Water market deregulation – to switch or not to switch, that is the question?

Graham Mann, Water Industry Expert

April 1st 2007 was a key date in the UK water industry as the water market opened its doors allowing non-residential customers to negotiate a better price on their water and waste water bills.

The expectation was high as this was an opportunity to strike deals which had potential for reducing business and public sector water and waste water costs, so where are we now nearly one year on?

Some water companies such as Severn Trent and United Utilities have merged their water retail business creating Water Plus.

A Scottish based water company has acquired Thames Water’s non-residential customers and Portsmouth Water’s non-residential customers.

Anglian Water and Northumbrian Water have merged their retail companies creating Wave, and numerous other water retail businesses have been popping up all over the place with many more in the pipeline.

So in theory customers should be enjoying attractive competitive discounting as the various water retailers fight for your water supply business right?

Wrong, the margins are simply not available to entice anything like customer expectations, low single digits.

So what are the water retailers doing to entice customers through the doors?

All water retailers are promising better service but so far all we have seen are a substantial increase in water billing errors, some simple, some more complex.

Whereas water companies overcharging has been prolific in both the Scottish and English water market for decades, now the bill errors are quite frankly off the scale, with many not just by a few pounds either.

With refunds ranging from £1,000 to a more recent £150,000 with more and more incorrect bills being sent out as a direct result of water market deregulation and Water Company mergers.

Service levels are rock bottom with the larger water retail companies taking months to resolve simple billing issues.

Others are not replying to billing issues or complaints. It seems since water deregulation some water retailers are putting all their resources into grabbing a larger market share and existing customers are suffering the pain of deregulation and mergers.

We never thought in 30 years in the water industry we would hear customers say “Get me away from these cowboys.”

So what are we left with – discount?

Very low single digit discounts are the norm and not worth the time, effort or costs of going down the road of switching from your existing supplier.

As for any value that can be derived from receiving one bill for all sites, there are other more cost effective ways of reducing your water charges.

So where does that leave the public sector?

We estimate 25% – 30% can be wiped off the public sector water and waste water bills. That’s not including the refunds due to historical billing errors and that is a big number!
Large sites within public sector such as prisons, hospitals, universities and sites using large volumes of water should carry out feasibility studies with a view to going “off grid” for their water supplies.

Boreholes, your own private water supply will give you increased security of supply. You could slash your water costs by 15% to 90% depending on which project funding option works for you.

Some prisons, hospitals and MOD sites already have an alternative water supply. Those sites that do, why not take one giant innovative step and see if you could sell any of your excess water supply volumes to other potential customers. Giving you an income from the water resale and offsetting operations costs – now there’s a thought.

Please be aware your existing water retailer may not be so keen to help you install an alternative water supply as they stand to lose your water supply revenue.

Another consideration is “water self-supply.” This is where your organisation makes an application for a licence to deal directly with the water wholesaler, cutting out the retail margin or middle man.

In the media recently, Blackpool Council made an application for a water self-supply licence, apparently a saving of £50,000 in the first year. Taking into consideration the application and ongoing regulatory costs, we think the savings figure of £50,000 is unlikely.

We recently completed a water self-supply feasibility study for a hospital with a spend of £450,000 per year and after costs a saving of £5,000 over 2 years would be achieved.

The water retail market in England has some years yet to fully mature, the discounts needed to “kick start” the market will not be achieved for many years yet.

Innovation takes time to shine through, but be assured it is on its way, I am confident of that.

So what are we left with?

Take the water management sustainability approach, draw up a water strategy.
Centralise your billing data, compile a 1 year data set and commission a historical desktop water audit.

The overall specification and opportunities will vary but generally the report should contain areas of savings opportunities together with savings figures and also contain details of historical billing errors.

In the main, such items as incorrect tariff applications, high water consumption through leakage and inefficient use should give you a feel for the potential returns. Take your total spend and apply a 20% to 30% target saving as an average that gives you a flavour as to the start point.

Site surveys may well be needed in order to identify the savings, quantify the action required to achieve the savings in terms of costs and payment which on average is less than 1 year.

Funding options will vary according to your individual requirements with some payback of 3 – 9 months.