In the second of a series of articles based on an extended interview with Waterbriefing at the recent Water Event in Birmingham, Mark Powles, Chief Executive of Business Stream, sets out his views on non-domestic retail competition in Scotland and the prospects for its introduction in England in 2017 – including issues of cherry-picking and prospects for new entrants.
Q. Are you worried about cherry picking by the water companies? ‘We like the look of that organisation, we want to do business there. We’re really not interested in that contract over there though so we’re going to price un-competitively – we don’t want it?’
Mark Powles:
It’s really important that we create a regime where all customers can benefit. In Scotland we’ve done that in a number of ways. As the incumbent, Business Stream has a universal service obligation, i.e. any customer in Scotland can demand at the minimum the default price and a set of regulated minimum standards.
There is also a “provider of last resort” mechanism in place so that if a retailer goes bust, no customer is disadvantaged – which is really important.
And we also have an obligation to have cost reflective tariffs – so we can’t cherry-pick and we can’t price differently across the customer groups.
Clearly, not all customers have the same needs and the cost to serve varies, but if within a group of customers, say supermarkets, I offer a deal to one, I have to offer it to others as well. So in that way you can’t get cherry-picking by the incumbent.
We’ll have to see how the model shapes up, but it appears that new entrants could currently go in and target specific areas. I think you’ll find that different retailers will focus on different industry segments, because that’s where their capability will be.
In Scotland, we, as an incumbent however, have developed a suite of services you can take away for all sorts of different businesses across all sectors. If you’re a corner shop it’s about price and convenience – an electronic bill and an online portal – because that’s what matters to you. If you’re a big industrial manufacturer, it’s about water efficiency, using less resource – we’ve got a suite of services and solutions designed to benefit them too.
Q So you do management and measurement for the big groups that need to do it but not for the little businesses?
Mark Powles:
Our innovative solutions are available for all our customers but really what our SMEs are looking for is a speedy, easy and convenient service. We’ve got tips especially for SMEs who don’t use a great deal of water and we provide them with water efficiency packs to help them reduce their water usage as well.
Q. Have you had a situation where for example everybody on a small industrial estate that aren’t big enough on their own to do anything say we as a group – or even all the businesses in a small town – would like to contract with you?
Mark Powles:
They aren’t allowed to do that under the market rules – but what you do have are industry associations, brokers that will create a ‘super-user’ and then we’ll contract with them. For instance, the public sector in Scotland, which together represents about 20% of the market in Scotland, decided to pool all of its organisations together and go out to tender. We won that and we’ll deliver more than £32 million worth of benefits to them over the term of the four year contract.
Q. So do you envisage that that the water companies in England will be coming up to your patch?
Mark Powles:
It’s already happening. We’ve got twelve competitors in Scotland now so it is a genuinely competitive market.
Q. In England and Wales we already have the incumbents and the smaller independent water networks. If someone new wants to come in - say the other utilities, the energy providers , gas or electricity, decide to make a strategic move and say we want to provide a one-stop shop to all our really big customers and be a water supplier as well, how would that work?
Mark Powles:
The licensing regime is fairly straightforward – you apply for a licence, you prove you’re credible, you go through training with the market systems, you build the interfaces – and you’re trading.
It’s not just water companies in England that have come into Scotland, other new entrants have also set up. So far, the energy companies haven’t declared their hand – I don’t know whether they will or not.
Are the big six energy firms going to enter the market? Obviously we think it’s a big market, but compared with what they already do and all the other calls on their capital, I’m not sure it’s big enough. But that’s a question for them.
Also, within Scotland, you can take a full licence as a retailer – to supply water and waste water services. You can also take a specialist licence to focus on a particular area, or customers can go and self-supply. I think that would probably be a component in England as well. Now whether the prize is big enough for a company to do its own thing and go self-supply, I question that.