From April 2017 all firms in England will be able to choose their water supplier. the environmentalist looks at the likely impact
Research indicates businesses are increasingly aware of the benefits of water efficiency and the effects of water-related risks on their operations, and many are integrating this knowledge into the management decision making process. But in strategic terms the natural resource is now moving to another dimension entirely – business water competition. The UK business water market will open fully in April 2017. It is already well developed in England, where the water use threshold for companies to opt for a new supplier has dropped from 50 mega litres (Ml) a year to 5Ml, and will fall to zero in two years. In Wales, the threshold remains 50Ml a year.
Competition is expected to intensify as a result. Ofwat’s view of competition is that it is a “key driver of efficiency and innovation”, which will enable the water industry to meet future challenges. The industry regulator also believes it will help deliver the government’s strategy for sustainable and secure supplies in England, which was published in 2011. Ofwat also argues that competition has improved service and widened choice for customers in other utility sectors, and that regulation can be gradually withdrawn as markets become more competitive. “Currently there are too many examples of businesses getting a poor deal from their water supplier, particularly when it comes to service,” says an Ofwat spokesperson. “Opening up choice to the customer not only promises to drive costs down, but also should improve service and make the best use of scarce resources.”
Scotland first
Ofwat believes the experience in Scotland, where since 1 April 2008 all businesses and public sector, charitable and not-for-profit organisations have been able to choose their supplier, shows the benefits of competition among suppliers. “In Scotland there has been an estimated £100 million of total savings since the market opened. Around half of this has come through water companies offering savings through water efficiency measures. Better use of water is good for businesses’ bottom lines but also for the environment. We need to learn lessons from the opening up of the market in Scotland and that includes analysing what has worked well. We should ensure any framework works well for an English market, bearing in mind that this market is a lot bigger than the one in Scotland,” Ofwat reports.
Competition arrived in Scotland with the relatively straightforward transfer of publicly owned Scottish Water’s business interests to an arm’s-length operation called Business Stream. This has become the default water services supplier for all businesses in Scotland. Scottish Water owns the water and wastewater networks and is the wholesaler, selling water and sewerage services to the competitors, which act as suppliers. The suppliers bundle their services with a selection of “value-adding offerings” and sell them on to customers.
Johanna Dow, Business Stream’s acting chief executive, explains: “The intention before the market opened was to drive improved choice for customers, with increased innovation in a range of services. Service improvements and better value were the measures for success.”
Like Ofwat, Dow highlights savings totalling more than £100 million that have come either through discounts or water efficiency since competition began, though she stresses that the efficiency side it is not all about money. “The financial savings translate into saving customers 34,000 tonnes of carbon. This is an aspect that is often missed. We very much look at the environmental benefits.”
The public sector, which Dow notes “does have a big voice as a customer group”, is a major beneficiary from competition, having saved £36 million since 2008. She also stresses that water savings are worthwhile. “We hear quite a lot that water is the poor relation of electricity and gas. I definitely don’t think that. There is a huge amount of customer benefit.”
Although the market in England and Wales is not fully open, Dow believes a lot of customers could still be benefiting. “The key thing we encourage customers to be is informed – to learn the art of the possible. There is a lot they can do before the market opens. If customers use over 5Ml of water a year they can switch now.” She urges all business customers to understand their water use, to work out how much they use in a year and how much water costs. “They will then be in a better position when the market opens,” says Dow.
Although some observers suggest competition has not brought much change of ownership in Scotland, with just 15% of customers having switched supplier, Dow says the market has picked up in the past 12 months. “There are now 18 retailers licensed to sell water services. I definitely feel that is plenty of choice,” she says. Ultimately, she concludes, the measure of success does not depend on the number of customers that have switched but to the benefits businesses have gained, including improved customer service, and water and financial savings.
Going south
The Water Industry Act 1991 allows sites in an existing supplier’s area to be served by another utility. Where an alternative supplier is selected, an inset appointment is made by Ofwat. Despite this Jacob Tompkins, chief executive at the water efficiency NGO Waterwise, says the market in England and Wales has been quiet. “It is an issue that inset appointments have been allowed for quite a while, so large companies have potentially been able to switch and not many have, so will full competition be any different?” says Tompkins. He believes the changes need to be considered with the other issues Ofwat is focusing on, such as tackling leakage and promoting efficiency.
Tompkins predicts big changes in 2017, with water companies starting to sell services rather than water. “Water efficiency, rainwater harvesting, off-grid water. I can see it going two ways: false competition, where companies have a shiny website and offer a cuddly water vole and pen, or something more akin to the energy market. But if Defra sorts out upstream licensing we will get a real revolution,” he says.
Innovative options for bundled supplies of utilities, and activities focused on microsensors that give a detailed view of water consumption, and even self-service businesses buying directly from the water wholesaler and becoming their own suppliers, are all possible, Tompkins predicts. He points to utilities like Severn Trent and Business Stream in Scotland, which are refocusing their entire businesses on the customer. He suggests companies may even move to a flat fee combined with water management. “These service models are very attractive,” he notes. Competition, he adds, should also lead to innovation, possibly on a scale barely imaginable today. “The idea that utilities can continue to do the things they have always done will not wash,” says Tompkins.
Big water
Major commercial water users should definitely consider what competing providers can offer, according to Kalpana Peigne, marketing manager at the printing firm Seacourt Press, which has won awards for water efficiency. Globally, the print industry is the fifth largest consumer of water and is the sixth biggest polluter, she says. Seacourt acted on this when it learned of these statistics, and acknowledged the growing threats from climate change. “Also, print technologies were available not just to counteract the pollution but to produce a much higher quality of printwork, so for us it was a must,” says Peigne.
