Residential retail building for success

Addressing the risks

Consumer law offers protection to customers but regulation would also be needed to make sure customers receive good information about their water use, the services they receive, the price they pay and alternative deals. It would also need to make sure they are not subject to misleading or high-pressure sales techniques.

There must be effective redress when things go wrong. There is a set of minimum standards for water companies, which could be adapted to work in a competitive market.

Competition could reduce bad debt as retailers look to cut costs through better billing and debt management. This does not rely on any change to the ban on disconnecting customers.

Some customers genuinely struggle to pay their bill and there must continue to be protections to make sure they receive help in a competitive market.

It is also important to make sure that vulnerable customers get the support they need, and we could set conditions so retailers have to provide it.

It must be simple and easy for customers to engage in the market. We recognise not all customers will choose to, but it should be easy to compare deals and switch, and the regulator ought to step in if it is not.

Some will get better deals than others in a competitive market and it is possible that some customers will be worse off. It is important to consider what the different deals might be, and who is more likely to get the best and worse deals. Depending what this analysis shows, we may need some form of tariff regulation.

In identifying the right safeguards to protect against these risks, it is important that the regulator does not stifle competition.

Addressing the risks

A successful market needs competition. Experience from the business customer market suggests not all current water retailers will remain in a competitive market. But the potential for some companies to leave would create opportunities for new entry and innovation.

The market design must not create undue barriers to entry. New entrants should have a voice in how the market is set up, so it works for all and not just existing water companies. Regulation will be needed to ensure companies who can influence the market do not distort it to their own advantage. We expect good quality data on customers and their water use to be accessible to new entrants, helping them understand the market and compete.

Throughout this change, strong measures to protect customers must be put in place.

Addressing the risks

Even with retail competition, the current regional wholesale companies would still be responsible for providing reliable, safe drinking water and for taking away waste water. But wholesalers would need to work closely with retailers to maintain public health and safety, and to communicate with customers if there are problems with water services. We would use regulation to ensure wholesalers and retailers work together to protect public health and the environment, and that customers are involved and informed.

Addressing the risks

Wholesalers will continue to be vital in maintaining resilient water services. But retailers would also have a crucial role to play as they would have incentives to provide water efficiency services to reduce consumption and bills – as happened in the business customer market in Scotland. With the right incentives in place, retailers could benefit from reduced costs if they help wholesalers deliver more resilient services (for example, if costly new investment were avoided as a result of water efficiency).

Wholesalers and retailers need the right incentives to work together to maintain resilience and plan over the long-term, so customers of the future have the water services they need at a fair price.

Addressing the risks

An early in principle decision would help companies prepare their business plans for our 2019 price review. It would also help companies think about their retail strategy, and could be a material factor in deciding whether and how to engage in the business customer market.

Companies and investors would welcome such an early in principle decision.

Once a decision in principle is made, there is a separate question of when the market should open. A competitive residential retail market in England would be the largest competitive water retail market in the world and would affect every household in the country. So it would be important to allow time for the process to be thoroughly planned and tested.

It would also be important to consider how the timing could help take advantage of the learning from opening the business customer market.

A further consideration is whether the market should be opened on a single date, or whether a phased roll out could be adopted.