Ofwat
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PN 14/16 Competition in residential retail water market could prevent customers being left behind

Introducing competition to the residential retail water market could be worth almost £3bn and prevent water customers being left behind in a retail revolution, a new report suggests.

The assessment comes as Ofwat publishes its report on the costs and benefits of introducing competition to the residential retail water market in England, as requested by the government.

In its assessment, Ofwat stressed the uncertainty in predicting the outcome of opening the market, but has identified a range of potential financial and service benefits.

The financial benefits from opening the market to competition could be worth £2.9bn over 30 years, which amounts to £8 per customer, per year.

Ofwat’s report suggests that reductions in customer bills are possible but likely to be small, especially in the short term. However, it could lead to innovation, improved customer service, new offers – including bundling of products such as energy and telecoms with water – and, crucially, give customers the freedom to choose their supplier – ending the final retail monopoly. Customer research suggests that 56% think having choice would be a good thing.

In the course of its review, Ofwat heard from a number of potential new entrants, who can see the opportunity from a new market to provide retail services more efficiently, to offer new products and services, and make customers’ lives easier.

Ofwat’s modelling of potential costs and benefits also identifies possible improvements in water efficiency and in reducing bad debt costs, as retailers get better information about customers and their water use.

Of course, in setting up a new market, there would be significant costs which would ultimately fall on companies and customers. Some of these can be minimised with a well-timed, well-planned process to open the market and by learning from other markets including the opening of the business customer retail market in England.

Cathryn Ross, Chief Executive of Ofwat, said:

“We are living in an age of retail revolution, but water customers are being left behind.

“The service offers from water companies can feel behind the curve compared to the innovation customers benefit from when buying other goods. The uncomfortable truth is that, when it comes to retail offers, water companies provide an analogue service in a digital age.

“Customers tell us they think they should have the freedom to choose and don’t understand why water is the only retail market in which there isn’t some form of competition.

“But, of course, this isn’t a one-way street.  There are significant costs to be considered, and it will be important to ensure that customers are treated fairly in a competitive market and that vulnerable customers are protected. The decision for the government to make is whether the potential benefits outweigh the costs and risks.”

Ofwat has submitted its assessment to the government of the potential costs and benefits of opening the residential retail water market in England.

It is for the government to decide whether in principle it wants to introduce competition and, if so, how and when to do so.

Notes to editors

  1. The Water Services Regulation Authority (Ofwat) is the economic regulator of water and sewerage companies in England and Wales. It exercises its powers in a way that it judges will protect the interests of consumers, promote value and safeguard future water and sewerage services by allowing efficient companies to carry out their functions properly, and finance them.
  2. Further details on the residential retail water market are available on the Ofwat website
  3. Media enquiries to Ofwat Press Office on: Mark Anderson 0121 644 7642 and 07884 117 760 /Mark.Anderson@ofwat.gsi.gov.uk

 

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