In a second Expert Focus article on Waterbriefing, David Brown Vice President Europe at Gentrack, industry leader and specialist in CRM and billing software, examines the the impact of water companies that choose not to retail in the non-household market.
The first decision that a water utility should take is whether it will retail to non-household customers or not in the Open Market planned for April 2017. It sounds like a simple decision, however the long term implication of this decision is very significant.
Deciding to retail means making a string of difficult decisions; for instance the utility will have to choose between remaining vertically integrated or splitting the business into retail and wholesale divisions.
The water sector naturally prefers verti cal integration, but it is a difficult model to maintain in what is hoped will be a genuinely competiti ve market. It also makes compliance in the Open Water market relatively difficult.
On the other hand, dividing a business means establishing and complying with new terms of trade between wholesalers and retailers; operati onal procedures and market processes. From a CRM and billing point of view utilities will also need to cleanse their data so that it is fi t for purpose to support the new market arrangements.
The Water Act enables the Secretary of State to introduce regulations and provide consent for water utilities to exit the competitive part of the retail Open Water market — but deciding to operate solely as a wholesaler presents its own challenge.
Last year, Defra said the Government is committed to ensuring that water companies wanting to exit the market can do so when it opens in April 2017.
When doing so it set out ten core assumptions:
1. Exit from the non-household retail market will entail the removal from the uti lity of any current statutory powers and duties relating to non-household retail customers.
2. All customers of an existing utility must be transferred to a licensed retailer.
3. Exit is irreversible — once the Secretary of State permits exit and customers have been transferred the utility will no longer be able to provide retail services to non-household customers. A utility can re-enter the market at a later date via an associate licensee.
4. Exit is complete.
5. Customer segmentation may occur through subsequent transfers.
6. The option to exit is only available at market opening in April 2017.
7. Utilities applying to exit will have a solid understanding of the criteria on which the Secretary of State will make its decision.
8. Exits and customer transfers will be managed in a proportionate, transparent and effi cient manner.
9. All non-household customers must be able to access a supplier in accordance with the Water Industry Act 1991.
10. The process for a utility’s exit will seek to minimise any barriers to entry for licensees.
For water utilities planning to withdraw from the competitive retail market, these assumptions which are likely to be incorporated into a legislative form, will challenge the effectiveness of the utility’s customer management software (CRM). Should these assumptions be carried forward, providing and transferring customer data will be the biggest challenge for a utility seeking to operate solely as a wholesaler. Water businesses will also have to communicate with their customers in a very concise and clear manner on how these changes, or lack thereof, will affect them.
Many water utilities will assume that a decision to avoid competing in a retail environment means negating the need for high performing software that enables effective engagement with customers. However, partnering with a software company that can offer a product and service that supports the withdrawal from the retail market will be a necessity.
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