More than 10,000 Diamond Jubilee street parties were organised across the country last week to celebrate 60 years of the Queen’s reign. From the hundreds of miles of bunting which decorated streets, to the entertainers, barbeques and children’s games which were planned, the UK celebrated in style. However, imagine if the rules meant organisers were prohibited from attending their own street party? Until recently, ‘in-area trading’ regulations meant that English and Welsh water suppliers were faced with exactly that problem (well, almost – it probably involved a bit less bunting).
So, what is ‘in-area trading’, and what exactly has changed in the water industry?
It’s been a week of nostalgia, so let’s start at the beginning. Historically, the water market in England has mostly operated as a series of regional monopolies, leaving non-domestic customers often dealing with a patchwork of different suppliers across the country.
When the water supply licensing regime was introduced in England and Wales a clause contained in the Water Industry Act 1991 effectively stopped incumbents’ (ie the water suppliers allocated to each region) associated licensees from competing for customers within their own geographical area. However, these associated licensees could compete in the areas of rival suppliers and so almost secure nationwide relationships with customers.
Essentially, it meant that water companies could develop, supply and connect the water infrastructure and drainage systems for their region. However, their arm’s length licensees could not compete for the non-domestic customers in their own backyard. Or, in other words, they could plan and organise the party – but not attend! Hence the term ‘a ban on in-area trading’.
However, the Government’s Department for Business, Innovation and Skills, which recently published its Enterprise and Regulatory Reform Bill, says this should change.
Following recommendations in the Defra Water White Paper, it reasoned that the restriction on in-area trading actually reduces the incentive for incumbent water suppliers to compete in the retail market and, more significantly, limits the benefits of the market for large multi-site customers. This is because a licensee associated with an incumbent supplier can’t offer a national service, which means customers cannot switch to a single national retailer which is also a regional network operator. The impact is that customers are unable to receive:
- standardised billing
- common service levels
- comparable financial discounts
Of course, this isn’t as big a problem for Business Stream as we can operate across Scotland and England (and Wales) as a licensed provider, and the services above are areas Business Stream has improved significantly in Scotland since the market opened to full competition in 2008. Since its inception, Business Stream has saved customers more than £25 million in consumption savings and increased customer satisfaction by 26 per cent.
We have witnessed the effects of an competitive retail market first hand, with the threat of competition driving us all to deliver innovations in pricing, customer service, metering, water efficiency and self-service – all of the things customers want to see.
If, as expected, the ban on in-area trading is removed from legislation next year, then one more barrier to full retail competition will be lifted. However, this is a barrier which helps the large incumbents but doesn’t really do much for new entrants and smaller licensees.
We were really encouraged when Defra’s Water White Paper announced that the consumption threshold at which non-household customers in England can switch water suppliers will fall from 50 megalitres per site per year, to five megalitres, and this is another major boost. However, it is important that the customer doesn’t get forgotten, so, with this in mind, we’re keen to see other reforms implemented which will benefit the whole market.
It is an exciting time for the industry, especially as more and more changes are implemented. However, there’s more still to be done before customers across the UK can benefit from a truly competitive market – so don’t start looking out the paper plates and hanging up the bunting just yet.