Could competition deliver a better deal for households?

With the Government keen to give households in England a choice over their retail water supplier, CCWater Chief Executive Tony Smith explains why competition may struggle to whet the appetite of customers.

Could competition deliver a better deal for households in England that comes close to meeting their expectations? That’s a question many of us in the water sector have been asking ourselves and customers over the past few months.

The recent publication of Ofwat’s emerging findings confirmed two things we already know – customers like the idea of choice but, crucially, they have little interest in small savings. So could a retail water market with the potential to offer bill reductions of around £10 satisfy customers’ appetite to save money – even with the potential for bundling services?

The energy sector might provide a stark warning for water. Switching rates in gas and electricity markets have run at around 12 to 18 per cent, despite energy offering potentially much larger bill reductions than water. The Competition and Markets Authority has been grappling with the consequences of low switching in energy.

The other significant consideration is service. Before we press into these uncharted waters we also need to be sure competition will not put at risk customers’ high levels of satisfaction with their water (93%) and sewerage services (91%). Would potentially very low switching rates in a household retail market put enough competitive pressure on retailers to keep prices and customer complaints low, but service levels high?

Given all of this uncertainty we can see real advantages in allowing time for the non-household market in England to establish itself next year before pressing ahead with household competition. This would give the industry time to look at switching and renegotiating rates and help us all to gain a clearer understanding of whether competition can avoid disappointing households.

This article first appeared in an August edition of Utility Week