sector since its privatisation in 1989. With transformation, challenges will arise, but where there are challenges there are also opportunities.
Are customers seeing the benefits?
Phil Marshall, deputy chief executive of the Consumer Council for Water (CCWater), challenged the sector to look at itself to see what has changed since the first year, what has improved and by how much. “Are consumers more empowered now? Are they getting the benefits of the market?” he questioned.
Highlighting some of the good points of the market, he said there has been a “steady pace” of switching. But on the flip side, most consumers are “still unaware” of the market and there are more bill problems “than ever”.
“Billing is an issue that crops up time and time again and complaints year on year are going in the wrong direction.”
Regulatory intervention will be needed if the market doesn’t work for consumers. If things don’t improve Ofwat will have to “step up”, he suggested.
“Good stuff is happening but it’s not moving quickly enough and working well for SMEs [small and medium-sized enterprises].”
Emma Kelso, senior director of customers and casework at Ofwat, stepped up to the podium next to discuss how to engage the “90 per cent of customers” who have still not bought into the open market.
The regulator’s aim for the market is for customers to save time, water and money, but there is “untapped potential”.
“You can’t use the brand new market excuse any more,” Kelso warned. Engagement from larger customers has skewed the market and there is still more work to do to attract SMEs, she said.
Innovation also needs to be a focus for retailers – currently there’s not enough and where there are examples, they need to be on a “bigger scale”.
Kelso said there could be the potential for bundled utilities as an offering, but “frictions in the market” need to be addressed.
Data quality, poor aggregate performance of wholesalers and poor interaction between wholesalers and retailers are continuing to undermine customer experiences.
She advised delegates to “kick up the speed of improvement”.
Ofwat aims to publish its second state of the market report in July and Kelso said she hopes for a “more positive outlook” by then.
The opening of the UK’s water retail market in April 2017 gave non-household customers more choice over where and how they source their water, but it also gave them the ability to “supply themselves”.
Self-supply has proved a popular choice for the likes of brewers Greene King, Marston’s, Heineken and Stonegate.
Other large organisations to have opted for self-supply include hospitality firm Whitbread, soft drinks maker Coca-Cola European Partners, laundry firm Berendsen and Blackpool Council.
Telecommunications company BT was also recently granted its licence, while Nottingham Council has applied but is yet to have been granted its licence.
Waterscan has partnered with all the companies currently granted a licence – Nottingham Council, however, has decided to go it alone.
Marshall said so far, self-supply seems to be “working well”.
“The public sector may well follow that path. The message to retailers is, those are your customers at the moment. What are you doing to make sure they are happy where they are?” he said.
But Claire Yeates, director of Waterscan, insisted self-supply is “no more of a threat” to retailers than a new entrant to the market.
She said the uptake in self-supply reflects the service businesses are receiving from retailers. “It’s a challenge to retailers to improve their service,” she added.
Yeates suggested that while retailers “may not enjoy” losing customers to self-supply, it is symptomatic of a competitive market.
“The purpose of this market is for people to have choice, and this is a choice that customers have made,” she said, pointing out that some customers had opted not to self-supply as well, even after having discussions with Waterscan.
“It’s very niche, it’s not going to take over the whole market – it isn’t for everyone.”
Also speaking as part of the panel session was Matthew Power, utilities commercial manager at BT. Water is the “little brother” for BT, he said. The company spends just £6 million on the commodity, compared with £280 million on electricity, so “money wasn’t the only driver” for BT when choosing self-supply.
Power said one of the major reasons it did was so it could speak directly to wholesalers, and to mitigate retailer price increases. Consolidation was another big reason. “Consolidated billing was a major driver for us. To get 13,000 paper bills every year is a big resource headache.”
He added that former Ofwat chief executive Cathryn Ross, who moved to BT as its director of regulation in July 2017, was very supportive of its switch to self-supply.
For the greater good
The time for individual retailer gain to the detriment of the competitive water retail market is over, the chief information officer of MOSL warned.
Samir Rahim urged the water industry to work together to solve the “bilateral” problem in the non-domestic market.
He highlighted the problem of a “lack of standardisation” with the interaction between water retailers and wholesalers.
Rahim suggested a “large proliferation of different ways of working” creates inefficiency, confusion and a reactive operation, which leads to a poor outcome for the customer. While there are “millions” of market transactions compared with a much smaller number of bilateral transactions, he argued there is a “disproportionate” amount of time and resources used to solve bilateral problems.
Rahim said the market operator will “continue to beat the drum” as the matter is not a “trivial” one. He added: “No individual trading party should be able to dictate what is right for the customer or the market.”
Rahim said that while the majority of parties are “favourable” to finding a solution, some could either “take it or leave it” while a few are “absolutely against it”.
MOSL said it is keen to work with those who are opposed to bring them to a point where they are “content to say yes”.
“We cannot kick the issue into the long grass. A good outcome is that customers will benefit and that is one main reason.
“The market cannot stagnate – it needs to evolve. It’s now down to the industry.”
Speaking in a panel discussion shortly after, Pritesh Patel, commercial director of First Business, said he would “love an all singing and dancing solution” but recognised it would be a large investment for wholesalers.
The frictions of the market clearly need to be addressed and while lack of awareness is a sticking point, the sector has a long way to go to improve services for the customers who are engaged. There’s plenty to focus on now the sector has entered its third year if it wants to pave the way for greater participation in the future.
Emma Kelso, senior director of customers and casework, Ofwat
“Our vision is a vibrant business retail water market that delivers good outcomes for customers, saving them money, water and time.”
Phil Marshall, deputy chief executive, Consumer Council for Water
“Before the market opened there were already value-added services out there but visibility wasn’t great and probably still isn’t.”
Richard Stanbrook, director, Pennon Water Services
“We have all had to become experts in data, whether we like it or not.”
John Reynolds, chief executive, Castle Water
“The market could work a hell of a lot better – let’s not be complacent.”
Andy Hughes, chief executive, Water Plus
“I don’t under-stand why assuring data isn’t a must for the industry.”
Josh Gill, managing director, Everflow
“I would not start up a retailer in the English market in the current state if I wanted to grow organically.”