PN 09/16 Competition in residential water could lead to better service and new products


18 July 2016

Opening the residential retail water market to competition could lead to better customer service, innovation in offers and products, and deliver environmental benefits while also offering modest savings for customers, says Ofwat.

Following work to introduce competition to the retail water market for businesses, charities and public sector organisations in England in April 2017, the regulator was asked by the UK government to evaluate the costs and benefits of introducing competition to the residential retail water market in England too. Today it has published its emerging findings.

Ofwat found that if an innovative, technology-led, competitive market emerges it could deliver average savings per customer of £6 a year, and offer better customer service, new offers and products, improved levels of resilience and put greater emphasis on customer convenience.

In particular, it could lead to multi-service bundles – where customers buy a number of utilities or services from a single provider. This could deliver even greater savings for customers.

Customer research commissioned to inform the review found a majority of people (56%) thought they should have choice, half (50%) would be interested in switching and 61% thought it would result in new offers and innovation.

When asked how much they would like to save off their water bill to convince them to switch, the average was 25% – a level of saving which is unlikely to be available. However, 45% of people said they would switch if retailers offered additional services even if there was no price saving.

The pressures of a competitive market could also provide the incentives to accelerate water efficiency initiatives. This could improve the reliability of services and deliver meaningful environmental benefits, too.

Ofwat also identified and modelled the impact of the potential costs from introducing competition. Under one of Ofwat’s scenarios, where retailers do not compete and customers do not engage with the market, the costs could outweigh the benefits – meaning customers would actually be worse off.

Cathryn Ross, Ofwat Chief Executive, said:

“The picture beginning to emerge from our review is that opening the residential retail water market to competition could deliver a wide range of benefits. We think there could be savings of up to £6 and, while modest, I’m sure customers would rather have that money in their pocket, than not.

“However, the benefits are not only about lower bills. We think there is real potential for competition to improve customer service, generate new offers and innovations and make customers’ lives a bit easier.

“We also think it could help the environment. In a competitive market it would make commercial sense for retailers to put more focus on conserving water and using it wisely. Over the longer term, this could reap impressive returns for the environment and the resilience of our water supplies. We see the potential for improved waste water management too.”
To help work through possible costs and benefits, Ofwat modelled outcomes against four possible scenarios ranging from one with widespread innovation and strong customer engagement, to one with disengaged customers and retailers and weak competition.

Ofwat is now consulting on its emerging findings before publishing its final report to government in the autumn. Any decision to open the residential retail market in England to competition is for the UK government. Ofwat will not be making any recommendation as part of its final report.


Notes to editor:

  1. The average water bill is £386