Business customers’ views on competition in the water industry

1. Business customers’ views on competition in the water industry Paul Le Masurier, Jo Christensen MVA Consultancy, Simon Gordon-Walker WRc | 27 April 2007

2. Presentation Contents • Background • Methodology • Profile of achieved sample • Views of current water supply services • Knowledge of competition market • Engagement in the competition market • Barriers to the opening-up of the competition market • Experience of and aspirations for the competition market • Key findings and issues for consideration

3. Background • The 2003 Water Act opened up new opportunities for competition in the water industry • From 1 December 2005, new rules enabled large non-household users of water to change their water supplier • Eligibility - relates to water consumption of no less than 50,000m³ a year (50Ml), the layout and the use of the premises • MVA Consultancy, in association with WRc, was commissioned to conduct a quantitative research study to determine eligible and ineligible business customers’ views of, and aspirations for, the competition regime to assist Ofwat and CCWater in their strategic planning of competition in the water industry

4. Methodology • Quantitative survey • Eligible (50Ml+) and ineligible customers (5-50Ml) • Online survey – choice of time and place, easy to forward • Eligible sample – provided by water companies • Ineligible sample – professional database • Emails sent to all available eligible and 2000+ ineligible customers (stratified by CCWater region) • Some eligible customers received email directly from their water company • Fieldwork period 2nd Feb to 7th March

5. Profile of sample • Who completed the questionnaire? • 75% Company representative based on-site • 20% Head office representative (covering a number of eligible/ineligible sites) • 3% Managing Agent (representing a number of eligible/ineligible sites) • 2% Other (e.g. Engineer, Head of procurement, Energy efficiency officer LA – 2000 sites) • Classified as ‘responsible for single site’ or ‘responsible for multiple sites’

6. Profile of sample • Range of business types represented – manufacturing, health and social work, and education • All water company areas represented • Geographic spread of businesses across England and Wales

7. Profile of sample • Majority of respondents eligible to change supplier (> 50Ml per year)

8. Profile of sample • Majority of eligible and ineligible respondents expect their level of water use to remain the same in the short-term

9. Profile of sample • Water costs generally make up a low percentage of total operating costs

10. Current Water Supply Services • Thinking of your last water bill, how satisfied were you with the price in terms of value for money?

11. Current Water Supply Services • Representatives of multiple sites were, in general, slightly less satisfied

12. Current Water Supply Services • Why? - Very/Quite satisfied • Why? – Not at all/Not very satisfied

13. Current Water Supply Services • How satisfied are you with the quality of service you have received from your current water service supplier?

14. Current Water Supply Services • How satisfied are you with the quality of service you have received from your current water service supplier?

15. Current Water Supply Services • Why? – Very/Quite satisfied • Why? – Not at all/Not very satisfied

16. Knowledge of the competition market

17. Knowledge of the competition market • Prior to the survey, had you heard about competition in water supply services for large users? • More eligible respondents (75%) had heard about competition than ineligible (49%) • More multiple site representatives (81%) had heard about competition than singlesite representatives (64%)

18. Knowledge of the competition market • Perceived opportunities of competition? • Reduced/lower bills • Competitive tendering • Ability to purchase water from another company/remove monopoly • Limited (due to lack of benefits/insufficient savings, eligibility criteria, lack of suppliers, long-term agreements)

19. Knowledge of the competition market • Have you received or actively sought information regarding competition?

20. Knowledge of the competition market • Have you received or actively sought information regarding competition? – By eligibility

21. Knowledge of the competition market • Have you received or actively sought information regarding competition? – By respondent type

22. Knowledge of the competition market • Who has provided you with information? Other – EIC, PASA, industry magazines; water/energy consultants; corporate/head office staff; defra; and purchasing consortium 78% one licensee, 19% two licensees, 3% three licensees

23. Knowledge of the competition market • What information have you sought? • Alternative suppliers • Guidance on the regime • Information on rules and regulations • Cost benefits • How? • Direct • Internet • From whom? • Current supplier • Licensees

24. Knowledge of the competition market • 12% of respondents aware of licensees • Eligible respondents more aware of licensees • Services offered by licensees perceived as lower bills and service tailored the business needs

25. Knowledge of the competition market • 81% of respondents would like to receive information regarding competition • Ofwat should provide the information (91%) via an email alert (81%) • Wide range of different types of information

26. Engagement in the competition market

27. Engagement in the competition market • In principle, are you supportive of competition in the water industry?

28. Engagement in the competition market • Do you think that your business is eligible to change supplier?

29. Engagement in the competition market • Why eligible? • High level of water use • Approached by new supplier(s) • Presume/there is competition • Why ineligible? • Level of water use • Due to eligibility criteria (e.g. multi-site) • Not approached by new supplier(s) • Long term agreement with current supplier

30. Engagement in the competition market • Perceived eligible – How likely to do you think it is that your business will consider a change in supplier?

