John Reynolds, CEO of Castle Water, reflects on a year of change since the non-household water sector in England opened up to competition in April 2017.

John Reynolds:The benefits of the new water market come from a combination of discounts, correcting historic inconsistencies, as well as customer choice.

Castle Water has delivered savings from reducing wholesale charges which significantly exceed the discounts given to customers on prices.

The wholesalers we deal with – and although our main interaction is with Thames Water, we're working daily with most wholesalers – are committed to delivering services well to water consumers. Prevalent approaches in the industry focus on process management, assurance, and product quality.

Following a process becomes a proxy for addressing a problem. The customer can get lost in this. CCWater and consumer advocacy groups rightly try to redress the balance for the individual customer - and so do retailers.

Castle Water, along with other retailers, has been providing new approaches. In our case, we have delivered more transparent bills, showing greater detail of how prices are calculated. We have asked customers to change payment methods and have shared cost savings with them in exchange for doing so (via discounts and cashback). We have challenged wholesalers on how charges are structured. We have reviewed wholesale charging, reducing annual wholesale charges by nearly £7 million. We have added 50,000 supply points to consolidated bills, making billing and payment more efficient for large customers. We have given discounts and incentives to thousands of SMEs.

The retailer can bridge the gap between the control and process management of the wholesalers and the customer’s legitimate focus on their own specific interests.

Giving more transparency in our bills has given customers the opportunity to see and then challenge billing parameters. Giving choices on how to receive a discount has had interesting results: One-third of our business customers prefer an Amazon e-voucher to a credit on their account. A small percentage, around 2% of customers, instead of accepting a discount choose to donate to providing water to children in natural disasters and civil wars through the Save the Children Emergency Fund.

Different models of retailer can add value in the market, whether independent or vertically integrated. An independent retailer can be free of conflicts, is able to challenge historic decisions and has the expertise to stand toe-to-toe with the wholesaler.

To be able to maximise the benefits of the market, customers and their advocates must accept that retailers are not (at least at the moment) able to make all the decisions. Nor are they in a position to redress every historic issue. The Codes allow only wholesalers to directly change parameters affecting charging, not retailers. Retailers can request changes but cannot demand them. The retailer has a sufficiently strong incentive to resolve complaints and queries, as retailers pay wholesale charges on behalf of customers, and customers won’t pay disputed bills.

Processes in market codes are slow and clunky

We can’t wave a magic wand, or to be more seasonal pull an Easter bunny out of a hat.Where a wholesaler faces a challenge with resolving issues - perhaps with a resource constraint resulting from a higher level of query than previously or, equally, faced with the difficulty of relating historic engineering decisions to the new market - we can’t deliver changes as fast as we want. The market codes reflect this, with charging parameters set by wholesalers, not retailers. The processes enshrined in the codes to force a change in pricing parameters are slow and clunky. They could be made significantly more responsive, especially where there are demonstrable errors in data and the retailer can supply the correct answer.

Castle Water’s customers are exclusively businesses (including the public and third sectors) and know that a disputed bill is unenforceable. Unlike customers, retailers don’t have the option of not paying wholesale charges if there are amounts which are erroneous in them. What for a vertically integrated group is an inter-company transfer, for an independent Retailer is a cash-cost. The independent model has very clear incentives to get bills right.

The impact on customers and retailers of the introduction of a Deemed Contract has been understated. This makes a significant difference to the rights of customers, and the rights and obligations of retailers. Customers have more scope to challenge bills, on wider grounds, than ever before.

The market is not perfect

The market is not perfect. It is relatively poorly designed in some areas, for example where billing data is simply wrong, or where water and waste are provided by separate retailers, and especially where there is Trade Effluent on a complex site. Our most intensive period of customer query since the market opened was in September. This resulted from billing customers who had previously not been billed separately for waste, where there was a high level of error in CMOS data. The problem was exacerbated by a relatively low level of understanding of the water market – we still believe there is a need for more widespread distribution of information on how the market works to all sizes of business customer.

We responded to clear problems with customer data, both in the level of resource providing customer service and by addressing the fundamental problems, resulting in thousands of corrections being processed through CMOS. We have refined our approach further and we are now proactively using data analytics to identify groups of customers where there are data anomalies and to rapidly resolve these. It is difficult to see how this would have started without the full separation of retail from Thames’ and Portsmouth’s wholesale activities to a third party.

Large customers who have been with us in the Scottish market for a number of years have moved all their English sites to Castle Water, having seen for themselves how we reduce costs, provide accurate billing and, perhaps most importantly, how we constantly challenge the underlying wholesale pricing parameters. Since the start of 2018, we have moved large multi-site groups in the banking, property services, retail and charity sectors, as well as transferring large public sector customers.

Difficult to have a truly competitive market with an opaque tariff structure

Looking ahead, I would like to see a reduction in the complexity of tariffs, enabling effective quoting and customer decisions, with more rapid switching. The vestiges of tariffs created for a vertically integrated sector hold back the scope for more informed decision making, and more effective competition. It is difficult to have a truly competitive market with an opaque tariff structure. This also results in the prevalence of fairly primitive tools for quoting prices to customers, and technology which is the opposite of innovative.

The water market has moved things forward for customers, but not yet far enough.