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How could a greater choice of water suppliers benefit you?

water from tap

Ofwat, the regulator of the water and wastewater sector in England and Wales, has published its review of the options for developing greater competition in the household water market. How does the Ofwat report lead to a benefit for you?

So what does this mean? Could we end up with five different taps in our sinks, or even one that provides sparkling water? Well, no, this is strictly about retail competition, ie, which company you pay your household water bill to and what extra services it could provide.

Ofwat and the government recognise there is largely a natural monopoly in water networks (the pipes that get water to you), so you needn’t worry that your streets are about to be dug up to lay different water suppliers’ pipes either.

Our response to the Ofwat report

Ofwat’s findings were mixed and, in some cases, unfairly ridiculed, in my opinion.

The first question most of us want to know is: ‘How much can I save on my water bill?’ Well, Ofwat’s analysis points towards a top-end saving of £8.

While this is rather modest, Ofwat has suggested that opening up the water market to greater competition would drive innovation and new ideas. And in my view, that’s where you’d see the most benefit.

What if one company could provide you with water, gas and electricity, so you’d only have to make one phone call to sort all your bills? How about an app to help you manage your account? Currently, only two of the monopoly water companies offer their customers an app, as Ofwat’s CEO Cathryn Ross pointed out on BBC Radio 4’s Today programme.

And as the latest figures from the Consumer Council for Water, which were published on Wednesday, show that complaints to water companies are on the increase, could a competitive market lead water companies to focus more on their customer service?

While water competition on its own doesn’t sound like an attractive deal for consumers, when you start to think about the new innovations, I wonder if it becomes more so?

Role of government

Ofwat has presented its report to the government, which must now look at it and make a decision as to whether it is worth developing greater competition in household water and wastewater services. This would put it in line with non-household customers who are due to get the choice of water suppliers from April 2017.

When the government makes its decision, it should weigh up the overall costs to customers and assess the overall outcomes for customers against those.

What do you think – would competition in the water sector make a splash, or sink like a stone?

Comments

My water company has admitted that their IT system is not fit for purpose and they have difficulty when I change bank accounts. This is because they have no competition. All shares in the company are owned by a pension fund in California. The regulator is far too soft and the profits are big and secure. The companies should be publicly owned not for profit organisation.

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I have no territorial concerns about the temporary ownership of our water; it all comes from rain that falls over England . I also have no objections to our sewage being in the hands of foreigners – in fact, I recommend it.

This raises some interesting possibilities. As in energy, there is no reason why our water should not be bought, marketed and sold by companies that have no experience of treating and supplying water and disposing of waste water; they would leave all that difficult stuff to the existing water companies who could even come out of the customer supply business altogether and concentrate on the production, distribution and disposal side. Residents could have a choice of Tesco Water, Waitrose Water, or Amazon Water, etc. The product would be the same but the customer service would differ. Competitive pricing would depend on which water supply companies could amass a sufficient customer base to enable them to procure the greatest volume of water at the lowest price from the water producers.

One drawback is that there is not a national water network and there are big differences in the storage and distribution costs across the regions so it would be difficult for the supply companies to spread the economies of scale or the benefits of greater volumes of water from one part of the country to another. With electricity, for example, a company focussing on green energy can feed in any amount of its green electricity at one end of the UK [Scotland, perhaps] knowing that an equivalent wattage of electricity can be consumed anywhere else in the UK. This would not be possible with the present water networks and all feed-ins in one region would have to be matched by an equivalent consumption within the same region. That is not as efficient and could inhibit competition.

And who would decide on hosepipe bans? And what effect would they have on the economics of the supply companies? At present, with vertically integrated production, distribution and disposal operations, any loss of supply volumes due to water restrictions are contained within the overall cost profiles spread across very large regions.

There are at the moment a number of independent water supply companies operating in various towns or geographical areas with protected monopolies. They don’t generally deal with waste water which is the responsibility of the regional water company. However, I could foresee such local companies being wiped out by the new ‘national’ water supply companies. There would need to be some controls built in to ensure that residents in those areas were not left high-&-dry in the event that the local companies lost so many customers that they could not carry on trading. It would be necessary to ensure that another production company was able to take over their reservoirs, treatment plant and water mains in order to maintain continuity of supply.

