A Guide to Business Water Deregulation
Table of Contents
- – Before Deregulation
- – Results from Scotland
- FULL MARKET COMPETITION
- WATER PRICES AND TARIFFS
- – Small Business Prices
- – Medium-size Businesses
- BENEFITS OF SWITCHING SUPPLIERS
- – Lower Prices
- – Consolidated Bills
- THE ENERGY MARKETS EXPERIENCE
- – The Wholesale Market
- RECENT NEWS
- BUSINESS WATER QUOTE FORM
From 1st April 2017, the retail water market in England (excluding Wales and Northern Ireland) is to be deregulated for non-residential customers.
The Water Act 2014 received Royal Assent on 14 May 2014 signifying the start of open competition in the commercial water and sewerage market.
From next year, all 1.2 million UK businesses using this utility can buy their supply from any regulated provider.
Currently, no business using under 5,000 cubic meters of water per year (50,000 m3 in Wales) or households can choose their water supplier.
Results from Scotland
The Scottish water market deregulated in April 2008 for business users removing the controls of imposing a nationalised entity. Initially, only the company Business Stream (BStr) operated in the market, but now there are 22 competitors.
The incumbent operator provides some impressive statistics on how much money businesses have saved. They’ve estimated Scottish companies have saved over £133 million with £73m from discounts and £54m in efficiencies.
Data from the company Open Water report that 50% of business customers in Scotland have renegotiated terms with their current supplier with just 5% that switched providers.
The Scottish market has recently seen some real competitive battles leading to far lower costs. Castle Water offer RFU members a 22% discount over standard BStr tariffs. Anglian Water won the contract to supply 100 public sector organisations in Scotland by beating the current BStr rates by £40 million.
Full Market Competition
The deregulation change is only for commercial customers using water supplies based in England. From 1st April 2017, a business can choose any of the 35 Ofwat regulated companies in the water and sewerage sector.
Currently, you’re supplied by the regional monopoly based on your premises location.
From 1st April 2017, you’re able to switch your supplier to the cheapest market prices in the same manner as with the deregulated gas and electricity markets.
Water Prices and Tariffs
We undertook extensive research into the top ten water companies’ published tariffs from their websites.
Our research shows that the current standard tariff from the most expensive provider to the cheapest supplier is different by 57%!
The calculations below show the exact charges a small or medium-sized business incurs each year. The average bills exclude additional charges such as surface water and highway drainage.
The data is from the 2016/17 published tariffs using the lowest annual fixed charges. All prices exclude VAT at 20%.
Small Business Prices
Based on 200m3 consumption, sorted by cheapest first.
|Supplier||Water £/m3||Water Fixed||Waste £/m3||Waste Fixed||Total Bill|
|1. Thames Water||£1.3560||£20.45||£0.9148||£26.48||£491.94|
|2. Severn Trent||£1.5586||£45.59||£0.9400||£23.00||£558.91|
|3. United Utilities||£1.7050||£43.31||£1.1050||£0||£594.26|
|5. Yorkshire Water||£1.2875||£23.28||£1.5576||£25.71||£602.43|
|6. Anglian Water||£1.3396||£48.00||£1.5655||£53.00||£666.37|
|7. Southern Water||£1.2510||£33.89||£2.2480||£32.85||£744.06|
|8. Wessex Water||£2.2058||£25.00||£1.8579||£19.00||£838.16|
|9. South West||£1.9714||£34.08||£3.4518||£40.80||£1,125.00|
|10. Business Stream||£2.1442||£142.91||£2.3982||£138.02||£1,165.43|
The difference from highest to lowest is 56.6% or £673.49 per year.
Based on 1,500m3 consumption, sorted by cheapest first.
|Supplier||Water £/m3||Water Fixed||Waste £/m3||Waste Fixed||Total Bill|
|1. Thames Water||£1.3516||£20.45||£0.8428||£26.48||£3,275.32|
|3. Severn Trent||£1.5586||£45.59||£0.9400||£23.00||£3,745.99|
|4. Anglian Water||£1.2125||£113.00||£1.4507||£103.00||£4,101.99|
|5. United Utilities||£1.7050||£43.31||£1.1050||£0||£4,175.44|
|6. Yorkshire Water||£1.2875||£23.28||£1.5576||£25.71||£4,199.82|
|7. Southern Water||£1.2510||£33.89||£2.2480||£32.85||£5,146.64|
|8. Wessex Water||£2.1262||£25.00||£1.7512||£19.00||£5,728.76|
|9. Business Stream||£2.1442||£142.91||£2.3982||£138.02||£6,914.67|
|10. South West||£1.9714||£34.08||£3.4518||£40.80||£7,950.80|
The difference from highest to lowest are 34.4% or £3,639.35 per year.
Unfortunately, in the initial stages, you’re unable to select a tariff out of your region.
Each supplier charges based on an assumed regional cost base where savings are estimated to be up to 6%. The future charging structure is still in the development phase.
However, based on the performance in Scotland, in a few years time a real downward pressure on tariffs is likely that feeds into lower prices for business.
Benefits of Switching Supplier
The overall objective of any market deregulation is to offer consumers a choice from increased competitiveness. Deregulation is the process of removing market constraints which is different from privatisation where shares are privately held rather than by the government.
There are currently substantial differences in the tariffs offered by the leading providers. In theory, the most expensive operator usually reduces prices, with the cheapest increasing them. These pricing differentials are likely to remain because a majority of users will not switch or renegotiate their contracts.
Price inertia is prevalent in all industries where the providers know most people won’t do anything to change their position to reduce their bills.
Although there’s likely to be some form of marketing communication, the onus is on the company itself to compare prices and switch their expensive contract.
In the early stages post deregulation, it’s the larger consumers of water that will benefit from switching. Once momentum builds, we’ll likely see larger price differentials between the water companies.
One significant change multi-site users will benefit from is the ability to have one supplier administer all of their sites. If a business has 20 stores around the country, they may have 20 different water suppliers. From April they’ll be able to consolidate their fragmented billing into one national agreement.
The Energy Markets Experience
The UK has already been through a utility deregulation with the gas and electricity markets.
The late 1990s saw the deregulation of the energy markets, during May 1998 for gas, and May 1999 for electricity. The government relaxed price controls in 2002. Since then, the wholesale market prices have tripled and so have annual bills.
In the 15 years of the open market, 40% of customers still haven’t switched suppliers which is a similar figure to the water deregulation experience in Scotland.
The Wholesale Market
The majority of utilities are first purchased from the wholesale market, although some energy companies produce their own fuel. However, it’s vital to understand to differences between the water and energy dynamics.
- The UK is a net importer of gas and electricity so is subject to external market forces and exchange rates. For example, two weeks after Brexit, the wholesale electricity market increased by 33% in local currency units.
- All UK water is naturally occurring from rainwater so there’s no requirement to import anything.
- The water wholesale market has fixed until April 2020 determined by the regulator. No information is available on what happens from 2020 onwards.
Although gas and electricity bills have tripled since energy deregulation, it’s extremely unlikely water bills will move in the same direction due to the nature of the wholesale market.
Business Stream purchased Southern Water’s business customer base in June 2016. This is unfortunate for those customers as Business Stream’s charges are on average 32% higher than Southern Water.
In July 2016, a new company launched in Scotland. Brightwater estimates they can save the SME business market 20% by switching from the industry standard tariffs.
A new company, Three Sixty, was launched by Yorkshire Water in September to effectively split out business customers handled by the Kelda Group.
Market Operator Services Limited (MOSL), the company that manages the water trading market announced that 8,876 companies switched suppliers in the first week of April.
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