The Oxford-based company invested in a waterless press, which resulted not only in significant water savings but a better product. “Because we were so into doing what is right for the environment it gave us a purpose and we have taken on an environmental crusade since,” says Peigne. The company also bought a filtration system. This saves 520,000 litres a year by allowing water from the plate-making process to be reused.
Although Peigne feels there is little that Seacourt could do to be more water-efficient, and is therefore unlikely to benefit from the forthcoming opening up of the water market in England, she is an advocate, particularly of the expertise that water companies can provide: “Some organisations might not have the resources or time to investigate what [water] efficiencies are possible. For people wanting to start on their journey it will be useful to engage with people who know what to do.”
Peigne explains that environmental awareness and water efficiency has brought Seacourt many benefits: “It changed our whole ideology about how to do business and differentiated us from our competitors.”
Competition is not welcome by some, however. The Major Energy Users Council (MEUC), which represents the biggest consumers of water and energy in the UK, has been a tough critic of the water industry. The organisation believes that suppliers have worked to frustrate competition, though it concedes that in too many large customer organisations, water management is not seen as a significant issue and is not a priority for senior management. An MEUC poll revealed that only 31% of the businesses felt their relationship with their water supplier was “very good”; more than a quarter described it as “poor”; and half said their supplier was “not helpful” in reducing waste. Around 30% admitted they did not know where their meters were fitted, however. In addition, 54% said they did not know what impact water competition would have on their tendering process.
Respondent’s comments included some wish-list elements, such as a simple billing arrangement, a single supplier (and bill) for all sites, all services included on one bill, and metered supplies in all locations. Companies were keen to embrace water efficiency and minimise leaks, but also wanted more support than they were receiving from their current suppliers.
Grounds for optimism?
Nonetheless, the future looks better than past attempts at competition might suggest. Karma Ockenden, chair of the water competition group at the MEUC, says: “I think that, since the Water Act 1991 was passed, the confidence of business customers that something will happen has grown. There were a lot of false starts. People were jaded with the whole thing.”
She reports that the council is trying to rally customers to take part when the market opens. “MEUC represents very large users. There is definitely interest and an appetite for engaging with the market.” However, the level of engagement for smaller customers is much lower, she observes. In terms of awareness, Ockenden says: “It is a learning curve. Many companies are aware the market is opening, but how to switch and what choices there will be is something they need to learn.”
She explains that many large businesses do not have a dedicated water buyer. “Nine times out of 10 it is the energy buyer and their main focus is energy.” The major factor is not price, says Ockenden: “Compared with energy costs, the water bill is often seen as a relatively small issue.” But administrative efficiency is important. “A lot of MEUC members are multisite, such as supermarkets. A lot of companies send bills in different ways – there is no consistency. Water takes a huge amount of administrative time and is harder to manage than gas purchase despite the relative difference in cost.”
Feedback Ockenden has received from MEUC members also suggests concern about how competition will work in practice. “Some companies have had bad experiences with energy switching,” she says. “There are some reservations on the back of that.” Data issues also pose a problem. “Metering consumption data doesn’t necessarily tally with suppliers,” she says.
Severn Trent Services (STS) has focused on issues with data accuracy, which managing director Wayne Earp warned at the annual national water event in 2014 was the “elephant in the room”. He told delegates that, during the switching process when STS scrutinises a new customer’s existing data, its experts discovered billing errors of around 20%. Earp also focused on tariffs and discounts. He warned that “there will be no excuse to repeat the failings of the power sector”, and emphasised the need for suppliers to be transparent about their margins, and work efficiently in a lean business model to ensure best value for the customer.
He also predicted a huge demand for “added value” services in England and Wales and predicted that market opening would spur innovation “as never before”.
Speaking at the same event, STS chief executive Nick Grant, who switched sectors from British Gas, emphasised the importance of customer service: “We will need to measure up to standards that have been set outside the water sector. The new benchmark is retail, and the obsessive focus on the entire customer experience that you find throughout that sector. I can tell you that keen attention to what customers are saying, to understanding what they say they need and anticipating what they will need next is a vital element of business success.”
Graham Southall, head of commercial services at Thames Water, predicts that competition will drive most suppliers to look at the way they provide services. “We can partner with customers and provide a wider range of services as part of a package we feel they can benefit from,” he says. “It’s a matter of trying to think about it from a customer perspective – what sort of services do they expect, where we can add value.”
If the new emphasis on customer service is refreshing, the hard commercial benefits can be persuasive. Anglian Water Business reports that the brewery company Greene King, which switched to its Scottish venture, Belhaven pubs, in 2009, is saving £20,000 a year, while Aimera, a competitor in Scotland, claims to have saved one customer £320,000.
Firms vying for a slice of the market
Business Stream
The incumbent business water service provider in Scotland is an arm’s-length company from Scottish Water.
Severn Trent Services
The business division of Midlands-based Severn Trent Group was one of the first in England to embrace competition. It has a long-standing £1 billion contract providing water and wastewater services for MoD properties in the north and east of England.
Thames Water Commercial Services
The business operation of Thames Water trebled the size of its Scottish unit in October 2014 as part of a bid to win market share.
Anglian Water Business
Anglian Water’s business venture started in Scotland as Osprey Water and rebranded in 2013 as AWB to operate across the UK. AWB has been providing services in Scotland to (among others) the Belhaven pub chain, owned by brewer Greene King, since 2009.
