In the first half of this year, the water market for non-domestic customers saw its greatest transformation since privatisation. But since the floodgates for competition were opened in April, allowing more than 1.2 million businesses, charities and public sector bodies to choose their supplier, the number of organisations switching has amounted to little more than a trickle.
While it is expected that the numbers will increase in the coming months, less than 2 per cent of eligible organisations have switched so far according to the 2017/18 data released by Market Operator Services Limited (MOSL). Of those that have switched, more than half are also classed as low water users – customers using less than 1,000 litres a day. This will come as a surprise to many, given the concerns voiced by commentators immediately before the market opened, that low awareness among small and medium-sized enterprises would result in the benefits of competition being seen only by a limited number of the UK’s largest companies.
That is not to say a lack of awareness is not an issue. Certainly, with a notable absence of effective awareness campaigns, the drivers for those that have switched supplier have been limited to cost.
Market complexity is another issue affecting the switching rate currently, though it is seen as both a threat and an opportunity by some. Despite there being only five basic services offered by operators, including raw water, potable water, sewage, drainage, and trade effluent, there are more than 40,000 lines in the tariff table. On one hand, then, complexity is felt to be a real challenge in terms of its impact on the cost to serve, but on the other, this complexity is seen by some as a means by which retailers can add value, helping customers to understand and benefit from the options available, as well as offering add-on services such as water audits and on-site effluent treatment to reduce costs.
Similarly, the 2019 periodic price review (PR19) will be seen as positive by some, and less so by others. The introduction by Ofwat of a new mechanism to measure customer satisfaction effectively separates domestic and non-domestic customers, which creates new opportunities for retailers. But with no mechanism for retailers to comment directly on the performance of wholesalers, market codes remain the only means of redress. The ability to use these codes and messaging methods effectively and the relationship between retailers and wholesalers is therefore paramount.
Meanwhile, it is almost certain that the trend of acquisitions and mergers such as United Utilities and Severn Trent will continue, with the possibility of energy or other retailers entering the market through either acquisition or partnership growing. Indeed, water may be seen as an opportunity for revenue growth away from their home market where price is the subject of intense political and media scrutiny.
This will bring data protection challenges and other hurdles such as combining and scaling systems while remaining market compliant – all will have to be faced and the role of robust and efficient software is set to assume ever greater importance.
It may well be some time yet before the trickle of customers actively participating in the open market becomes a flood, but with competition now a fact of life, it is certain that the sector must be ready to embrace further change if it is to realise the opportunities deregulation brings.