Water deregulation is almost here… but there is a long long way to go
It’s been a long time coming, but deregulation of the water market is ‘hitting the shops’ in just a few days. And until now, the media response has been nothing short of a drop in the ocean. And I am not surprised in the least. Without the prospect of immediate material savings, switching a business water supply could turn into an administrative nightmare that few would recommend. That is, until the opportunity for real financial benefits flow through to consumers meaning third party intermediaries (brokers) can squeeze something out of the deal. After all, brokers have been the core driver of consumer switching in the energy market over the past 15 years.
Scotland led by example back in 2008, attempting to create a deregulated water market which inevitably struggled with the typical difficulties one might expect when attempting to modernise a monopolised and fairly archaic (but highly normal) procurement sector. Margins from switching were low. Really low. By 2011 only around 0.5% of eligible businesses had changed provider. This was due largely to the extreme time delay between point of deregulation and the birth of serious competition amongst new water suppliers, which only then enabled price reductions which made administrative sense. In fact, it took at least 5+ years for a supplier network to develop which was conducive to switching at all.
So in England, things will be different. Right? Possibly, but don’t hold your breath just yet. Margins are much tighter still and a hugely complex market getting to grips with the potential addition of a new supplier network will not encourage a cavernous price drop overnight. This doesn’t bode particularly well for brokers at the outset – and most mainstream TPIs are unlikely to jump ship from ‘gas and leccy’ to set sail for wealth and fame in the water industry. This, unfortunately, is echoed by most of the energy brokers we deal with day in day out.
But suppliers have not been forthcoming either. Information relating to pricing structures, tendering protocol, commission opportunities for brokers and so forth doesn’t seem to have been high on the agenda. Needless to say that whilst the opportunity for suppliers to work cross-region may be appealing for some – for others, their hands are somewhat forced and pretty much all of them are catching up.
For the corporate mega-giants however, the prospect of unifying a multi-region supply chain into an easier and centralised billing system under one supplier may be attractive. Stepping into the unknown, however, with suppliers who have no proof of concept in managing national multi-site portfolios is another potential barrier. This may not be the icing on the cake for corporate procurement managers looking to make that one big saving of 2017. People rarely queue up to go first, but rather wait patiently to mimic the successes of others and avoid the pitfalls of the unlucky market explorers.
Irrespective of low markup opportunities for TPIs, and the potential administrative abyss faced by corporates looking to switch quickly, water will be big business. Nobody really knows how rapidly competition will incentivise price reductions, nor how long it will take for suppliers to enhance admin processes to become cost competitive. But businesses need water, and those brokers savvy enough to strike the right supplier relationships and target corporates with major water requirements could benefit in the short term.
Maybe this has come across in a negative tone. But that wasn’t the intention, believe me. Water deregulation is a positive step, and we are excited to see how the market reacts in contrast to the early years experienced by our Northern neighbours.
But needless to say – when the time is right, we will be there with the best software technology to help brokers prosper in the new market landscape.