I think the costs of marketing water, managing switching, and the usual salami-slicing of tariffs and bundles, would add costs into the equation that are not there at the moment.

Sometimes things are best left undisturbed.

From the Which? Press Office 19 Sept.
“Alex Neill, Which? Director of Policy and Campaigns, said:

“Giving people a choice over who supplies their water could lead to a better experience for consumers but any plan to open up the water market must learn the lessons of other utility markets. The Government should now consider whether a competitive water market would deliver better outcomes for customers.”

I have some difficulty understanding how real competition could develop without a national grid of water supply, let alone water treatment. With electricity we have a national network of supply wires, into which anyone can feed a supply, either directly or through an existing generator. But how would it work for water?

Given the apparent stickiness of consumers in not taking advantage of better energy deals, just how much effort are they going to make on their much lower water bills?

A “better experience for the consumer” sounds just like those vacuous marketing ploys; just what does it mean? If we mean cheaper bills, and explain how, then lets say so. Otherwise…..?

If you are a one person or two person family the answer is change to a water meter. I am with Welsh Water/Dwr Cymru and I changed along with a few neighbours about 5 months ago, my water bill has reduced from ÂŁ60 per month [standard payment] to ÂŁ40 per month and has now further reduced to ÂŁ25 per month and that is standard everyday use. the installation of the new water meter was free. Got to be a consideration if there is just a few of you at home.

Excellent comments from John Ward, perhaps he should replace OFWAT as he seems to talk more sense.
However, I don’t quite agree with the view of leaving the current status quo as is. The electricity/gas market is not a panacea and lack of engagement of the masses to switch does not help. Even so, the water industry is falling behind expectations today, and the fact so many water companies are owned by non-UK entities shows there is money in water.
There is a lot to sort out and ideally a national water network would be an outcome. A modern society should have the means to distribute life sustaining water from where it is plentiful to where it is most needed. After all there are plenty of ancient civilisations that managed it.

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I don’t think a nationalised water industry is on offer, Duncan. And England and Wales have never had a unified state controlled water service. When the regional water authorities were set up [some time before they were sold off to the public] they took over hundreds of municipal and independent undertakings which were often poorly managed and not very advanced technologically. There was a backlog of maintenance and investment requirements and in some areas the quality of the water was dubious and the state of the beaches appalling because of raw sewage outfalls. Whatever we might think of the current private water companies [and they are not all foreign-owned] they have at least led to substantial improvements in water supply and sewage treatment. Nevertheless, not all is right: there are major price disparities across the country and the companies are too remote from their customers and obstructionist in their attitude [perhaps with good reason, but they need to explain themselves and not take advantage of their monopoly position].

I don’t think the question of of the water industry becoming a nationalised industry has ever arisen and i doubt there is any chance of it now. Personally I think it would be the worst possible outcome.

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I sympathise with your point of view, Duncan, but we are where we are. I think it would be impossible to turn the clock back now. Surely, one of the chief points made by the Leave campaign was that the UK would have no difficulty in forming trading relationships with countries around the world because of our open outlook towards inwards investment. What does it say about a country that has pension funds from California and Canada queuing up to buy stakes in our utilities? The Brexiteers consider that a tribute and a sure sign of a prosperous future.

So far, under the private and public limited companies that operate our water and waste water services, there has been security of supply, very few water quality breaches, fewer burst water mains, and far less sewage pollution. The last major water contamination incident was at Camelford in 1988 in the region of the South West Water Authority [a public service organisation, not then a private company]. Yorkshire Water had a serious E.coli outbreak near Doncaster last year but such events are now uncommon and the company dealt with it capably and expeditiously. Yorkshire Water also suffered a water shortage emergency over twenty years ago because of drought conditions in the west of its region and had to ship water in tankers to meet demand; the company has subsequently built an east-west pipeline to balance reserves in the event of a future water shortage. I question whether a nationalised industry structure would have dealt with such an emergency proficiently and found the capital required for a long-term solution.

