In light of the recent water market deregulation, Bob Millar, Water Specialist at Inprova Energy, discusses here with Finance Monthly the key opportunities to be considered for businesses, with the potential to save both time and money.
Businesses in England of whatever size can now shop around for their water and wastewater services in the same way as procuring energy. This offers the potential to get a better deal and improve service levels.
England's regional water monopolies were broken up on 1st April 2017 with the start of water market deregulation. These existing water companies remain responsible for wholesale services, i.e. the infrastructure that brings water to your site and removes waste water and drainage; but they must now compete in the open market for your retail water and wastewater business (including billing and other customer facing services).
This offers more choice for business water consumers of all sizes, whether single or multi-site. For those organisations with sites in Scotland, where the retail water market has been fully open since 2008, there's an opportunity to consolidate retail arrangements under one retailer, with potentially one monthly bill. 130,000 Scottish businesses have already had the freedom to switch supplier and some have cut their water bills by as much as 25%.
There are no changes yet in place for Wales or Northern Ireland, but some suppliers will be able to offer consolidated billing for multi-site customers across the UK, which would simplify and reduce the costs of administration.
Customers with the largest water requirements (in excess of 50,000m3 per year) may be eligible to ‘self-supply’ by applying for a retail water licence directly from their wholesaler.
Is it worth switching water supplier?
Initially, cost savings on tariffs in England will be minimal (unlike when the market opened in Scotland), but this is expected to improve after 2020 when the 2019 Ofwat price review will be implemented. Whilst some sites will gain direct procurement savings, the biggest benefits are likely to come from improved service levels and water efficiency, which can deliver considerable cost savings.
If you have the administrative challenge of looking after water arrangements at multiple sites, with responsibility for multiple water bills from multiple suppliers, then consolidation can simplify this process to one single bill from one supplier.
The savings of consolidated billing have been modelled by Policy Exchange, the independent think tank, which estimated that a customer with more than 4,000 paper bills a year from various sites would save £80,000 to £200,000 per year in administration costs by moving to electronic billing from a single supplier.
Whether you proceed with switching retailer or not, it makes sense to cleanse your existing data. This includes collating accurate details of your sites, meters and volumes for a ‘hassle-free’ tendering process. Look out for Supply Point ID’s (SPIDs) on you recent invoices – these are the reference numbers which the market will use to identify your supplies (just like an MPAN in the electricity market).
If you are using a reputable broker, they will conduct the data management for you. To start the process you will need to supply information of what water you are using and where, along with a letter of authority and at least one, but ideally 12 months' copies of bills.
While collating data, ensure that missing information is retrieved, and that any underpayments or overpayments are rectified. By validating your bills and optimising your tariffs, you will potentially reduce costs when it comes to tendering for retail services.
Reputable brokers will undertake a revenue recovery audit on your behalf to identify potential historic overcharges. Billing errors are not uncommon, so you might receive a windfall rebate or lower ongoing costs.
With accurate data and full visibility of your water consumption, you will be in the best position to go out to tender.
A carefully considered water efficiency strategy can also help you to comply with current and future legislation, reduce your carbon footprint, improve environmental performance and generate positive PR.
By comparing your water consumption against other sites (either internal or external), you can gain a better understanding of your water consumption profile and whether there is scope for improving efficiency.
Poor water efficiency is costing British business more than £3.5 billion a year, so leak detection coupled with water efficiency measures can pay rich dividends.
Water saving measures might include using automatic meter reading (AMR) technology to monitor consumption; installing flow or pressure controls to regulate water flow; or harvesting rainwater for reuse, many of which require little or no investment and provide rapid payback.
Is it best to wait and see?
There's nothing to lose in exploring a water switch. Even if you remain with your existing retailer, you may gain some added value and get your billing data in order and validated. Water procurement is much simpler than energy because of a lack of price volatility. Fixed price contracts are, therefore, the norm. Since market rates are unlikely to change significantly until 2020, there's little point in hanging back for better deals to come forward. Meanwhile, it would be sensible to test the market.