It’s good news that southeastern water companies are able to relax water restrictions on landscape gardening companies, thanks to recent rain. There’s a lesson here for business customers: if large supplies of water, like energy, are fundamental to the business, they should include drought in their resilience planning.
It also raises some interesting questions about what happens when those companies are able to choose their supplier. Will guaranteed supplies during a drought form part of a contract? Such a guarantee, for water-reliant customers, could be worth a premium payment.
But will guaranteed supplies during a drought form part of the new supplier’s contract with the incumbent? There must be a limit to that guarantee, because domestic customers will always need at least a minimum level of supply. An alternative strategy for a new water supplier may be to gamble on supplies and corral a few water tankers to maintain service for customers in dry years.
What we’ve learned in the energy sector is that interruptible contracts are popular with business customers, except when interruptions are called on. We’ve also learned that it can be technically less efficient to allocate resources when they are sold by several companies than when one company can command it all – but water companies, at least in the southeast, already know the drawbacks of being a shoal of minnows.
What’s not clear is how a new focus on supplying business customers will affect domestic customers in the event of a shortage.
Speaking at an Institute of Water conference last week, Heidi Mottram, chief executive of Northumbrian Water, said she was “frightened” about that aspect of trading, saying that companies must not end up incentivised to “sit on water or not send it where it is needed”.
No doubt the Scottish market has a model for managing this issue on which we can draw. But as with so much in the developing water market, care has to be taken to protect domestic customers.
Janet Wood
This article first appeared in Utility Week’s print edition of 25 May 2012.
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