Utilities are reliable if unspectacular investments which is why they appeal to pension funds and other long-term investors. Their dividend yields are normally around 4% which is not a great return on capital but it is reliable because of the essential nature of the products and services supplied. The investors in utility companies are not looking for excitement so they are content to have a board and management that gets on with the business in an efficient and responsible manner with no surprises. The foreign capital that has come into the water industry has not given rise to the naked greed seen elsewhere in commerce and industry. Obviously, there is the question of the abstraction of profits to other countries but I hardly think the UK can complain about that having for centuries had an established profit-taking operation [and sometimes several] in virtually every nation on earth. If we are going to make Brexit work for Britain we have to keep the door open to foreign investment otherwise we will never negotiate any reciprocal deals abroad.

I have two companies,one provides clean water the other deals with waste water .But I only receive one bill from the clean water provider. Baffling at times

The amount charged for waste water disposal is based on a percentage of the amount of clean water supplied. The company that deals with the waste informs the supply company how much it needs to collect per thousand litres and this is combined in one bill. This is similar to the case where one water company both supplies water and disposes of waste – the two charges are shown separately but combined in one bill. It is also similar to the Council Tax bill where the amounts required by two or more authorities are combined in one bill.

I had hoped that with a dual-fuel tariff for energy there would be one bill for both gas and electricity but this has not happened due to a lack of joined-up administration.

I’ve always wondered how privatisation of water was ever allowed. It’s not that water’s exactly optional; it’s one of the few things we actually do need. In a sense it’s as absurd as if someone suggested privatising fresh air. Both commodities are freely available, although cities seem to struggle along with ever diminishing supplies of both. And perhaps that’s something that needs to change.

For far too long successive governments have pandered to wealth and business, in the belief that without both the country would simply fail to survive. But I would argue that some commodities are simply too critical ever to be entrusted to a system that prioritises the acquisition of individual wealth over the needs of the community. The counter argument is that re-nationalisation would cost billions but perhaps that’s something that could be examined, too. After all, if the Brexit camp were even remotely accurate we’ll have spare billions for many years…

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I tend to agree with you, Ian. I thought things were best when water and sewage treatment were largely municipal services, or at least a public service operation like a water board for a group of local authorities.

There was probably a case for amalgamating a number of the small independent water companies and for putting proper sewage disposal arrangements into rural areas but the bad move was forcing the entire industry into the regional water authorities strait-jacket and then selling them off. Many local authorities had invested massively in the supply of good water to their towns and cities and had protected their catchments, reservoirs and installations with substantial land-holdings. These were all included in the sale so the new water companies were enabled to sell ‘non-operational’ property to the highest bidder. As a result there was a great deal of asset-stripping in the initial years of privatisation. While there has been no detriment in the quality of water and sewage treatment, and arguably a substantial improvement overall since privatisation, the same result could have been achieved through the municipal structure, especially if the authorities had been given the freedoms that came about through privatisation.

No fear of that coming to the UK, Duncan. Like the Coalition government’s attempt to privatise the state forests, the adverse public reaction to such interference would be formidable and the idea would quickly be put in the bin. For those of us living in hard water areas, the ability to collect soft water [rain] is a blessing that we would not give up.

Ian, “fresh water” is not freely available. The water that falls needs to be treated and distributed safely before we can use it. And our waste water needs to be removed and treated for recycling. So it needs huge investment, and paying for by the consumer. However, if any of us want to avoid the cost and use free water, we can go “off supply” and water ourselves.

I wonder when we will have to treat air to make it breathable? We – all of us, particularly motorists – reduce the air quality by driving. We can blame the manufacturers for making vehicles with fossil- fuelled engines but, if we used them more carefully we would improve air quality by reduced emissions. Are we prepared to do that? Not at present. Presumably some crisis will have to occur to precipitate a change.

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That’s good news, Duncan, but I think overall we have replaced one form of pollution [smoke from coal fires and furnaces] with another [emissions from motor vehicles and other engines] but hopefully we are moving in the right direction now and the science backs that up. I feel we have to get back to the air quality of around 1800 to breathe the kind of air our ancestors enjoyed [although the atmosphere indoors was often none too pleasant!]

duncan, good news of course, but I’m thinking of the NOx and particulate pollution in towns and cities, cause largely by motor vehicles and exacerbated by traffic congestion. Something we must address, and something Euro 6 engines alone will not deal with. Whilst pollution levels generally have been falling significantly we are still well behind meeting EU requirements. Traffic should be limited in volume particularly at peak times if we are to really make a difference.