31. Engagement in the competition market • Why are you quite or very likely to remain with current supplier? Top 3 – Nothing to gain/gains too small, Content, Lack of confidence in new suppliers

32. Engagement in the competition market • Perceived ineligible/don’t know – If your business were to become eligible how likely would you be to change supplier?

33. Engagement in the competition market • Which of the following makes, or would make, you more likely to consider changing your supplier? Top 3 – Lower bills, Better services, Guarantee switch back

34. Engagement in the competition market • How much cheaper would a competitor’s services need to be?

35. Engagement in the competition market • What services do you currently receive and what new services or improvements would you like to see offered by new suppliers?

36. Engagement in the competition market • Would you be prepared to pay higher water bills in order to receive a more tailored service?

37. Barriers to the opening-up of the competition market

38. Barriers to the opening-up of the competition market • Do you think that the current regime will encourage a competitive market? • More eligible respondents thought ‘probably not’, more ineligible ‘ don’t know’ • More multiple site representatives thought regime will ‘not’ encourage a competitive market

39. Barriers to the opening-up of the competition market • Do you think that there are any practical problems or barriers with implementing the current competition regime? • Eligible respondents more likely to think that there are practical problems/barriers • Ineligible more likely to not know

40. Barriers to the opening-up of the competition market • What do you think are the practical problems or barriers with implementing the current competition regime? (open ended question) • Concerns relating to the use of incumbent’s infrastructure • Lack of a national grid • Licensee cannot offer discount due to wholesale water prices • Complexity of regime/master agreements • Exclusion of wastewater/effluent services • Current water companies • Concerns regarding security of supply • Lack of confidence/it will take time to build confidence in licensees • Threshold too high/only open to large users • Monopoly/too few suppliers • Switching logistics • Weak Ofwat powers/lack of guidance from Ofwat • Does not include aggregating over multiple sites • Lack of information to make an informed decision

41. Barriers to the opening-up of the competition market • Are there any triggers that you would wait for before switching? Other – Guarantee of water quality, Guarantee of reliability of supply, Once transfer mechanism/billing system shown to work quickly & effectively

42. Barriers to the opening-up of the competition market • Do you expect to establish a long-term relationship with the licensee, or are you likely to switch more than once?

43. Barriers to the opening-up of the competition market • How does the current competition market compare with the market for suppliers of energy and other utilities?

44. Barriers to the opening-up of the competition market • How often does your business switch its energy supplier?

45. Experience of and aspirations for the competition market

46. Experience of and aspirations for the competition market • What are your experiences in relation to your existing water supplier’s response to the competitive market? • 77% no change/nothing • 7% enhanced services customer service • 6% more proactive / responsive • 4% continued good service • 3% ‘just’ higher bills • 2% customer service reduced

47. Experience of and aspirations for the competition market • How confident do you feel that the competitive regime will deliver benefits to customers?

48. Experience of and aspirations for the competition market • (If very/fairly confident) What benefits do you think it will deliver? • 54% lower prices/reduced bills • 24% better services • 3% choice of supplier • 1% more reliable supply(Others - don’t know/no answer given)

49. Experience of and aspirations for the competition market • What do you think should be done to further develop the competitive market?

50. Experience of and aspirations for the competition market • What changes would you like to see come about? • No restrictions on eligibility to change supplier • Competition open to all suppliers and all customers • Real competition • Improved customer services • Easier entry for suppliers/more flexibility for suppliers to be truly competitive • National supply network • Lower bills • Better communication from Ofwat • Inclusion of wastewater / effluent treatment in competitive regime • A less complex regime • Security of supply maintained • Set standards for the industry • Ofwat to have greater power in competition • Public ownership of water supply services • Multiple site administration