Residential retail history, background and changing markets

In November 2015, the UK government published its plan to:

• encourage open competition in different markets
• lower bills for residential customers and businesses

The report, ‘A better deal: boosting competition to bring down bills for families and firms', said:

"The government is driving water market competition. Business and other non-household customers will be able to switch suppliers from 2017. Ofwat will provide an assessment by summer 2016 of the costs and benefits of extending retail competition to household water customers. Following this, the government will work with water companies to begin the transition to household retail competition before the end of this Parliament.”

In July we published and consulted on our emerging findings on the costs and benefits of extending retail competition in England to residential customers.

Following consultation, we have updated our assessment, as set out on these pages.

As part of our work we also reviewed what happened when other markets opened. We commissioned an independent study into the opening of the energy market and reflected on the history and recent Competition and Markets Authority report into the sector:

• Ofwat household market review: Lessons from the energy sector, KPMG, July 2016

Changing markets

The water sector is renowned for its stability underpinned by independent regulation.

This has led to:

• investment in the water network
• a boost to resilience
• greater protection for our environment

But for customers the pace of change in the water sector has been slower than in other sectors.

Retail revolution

Every other retail service is provided in competitive markets.

In these competitive retail markets there has been radical change, innovation and technology-led advances to provide better service:

Customers can:

• search online for a product or service receiving exactly what they want and when they want it
• pay for a product with a wave of a smartphone
• manage their finances through fingerprint technology
• control their home’s heating remotely
• choose products which support the environment or a favourite charity

In contrast, the water sector remains largely unchanged.

Water customers are being left behind

While service levels in the water sector have improved the range of services offered has not.

There has been no meaningful innovation in tariff structures. And the possibilities from technology have largely been left unfulfilled – for example, we could only find two water companies offering an app for customers to manage their account.

It is therefore time to look at how ideas from other sectors can be harnessed to deliver a better service for water customers.

It is time to look at what role a competitive retail market could play in delivering better outcomes for water customers and wider society.

The value of choice

Our customer research shows that 56% of customers think choice in the water market would be a good thing.

Customers also expect choice and competition to:

• reduce prices
• improve service levels

Customers also value the freedom that they get in other retail markets - namely allowing them to vote with their feet to get the service they expect.

Further information

• Costs and benefits of introducing competition to residential customers in England – emerging findings
• Costs and benefits of introducing competition to residential customers in England – emerging findings technical appendix 1
• Costs and benefits of introducing competition to residential customers in England – emerging findings technical appendix 2
• Letter from Cathryn Ross to Regulatory Directors: Review of household retail competition
• Review of retail household markets in the water and wastewater sector: Call for evidence
• Review of retail household markets in the water and wastewater sector: Draft terms of reference
• Slides from our 20 July workshop