We are off grid, Malcolm, as many in the mountains are. But I support the distribution of sanitised water to others through paying taxes, and I have no objection to that. That’s what I’m suggesting, and I only mentioned water supplies – not water treatment and sewage disposal. These are services, however, which are needed by everyone in the community and I would hope everyone would be prepared to pay tax to support the process. I think it’s dangerous in the extreme to leave the delivery of vital services such as water in the hands of the commercial sector.

I don’t think competition would mean cheaper water bills, most likely the opposite. Remember when directory enquiries (192) was opened up to competition with 118? Prices went sky high overnight!

Sort out the mess now then look at pseudo competition. Prices rise continuously and profits vanish abroad. Of course foreign companies want to own our water supplies the only bits properly funded are the management and the shareholders.

The Regulator, Ofwat, has to approve all price rises for water companies. That does not necessarily make it alright but at least there is a degree of independent scrutiny. Would that apply if the market was opened up to all comers?

I agree with Derek.

Investors only invest if there is a profit to be made. It is a shame that we as a country can’t manage our own basic utilitiles and make profits that stay in the country. I believe our utilities should be government owned, but then they would just become more political footballs at election time.

Having had recent dealings with the Financial Ombudsman, I have no faith in any regulators do “do the right thing”.

We probably all feel that OFWAT allow the companies an excessive profit margin on what is a very secure investment, but reducing this, or introducing these current proposals would make only marginal reductions to bills.

The main, but largely ignored reason why cost has massively exceeded inflation over recent decades, is the extraordinarily difficulty and hence cost, of removing fertilisers, pesticides, and other agri-chemicals used in modern farming from our water. The cost probably exceeds the value of the additional crop yield.

Addressing this problem, would reduce our bills by far more, as well as reducing environmental degradation.

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Agricultural chemicals are not necessarily unethical but they are very expensive and they will affect water quality. Their use to intensify production has been subsidised from EU CAP grants. When we leave the EU that can be stopped. Yields will fall and crop quality and condition might be less homogeneous but more of the land that has been set aside and the acreages taken out of production on EC orders can be brought back into production to restore the balance.

Bayer and Monsanto will make a happy, nitrogen-rich and genetically-modified couple bursting with life and phosphorus. May they go forth and fructify.

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I have little – probably less – faith in governments and their initiatives.

I thought there might have been a hint of irony in my last paragraph, Duncan.

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James Harris says:
29 September 2016

Ths is plainly a stupid idea, and Ofwat should be ashamed of putting out such an obvioulsy flawed analysis. The retail bit of water bills is tiny, and so competition at most could save customers a few ÂŁs (even less than the amount Ofwat claim, in fact). This is far below what customers told Ofwat they would need to save in order to make switchning worthwhile – which Ofwat also glosses over. Logically, switching rates would be well below those in energy, which everyone in that industry regards as an utter disaster. What on earth are we doing here? Replicating the process of billing and meter reading across multiple firms, therefore actually adding cost in totality?!! As for water customers being “left behind by the digital revolution…” as Ofwat claims, what a joke! I don’t want a relationship with my water company – I don’t need to interact with them. I just want water out of the tap! Ofwat – why consult or survey customers when you just ignore what they tell you?! (Whilst ironically, telling everyone else how good this is for customers).

Well said, James. But Ofwat has to find something to do to justify its existence and fit in with all the others in the Regulators’ Club who wear their nails down on the sharp edges of rampant and fractious competition. Ofwat is a bit of a backwater really – it thinks it needs to froth from time to time.

Liz Carey says:
29 September 2016

Competition in water being a sucess is even less likely than Ofwat doing something competent.

Peter Kinder says:
29 September 2016

What an embaressment – competition has failed in energy and is clearly even less well suited to water. Ofwat, what a joke.

Peter Donaldson says:
1 October 2016

Being able to get all my utilities from one supplier would be a big benefit, as it makes it much easier to budget. And competition means I would be able to choose someone that offered better customer service too. And if I can save an extra ÂŁ8 a year, that’s the icing on the cake. It’s not just about price.

