Shadow market for non-household water and waste water retail services market in England officially opened last week

Issues affecting electricity generators and the energy market as a whole.

13th October 2016

Today there are 35 regulated companies in the water and sewerage sectors in England:
- 10 regional companies provide both water and sewerage services
- 8 regional companies providing water services only
- 5 local companies providing either water or sewerage services or both
-12 water supply licensees offering water and sewerage services to large use non-household customers who can access competition.

The majority of customers are served by monopoly suppliers for their water and sewerage services. So business customers water bills should tell you which company supplies your water and sewerage services. You may receive your water supply from one company and your sewerage services from another. You may get two separate bills. However, from April 2017, water and sewerage supply licensees will offer water and waste water retail services to eligible non-household customers mainly in England.

So from 3rd April 2017, over 1.2 million England-based businesses, charities and public bodies in England will be able to choose their water and waste water retail services provider(s).

The new Shadow Market for England officially began trading on 3rd October 2016 under the watchful eye of the Market Operator Services Limited (MOSL), which was set up a little over a year ago to deliver and operate the central information systems and processes that will enable the market to function smoothly.

MOSL has had a rocky road, particularly during the building of the Central Market Operating System (CMOS) but, to its credit, it went live on time. Right now datasets from market participants are being flowed into the new CMOS.

Fortunately, lessons have been learnt from Scotland's opening of its non-domestic water market to competition back in April 2008. So MOSL will have had advice on establishing centralised systems and processes from the Scottish government, Water Industry Commission for Scotland (WICS), Ofwat, Defra, the Central Markets Agency as well as Scottish market participants like Business Stream.

WICS clearly holds a great deal of knowledge and experience of how to make a business market work properly. They've wrestled with issues around creating a level playing field for new entrants. They recognise that without these new entrants judging that there is a long-term future for them in the market, they will not come in. Or if they do enter, they may not adopt a long-term strategy for the good of all parties. If they don't play a long game then efficiencies, which should flow from opening up the market to competition, will simply not materialise, prices won't fall and quality of service will remain second rate.

WICS claims that Scotland's 130,000 business customers have already been given access to better value for money and high quality services that are more tailored to their needs, as a result of the opening of the market.

However, leading commentator Northumbrian Water Group Business MD Lucy Darch, recently made the point, in her speech to WWT Water Scotland Conference in Glasgow, that price reductions for business customers which have been as high as 30% in Scotland, will not be forthcoming in England because margins there are already very tight. The risk then is that immediate gains from opening the market may be as little as 5% for switching. This may not be enough to get business customers excited enough to take action.

Nevertheless, MOSL (and others in charge of the market's opening next spring) will need to take advantage of all the knowledge that is out there north of the border to give competition the best possible hope of flourishing in those vital first two years.

Some market participants are already predicting a lively competitive market even before the market officially goes live. As Johanna Dow, Chief Executive of Business Stream said recently:

"We are likely to see large volumes of customers switching, if not through organic transfers then through retail exit process, which will put considerable pressure on the (central) system from the outset."

The incumbents have been nailing down their strategies for the opening of the market, resulting in a flurry of corporate announcements over the last year. Portsmouth Water announced in December 2015 that it would exit the non-domestic water market. Severn Trent and United Utilities responded by joint venturing to create Water Plus.

This last spring, both Thames Water and Severn Trent also announced that they would exit non-household, leaving the way open for Affinity Water's business arm which, last month, announced a rebranding to create Affinity for Business, while simultaneously submitting its application for a license to offer sewerage services to businesses. So Affinity for Business customers, come April 2017, will receive a consolidated water and water sewerage services bill instead of separate ones for each service. Will the convenience of receiving a single bill trump the potentially small savings of switching to a new supplier? We won't know until next spring but in the meantime there is a massive IT job to get the MOSL-administered Central Marketing Operating System working for wholesalers and retailers alike. Data sets will be flowed in and extensive test runs conducted to ensure all systems and processes are battle-hardened ahead of go live on 3rd April. So watch this space for progress reports.

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