Water and Floods Minister Rory Stewart has told Parliament that once an incumbent leaves the market and the new entrant enters, the incumbent company would not then be able to come back into the market or an individual non-household customer move back and forth between their previous provider and the new one.

The Minister was commenting as the regulations enabling water companies to exit the non-household retail market when it opens for competition next year took a further step forward last week when they came under further scrutiny in the House of Commons.

A HoC Legislation Committee heard Defra Minister Rory Stewart, whose responsibilities include water and floods, debate the proposals to allow water companies to exit the non-household retail market set out in the draft Water and Sewerage Undertakers (Exit from non-household Retail Market) Regulations 2016.

The Minister explained that the powers will allow all business, charity and public sector customers in England to choose a new water retailer – retail services include customer facing services such as billing, call handling and providing water efficiency advice.

“These reforms mean business customers can negotiate a package that best suits their needs. For example, businesses with sites around the country, such as supermarket chains, will be able to choose a single water retailer. This will enable business customers to negotiate a package that best suits their needs such as receiving bills from one rather than multiple water companies, as opposed to being limited by the geographical location of their store.”, Rory Stewart said.

He went on to draw analogies in the electricity and gas markets, whereby new organisations entering the market are able to offer more tailored, more efficient and more affordable services.

Rachael Maskell MP, the new shadow Secretary of State for Environment, Food and Rural Affairs put a number of questions to the Minister based essentially around consumer protection, including:

• how long it is proposed that the exit process will take, bearing in mind that customers will need to be guaranteed the provision of the retailer before the exit is granted.
• how much notice a customer receives of their undertaker withdrawing from the market, since they may choose to continue a service with the retailer who has taken over the customers of the undertaker, or the customer may need time to choose an alternative retailer.​
• minimal disruption to the customer - will there be any disruption and, if so, what disruption is envisaged
• process - so that there is not confusion over billing, as has been seen elsewhere in the energy market when somebody exits the market and there is a change in licensee providing the service.
• Communication - how will customers be communicated with about the changes of service provision, to enable them to maximise their choices.

She went on to say that as had been seen elsewhere in the energy market, there had been confusion about the billing process when customers switch, commenting:

“We need to make sure that customers are able to be communicated with by one organisation and be clear that they are not billed twice.”

It was also essential that customers experience no detriment. - for example, while outstanding complaints would be passed to the new licensee, the guidance is silent as to how potential liabilities would be addressed which could result in remedies being less favourable to the customer.

She also asked what assessment had been made of the size of the risk in the light of “already severe cuts” to the Department, noting that there is expected to be “an increased financial risk both to Ofwat and DEFRA.”

The Shadow Minister said Labour recognised that the Government’s ambition is to protect the consumer through the regulations, although it had “concerns about further marketisation and fragmentation of the water and sewerage industry.”

No way for a retailer to re-enter market after exiting or for a non-household customer to move back and forth between previous provider and new one

Commenting on the question of switching, the Minister said there are two key principles that underlie the regulations: completion and permanence. Rory Stewart emphasised that once an incumbent leaves the market, the new entrant enters and that is the end of it, saying:

“There is no way for the Penrith company to then come back into that market or for an individual non-household customer to move back and forth between their previous provider and the new one. That is very important in order to have the market opportunity and flexibility for a new entrant.”

“Let us imagine that a Scottish retailer wished to come into the retail market. It would need to be able to pick up a critical mass of customers and would not be able to do that unless there was a clear and completed exit procedure that meant the customer could not switch back.”

On the issue of a question by the MP about potential financial risks to DEFRA and Ofwat, Rory Stewart said the Government did not believe that there are any financial risks to DEFRA and that the costs, in so far as they fall, will fall on the industry.

“Our assessment, based on our best evidence from a team of economists, and agreed by the industry, is that instead of being a net cost for the industry, the benefits over a 30-year period are in the order of £200 million.” he said.

He went on to say that the application for determination is a relatively straightforward process, with  the bulk of the due diligence is done through Ofwat granting a licence to the individual.

If the individual has received a licence from Ofwat, all Defra would  be looking for is that the proper notifications to the public have gone through, that the proper forms have been filled in, and that there is a clear agreement on who is exiting and who is taking over that market to provide the universal service to the customer.

How will undertakers and licensees work together to ensure water conservation remains a priority in new fragmented environment

Rachael Maskell also raised the issue of water conservation, described water-saving initiatives as one of the most important areas of work in the industry, asking:

“How will the undertakers and the licensees work together to ensure that water conservation remains a priority in this new fragmented environment?”

In response, Rory Stewart said one of the things that the measures should do, particularly for big water users is to provide really good incentives to reduce water use. He concluded the debate by saying:

“Finally, we have a huge process going forward, led by the water industry but with DEFRA closely involved, that is looking at long- term infrastructure investments—that could include interconnecting pipes and new reservoir systems—to provide for the possibility of drought and climate change in the future.”