In an Expert Focus article for Waterbriefing, James Docking, CEO of New Zealand-based Gentrack specialising in billing and CRM software discusses what lessons, if any, the UK water sector can learn from reforms in the Australian market. 

The Water Bill, which is currently making its way through parliament, is likely to come into force in 2017 and will allow English businesses and public sector bodies to switch water suppliers irrespective of the amount of water they use.

This places the UK water market in a very interesting position, one where we may see long-established organisations suffer if they fail to adapt in what will become a competitive retail environment. For many, it will be a new and complex experience that requires guidance from companies who have experienced reform in water and energy markets. Australia is one such country, where wholesale, country-wide centralisation of water supplies forced huge changes in the market and innovative organisations thrived.

Before looking at the crossover between Australia and the UK, it is worth looking at the driving forces behind the Water Bill.

The planned changes were triggered by a string of research findings and developments in the market, notably beginning in July 2011, when leading think tank Policy Exchange found that business customers may benefit from improved customer services, lower prices and more innovation if the water services market in England and Wales was deregulated, as it was in Scotland. This report is widely regarded as the catalyst for change in the industry.

The study, ‘Water Retail Services Competition in England and Wales: Still Hobson’s Choice?’ went on to recommend that vertically-integrated water monopolies be partially broken up, and businesses along with public sector organisations be given the ability to choose their suppliers.

In November 2011 Ofwat changed the rules around switching in England, allowing non-household customers to switch water suppliers if they consume five megalitres annually at any one site, (which equates to approximately £9,000 per site in spend).

Following the findings of Policy Exchange, the Draft Water Bill was launched in July 2012 by the Department for Environment, Food and Rural Affairs, outlining the Government’s plans for a competitive Anglo-Scottish water market for non-household customers. The aim of the Bill is to give commercial water users a choice in their provider, driving competition and innovation across the industry and creating enhanced services for customers while lowering prices.

The Australian experience

The Australian water sector has a 20-year record of continual change beginning with the 1994 Water Reform Framework. The aim of the Framework was to establish a market-based system by separating water provision from regulatory functions, and allowing water prices to reflect the cost of resources. This means that Australian water suppliers need greater flexibility when it comes to billing customers as market requirements & structures change in line with resource costs. It is likely that UK utilities will need to imitate this flexibility to some extent, as suppliers may choose to offer different tariffs depending on an organisations’ size.

The Reform Framework was a response to droughts in the 80s and 90s, and while the UK doesn’t face similar issues, it is a region that suffers from significant water stress. The response in Australia was to create larger, more unified supply networks, while the plan in the UK, is to create a competitive marketplace where water suppliers have to be as efficient as possible in order to save money and maintain healthy customer bases. One of the knock-on effects of this is an improved supply chain as leakages and inefficient resource use will be costly.

The overhaul in Australia also saw a huge push towards customer-centric IT and billing services, as efficiency in these areas affords significant reductions in the cost-to-serve and provides customers with a better understanding of  their bills; a win-win situation.

The benefits of these reforms continue to be significant, customers get better service, and suppliers become more efficient; this is what the UK needs to emulate. The estimated £2bn saving to the economy is certainly a solid foundation for reform in the UK to be built on, but it is obviously a very general figure and customers need to understand what the changes will mean for them.

What was vital to the success in Australia, and needs to now be considered by UK utilities, is the role of the end customer. Water suppliers must remember that they provide a service to paying customers who need to be engaged early in the process to understand the case for change; they need to be interacted with in new ways and see tangible benefits from the reforms. The current state of the Australian water market and its journey, offers up several points of reference for the UK’s water utilities.

Up-front cost of reform to consumers should be minimised

The up-front cost of reform on consumers should be minimised, a capital investment shouldn’t mean a drastic cost increase to the consumer.

We can see from the smart meter roll out in other sectors that consumers do not trust current supply and billing arrangements.They want to know and understand what they are paying for in order to save money, so they won’t like forking out more for the privilege of having detailed bills. Placing a cap on any price rises for an interim period following the introduction of new services can ease price rise concerns.

Water reform is continuous

Since the early days of Australian water reform in the 90s, new federal and state legislation has ensured that supply, pricing and service frameworks are constantly shifting as further supply improvements and efficiencies are sought. UK Water utilities need not only react to market changes but strive for improvements and innovation.

Forging strong partnerships with technology providers has enabled water utilities to steadily navigate the transition.

The billing and CRM systems selected by utilities need to be fit for use, not only in the immediate future, but long-term as well. The software and the team picked to deploy it, will not only play a large part in a utility’s short term ability to get accurate bills out on time, it will also determine its long term ability to embrace new water initiatives and customer service strategies.

The role of the water bill is changing

In Australia water bills have gone from a revenue generation tool only, to a means of engaging the customer in managing their water costs. Water bills allow domestic and I&C customers to track consumption over time and to compare consumption while providing targeted, regional specific recommendations to reduce costs. And they’re taking it all online!