The water market is finally opening up to competition for commercial customers in England from April 2017 and there will be a significant opportunity for savings to businesses of all sizes.
Whilst there will be welcome reductions in charges, exaggerated claims of the amounts available are no doubt inevitable. However, it is the provision of added value services where many of the potential savings may lie.
Since 2008, non domestic customers in Scotland have had the opportunity to choose their own water supplier and millions of pounds have been saved as a result. However the deregulation process wasn’t without some major hiccups which the English market will no doubt also encounter.
When the water market deregulated in Scotland, all commercial customers were transferred to a new retail division of Scottish Water called Business Stream and other water suppliers were given licences to trade in the market. Business Stream have since lost approximately 50% of their market share as a result of competitive restrictions being placed on them to allow competition to take hold.
Lessons will hopefully have been learnt by the Water Regulator (OFWAT) during the Scottish deregulation process, as initial take-up during competition was a slow process, no doubt in part due to initial discounts on offer being relatively small.
Early discounts available in Scotland were only in the range of 1-3% and whilst this saving will no doubt be welcomed by independent schools in England, you would be forgiven for thinking this figure is relatively low. However, now that the market has matured in Scotland, discounts of up to 40% are not uncommon.
If as expected, the English market follows a similar path to that of Scotland, the main initial opportunity for private schools may not lie in the discounts available, but in the value added services which will be on offer.
With water suppliers competing with each other for the business of independent schools and initially not being able to provide large discounts as an incentive to switch supplier, they will need to offer value added service to win business such as site surveys to detect leakages and water audits to identify where usage can be reduced.
Leakages from older and historic buildings can be huge and this type of property is often common place within the private school sector. The savings materialised from finding and repairing leaks may potentially prove to be larger than reductions achieved from water tariff renegotiations.
Customer service and customer satisfaction were two areas that were adversely affected when the water market opened up to competition in Scotland. This is an important factor when schools may be considering moving supplier, particularly since many private schools have very large and complex property portfolios. Savings achieved via reduced rates could easily be wiped out as a result of poor billing and administrative errors from a new supplier.
A shadow market system will be running from October 2016 onwards to allow market participants to trial their systems. During this period, water suppliers will also be able to generate prices for potential clients, which will give an idea of the potential saving you can achieve from April 2017.
Irrespective of whether you intend to explore the opportunities internally or decide to use the services of a consultant/broker, you should begin to compile details of your water portfolio now in readiness to send to potential suppliers.
Not Intending to use a Consultant/Broker
In addition to compiling detailed information relating to all of your water meters, you should also begin to familiarise yourself with the likely market participants and keep abreast of the various added value products and services they offer. These are likely to become clearer over the next six months in the run up to the market opening on 1st April 2017.
It is unclear as to what your current local water company can offer you following the opening of the market. They are likely to be under strict regulatory restrictions with regards to price reductions to ensure competition can take hold. However, they may offer added value products and services which are not subject to regulatory control which may be of interest to you. You should not necessarily dismiss staying with your incumbent water provider, particularly if the discounts available from alternative suppliers are small during the early stages of competition.
Using a Consultant/Broker
If you are intending to appoint a Consultant or Broker to act on your behalf, there are many benefits to doing so and there are some excellent companies who will more than justify their fees. They should have evaluated and be aware of all supplier products and services and be will be able to keep you appraised of market developments and legislation to mention but a few. However, as with any industry, not all brokers operate to the same high standards and is worth spending the time to ensure you chose a provider has an appropriate industry background and will first and foremost act in the best long-term interests of the school. The key points to consider are as follows:
- Is the broker independent and whole of market? They may only work with a handful of preferred suppliers or even may be acting as an agent of a single supplier.
- What margin is the broker including? Some of the fees being included in utility contracts these days are eye watering. If you ask, the broker must declare their margins and should also be able to provide evidence from the supplier. If you already have a broker, call or write to your supplier and they will tell you how much is being paid to the agent or broker.
- In instances where an agent/broker fee is being included in your water contract, you need to ensure that all suppliers are being correctly analysed and treated like for like. It is all too easy for a broker to include different fees for different suppliers, hence this is not a fair tender and you are not necessarily being presented with the best price.
- If it looks to good to be true, it probably is. There will be many brokers attempting to gain business with the promise of huge savings over the coming months. Savings will be available, but it may take time for the market to mature. The real value in the water market may initially lie in the value added services you will be able to negotiate for your school. Show a health scepticism towards sensationalist claims.