All of you only talk of the cost and investor’s profits not the quality of the so called rain water we receive but you know most in England, (here I think of London and larger towns.) the water is recycled and is fine if you can ignore the additives. However where I live we receive water diverted from OS Spring when the M2 was built. It is very hard and tastes good but I cannot drink it because it makes me cough and pee excessively so I have to use French bottled water, Volvic, Voittel or Evian. It’s a laugh for I rarely have to use the loo in France or London. Here I have to obey the rule, ” a wise general….”. I’d prefer to use water from glass bottles as the plastic issue bothers me. There is Malvern but few Supermarkets stock it. If I could choose a supplier who could give me the precise information on the water they supply and/or could treat their excessively hard water that would be the one I’d choose. At the moment there is no-one who can do anything about my supply and it is making me ill.

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Roderick says:
1 October 2016

I’d rather the water bills for those of us living in Cornwall are reduced to match those in the rest of the country. We pay insane (2x plus the rest of the country) to cover the costs of coastal cleaning – which is a good thing.
However, why the small population in Cornwall should have to pay the entire cost when the entire country benefits is a a mystery.

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The production and distribution costs for water and the costs of sewage treatment in the south west have always seemed to be higher than in other parts of the country. The huge influx of visitors puts a strain on both, and clean beaches are a vital element of Cornwall’s tourist appeal. The income from tourists offsets some of the higher costs and I guess things would be worse without them as the water supply and sewage treatment would be much more uneconomical. I doubt if water charges would be any lower in Cornwall if alternative suppliers were available because they would have to buy their water from the local company before selling it on to householders as well as pay for the same kind of sewage treatment. Even with a joined-up water grid I think there would still be major inequalities in water charges because although, theoretically, cheaper treated water could be fed in at one end of a grid for consumption elsewhere, there is no such facility for dealing with our sewage. Furthermore, there is not an infinite supply of ‘cheaper’ water and the distribution of such a heavy and bulky commodity is expensive. And would everyone be happy to have their hard water made softer or their soft water made harder due to blending in the grid? The more I think about this competition idea the more impractical I think it is.

I think the south west region had higher water bills long before the large regional water authorities [subsequently sold as private companies] were created. The previous mix of municipal undertakings and small private water companies probably struggled to supply water at low cost and sewage treatment was probably expensive as well [and not so effective as today]. At least large water companies with extensive territories [like South West Water] can to some extent equalise the charges across their supply area which might be good for Cornwall residents but not popular in Somerset. I think it will never be possible to have national uniformity with water supply and treatment charges The compensating factor for the south-west is the lower heating bills.

As I already get my telephone, Internet, electricity, & gas from one suppler, Utility Warehouse Ltd. Having water too is a logical extension.

Having been aware of the problems that have arisen with the de-monopolising of other networked utilities, I am not sure that it is a good idea to add yet another. People now have to mess around with changing supplier, which is really a bit of a fiction as it is always the same network to which they are connected, such as electricity, gas, broadband etc.

As far as telecoms is concerned, the sticking point is the repair monopoly BT Openreach, with their queuing system being incapable of dealing with intermittent faults and ludicrous delays for new connections. Our lane was dug up two years ago for ducting to be laid for optical fibre, yet only now have I seen any being drawn through it to the houses. I have read (probably on Which? but I am not sure) that if you have fibre to the premises then the delays for any repair are even worse than with copper.

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No, it was an established lane that is a public byway. Some of the houses are over 100 years old. There was never any access problem.

Most of Herefordshire is supplied by Welsh Water Authority. WWA was one of the most expensive in the UK when water was first privatised – arguing that costs of distribution in a sparsely populated area are much higher. So the government of the day applied a subsidy – but only for WWA’s customers who lived in Wales! Fortunately, this was eventually sorted out – but there is another anomaly – this time in my favour. East Herefordshire is in Severn Trent’s catchment area, so I pay my sewage rates to them – via WWA (whose own rates for sewage are considerably higher).

I have looked into Utility Warehouse as a ‘one-stop’ shop, but they are only cheaper if you take 4 services from them. Since I have no gas and don’t watch TV, I could only take 3 (electricity, phone and broadband). Adding water might make it worth reconsideringg…