Opening of the Retail Market in Water
Briefing from Policy Consulting Network
October 2016
 Competition for Water starts in just under 6 months for non-household
customers in England, i.e. around 1.2 million businesses, public sector
organisations and charities. This retail market is expected to be worth
£2.5bn a year and to deliver benefits of over £200m to the UK economy.
 In Wales (or more precisely for those customers served by Welsh Water and
Dee Valley Water) water supply competition for non-household customers
will remain only for those non-household customers with water
consumption over 50million litres/year or greater.
 In Scotland the market has been operating since 2008, though most activity
(switching) has only taken place since 2014, when Defra announced the
introduction of a retail market for England.
 The shadow retail market started in England and Wales on 1 October. This
is to allow testing of processes and procedures ahead of market opening.
 New players and existing water companies can apply to Ofwat for a license
to provide retail water services, i.e. a Water Supply License or a Water and
Sewage Supply License (WSSL). In addition certain larger customers can
become their own retailer and ‘self-supply’ their own sites with retail
services. They would not though be able to provide retail services to other
customers.
 To date 17 organisations have applied to Ofwat for licenses. As at 30
September, Ofwat has granted water supply and sewerage retail licenses
(WSSLs) to 10 organisations. It expects around 30-40 applications for WSSLs
in the coming year.
 Existing companies (incumbents) can also choose to withdraw (exit) from
the non-household retail market when it opens. Three companies –
Portsmouth Water, Southern Water and Thames Water have already given
notice of their exit.
 Non-household customers in the Portsmouth region will transfer to Castle
Water on market opening. Those in Southern’s region will transfer to
Business Stream. Those in the Thames region will transfer to Castle Water.
They will then be free to switch to any other retailer.
 United Utilities and Severn Trent have combined their non-household water
and wastewater retail businesses into one joint venture business - Water
Plus. This has received CMA approval. Other incumbents have rebranded
their retail businesses.
 MOSL (Market Operator Services Ltd) is developing systems and
infrastructure for the new market, including the Central Market Operating
System (CMOS) with CGI to enable registration, customer switching and
settlement between wholesalers and retailers.
 According to new entrants there are still issues with
o Retail margin (around 2%)
o Ensuring a level playing field
o Clear relationship rules
o Data readiness of incumbents/wholesalers, e.g. meter NGR,
customer classifications.
 For wholesalers, there is also the concern about credit worthiness and
potential failure of a retailer and any debt that could not then be recovered
from the retailer’s customers.
 In Scotland, in 2014-2015, 35,000 non-household sites (referred to as
Supply Point IDs – SPIDs) switched. In the first 10 months of 2015-2016
55,000 switched). Clearly some customers will have several or multiple
sites so the numbers of actual customers switching will be less. That said,
there has been a significant increase in switching in Scotland since 2014.
 A recent survey by MEUC – the Major Users Energy Council – reported that
4 out of 5 major industrial customers were considering switching some of
their sites when the market opens. However they want to see more
compelling ’pull factors’ to switch than those currently being suggested.
Almost two thirds of multi-site customers favoured the idea of a single
supplier for water services.
 A survey of business customers’ views on their water and sewerage services
published by CCWater this month (but based on interviews earlier in the
year) suggests limited awareness, with only 8% business customers aware
of market opening. This does though increase to 51% for larger businesses
with more than 250 employees. Overall, around 40% suggest they will
switch, provided there is a financial saving. This depended on bill amount
but averaged 17%. Interestingly once aware that they could also negotiate
with their existing supplier on price and service, 75% business customers
suggested they would follow this option and stay.
 Last November, Government asked the regulator, Ofwat, to investigate the
costs and benefits of extending retail competition to household customers.
Government suggested a timescale by the end of this Parliament – so by
April 2020. Ofwat published its initial findings in July and following further
consultation released its final report in September.

and lower costs could deliver up to £2.9bn potential benefits over 30 years,
equating to a maximum benefit of £8 per household customer per year.
However other ’less favourable’ scenarios modelled show reduced benefits
of £1.2bn, £0.2bn and -£1.4bn. It is now up to Government to decide the
way forward.
 Research carried out by the consumer body CCWater indicated that
household customers were in favour of being able to choose their water
supplier, but once they were told the level of potential saving (£4-£8) their
interest dropped markedly. Some though would still switch if other services
were provided, e.g. water efficiency advice, leak detection and repair or if
water was bundled with other services, e.g. energy.
The Future
 By 2020 we can expect the sector to not only have competition in the retail
market for businesses and potentially residential customers in England, but
also for there to be markets in water resources, sludge treatment and
disposal. There is also likely to be new models of major infrastructure
provision, such as seen with the Thames Tideway.
Phillip Mills
Policy Consulting Network
17 October 2016
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