MARKET REFORM
MARKET REFORM
All change in 2017
At the time of writing, we can confidently say that the non household retail market will be competitive from 1 April. At least 1.2 million English businesses – which includes public sector organisations and charities as well as commercial entities – will be able to switch their water supplier, or renegotiate a better deal.
To recap the basics for anyone who hasn’ t followed these developments closely, water companies have carved the“ retail” activities they perform for non household customers – primarily billing, payments handling, meter reading, and contact management – out of their main operations. This is similar to the energy model, where retail supply activities are divorced from networks and production. It is the water retail activities that will be subject to competition from April 2017. The remaining“ wholesale” activities will remain regional monopolies.
A massive programme of preparatory activity has been underway, not only within water companies but also to create a central market. Known as the Open Water programme, this central work has been conducted by the government in partnership with water regulator Ofwat and a specially created organisation called Market Operator Services Ltd( MOSL) which has been responsible for design and build of the IT system that will underpin the market.
Progress to date
The industry has been gearing up for this change for a few years now, but the last 12 months have been frenetic. The good news is the hard work has paid off and all the fundamental building blocks of the new market are in place:
• The policy framework and rules that underpin all the necessary arrangements are largely agreed.
• Central market systems and processes have been built and are currently being tested as the market operates in“ shadow” mode – a sort of dry run before customers are involved. This is reported to be going well, with improvements being made continuously.
• Water companies have restructured themselves, established new retail businesses, developed new systems and processes and loaded their data into the central system.
• Around 20 companies look set to compete as retailers by April. Around half that number are new entrants and have either been awarded or are in the process of acquiring a licence from Ofwat to compete. These include retailers active in the Scottish market, existing water specialists and brand new start ups. The other half, those starting out with the bulk of the customers, are retailers associated with incumbent monopoly businesses. The picture here is complicated by a few things:
• Retail exits: companies do not have to compete and can instead sell on their business customers to a third party. Southern Water is exiting to Business Stream, and both Thames Water and Portsmouth Water will exit to an independent company from the Scottish market, Castle Water.
• Corporate moves: some firms are doing tie-ups to compete better together, including United Utilities / Severn Trent through Water Plus and Pennon / South Staffordshire Group as Pennon Water Services.
• Rebranding: many retail arms of traditional water companies have rebranded, some also relocating and recruiting new staff. The most radical to date is Three Sixty, the retail business from the Yorkshire Water stable, which has consciously moved away from a water-focused identity.
• Regional variation: Welsh companies are not governed by the new rules due to devolved government policy.
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