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Special Report - NEWS

England’s water market prepares for further deregulation

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ngland’s water market for business customers will undergo further deregulation from April this year, enabling companies of all sizes to benefit from more competition and lower costs, as Nick Simpson, Marketing Director at SUEZ Water UK, explains. Business owners across England could soon benefit from lower bills by switching water providers and buying water from other than their local supplier. In the same way that energy users can choose their supplier, so this will soon apply to most commercial water users in England. From April, the market for supplying water to businesses in England will be further deregulated, bringing it into line with current arrangements in Scotland. England actually introduced competition for water services way back in 2003. Commercial customers using more than 50 megalitres of water per year were able to switch suppliers in the same way that many businesses shop around for gas and electricity. However, this Water Supply Licensing programme was limited in scope and did not introduce realistic financial incentives – or a suitable market structure – to create true competition. Despite later reducing the threshold to 5 megalitres per year, the same basic restraints continued to apply to the market, meaning that the same problems persisted: non-standardised billing, complex tariffs, low levels of customer satisfaction and the high cost of handling transactions across multiple sites. In Scotland, the water market has been fully deregulated since 2008, creating estimated efficiency savings of over £43 million and saving around 20 billion litres of water. Around 42 percent of Scottish businesses have taken the opportunity to renegotiate their water and sewerage contracts. Scotland’s 130,000 non-domestic customers can choose between 18 retail suppliers or ‘Licensed Providers’ of water. Each purchases water and/or sewerage services at wholesale prices from Scottish Water, which remains responsible for maintaining the publically owned water supply and waste infrastructures. The success of water deregulation in Scotland led the Government to propose a similar scheme in England (removing the

current consumption threshold completely), and in 2009 the independent Cave Review of competition and innovation in water markets final report was published. The Water Bill was subsequently published by DEFRA in 2013 and passed by Act of Parliament in 2014. In anticipation of the changes, many of the water companies have established licenced water retail supply businesses, either directly owned, joint-owned or in partnership with specialised providers. In each case, contact is being made with business customers to advise them of the changes. Courtesy of the Water Act 2014, all non-domestic business customers – plus public sector, charitable and not-for-profit organisations in England – will have the flexibility to choose their supplier of water and sewage services, regardless of where they are located in the country. With around one million eligible companies, the English market is around eight times larger than that in Scotland. In principle, further deregulation could help companies cut their water costs by eliminating inefficiencies, reducing the complexity of sourcing across multiple sites, and providing single billing rather than multiple billing from different regional suppliers. In reality, the situation has actually become a little more complex before its intended benefits can eventually be realised, as many industrial and commercial organisations have been temporarily diverted from their core activities ahead of the deadline. In simple terms, deregulation should allow businesses to reduce the cost of water and sewage services, either through renegotiation with an existing supplier or by transferring to a new one. In practice, there are likely to be some teething problems. For example, some companies that operate from multiple sites around the country, particularly those receiving water from different local suppliers (or that have premises where the definition of household and non-household is unclear) might experience problems. There is also a risk that pricing structures actually become more complex, rather than more transparent. Different water retailers may have varying margins for different customer groups or volume users, for example, which may make it difficult for all customers to negotiate

worthwhile discounts. For many customers, price will only be part of their requirement. They may, for example, place equal or greater value on factors such as single billing for multiple sites, flow monitoring, security of supply, greater water efficiency, enhanced customer or water hygiene services or carbon reduction. To take advantage of the potential savings, non-domestic water users in England should now be developing strategies for managing vital water and wastewater services; however, this is not often seen as a core activity. And in the run-up to the 2017 deadline, essential activities such as negotiating the best deal and managing this on an on-going basis, has added to overall costs. One answer may be to outsource responsibility for water and wastewater treatment – and factors such as cost negotiations – to an industry expert such as SUEZ Water UK. In many respects, this type of outsourcing is no different to that of many other non-core business services such as warehousing, IT or payroll. Ultimately, such an arrangement would help a company to focus exclusively on its core business, while reducing the cost, risk and complexity of managing its water and wastewater systems. For more information visit www.suezwater.co.uk/ industrial-water-retail/

Energy Manager Magazine • January/february 2017

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Energy Manager Magazine Jan/Feb 2017