To succeed in the newly deregulated England market, water utilities need to upgrade their IT systems to improve the customer experience, develop differentiated offerings and enable competitive pricing.

1. Open Water: A Path to Success for
Incumbents and New Players
To succeed in the newly deregulated England market,
water utilities need to upgrade their IT systems to improve
the customer experience, develop differentiated offerings
and enable competitive pricing.
Executive Summary
The England water industry is set for deregu-
lation in the downstream value chain starting
April 2017 for all non-household customers.
The changes stipulated by the UK Open Water
program1
present both challenges and oppor-
tunities for market participants. Regulatory
agencies set the ball rolling with the publication
of the “Water for Life” whitepaper in December
2011.2
Since then, a considerable amount of work
has been done to develop the MAP4 (post-ven-
dor MAP) market architecture plan.3
However, a recent independent review4
reveals
further work is needed to open the market as
planned. Additionally, market participants must
be ready with their systems and processes
before the go-live date of October 2016 for com-
mencement of the pilot period.
In this white paper, we analyse similar market
deregulation implementations in the UK, such
as the Scottish open water market, and electric-
ity and gas deregulation. Based on our findings,
we make recommendations for water utilities to
succeed in a deregulated industry by taking a
holistic approach.
Open Water: An Introduction
Competition is not new to the UK water market.
Two arrangements are currently available to
non-household customers: “supplying for large
users” and “supplying in a defined area.” For
large water use (five million liters per year in
England and 50 million liters per year in Wales),
customers can choose their water supply
services from over a dozen service providers.
With the defined-area arrangement, providers
can deliver water and sewerage services or
water-only services for a particular geography
in which an existing appointed water company
already operates. Roughly 14 companies are
registered for this setup. Despite these options,
only one large-use customer has switched from
its existing supplier to date.
cognizant 20-20 insights | june 2016
• Cognizant 20-20 Insights

2. Other global deregulated markets have
introduced innovative approaches to managing
resources efficiently and delivering benefits to
customers, including reduced bills, better services
and a range of tariff options. For example,
Scottish Water claims to have saved more than
£72.6 million in water charges, more than £54
million in water efficiency, more than 24 billion
liters of water volume and over 42,000 tonnes in
CO2
emissions.5
The intent of the Open Water program in
England and Wales was to enable competition
in the retail segment to supply water and waste-
water management services to non-house-
hold customers. In England, all non-household
customers will be able to choose their suppliers,
while in Wales, non-household customers who use
more than the current 50 million liter-per-year
cap will have supplier choice as per the existing
arrangement.
After deregulation, the market will be separated
into upstream and downstream segments (see
Figure 1). Existing utilities – which will be known
as wholesalers – will provide upstream services,
while both existing and new retailers will provide
downstream services. The retail function of
existing utilities will need to demonstrate an
arm’s length relationship with the wholesale
services side.
In addition to wholesalers and retailers, another
participant in the deregulated scenario will be
market operators (see Figure 2). Market operators
will provide the operational capability needed to
support the market, such as delivering IT systems
that enable registration, customer switching and
settlement between wholesalers and retailers.
Ofwat, the organisation responsible for economic
regulation of the water sector in England and
Wales, will continue to play an important role in
market governance and will also be responsible
for maintaining regulations, such as the Market
Arrangements Code and the Wholesale-Retail
Code, as well as providing charging rules, water
supply and sewerage licenses, instrument of
appointments, eligibility guidance, license appli-
cation guidance, the interim supply code, the
retail exit code, transition schemes, etc.
Figure 1
Water Value Chains Post Deregulation
Water Extraction Water Treatment
Water
Transmission,
Distribution
Water Retail
Services
Waste Water
Disposal
Waste Water
Treatment
Waste Water
Collection,
Transmission
Waste Water
Retail Services
Upstream/Wholesale Downstream/Retail
Non-Household
Customers
Water Value Chain
Waste-Water
Value Chain
Figure 2
Open Water Market Structure
Wholesaler
(Scottish Water)
Central Market Agency
(Effective market
operation)
Water Industry
Commission for Scotland
(Policy & licensing)
Wholesalers
Non-Household
Customers
Use and charge
Information
Operations &
service Information
Money
Retailer Retailer
Ofwat
Market
Operator
Ofwat
cognizant 20-20 insights 2

3. cognizant 20-20 insights 3
Scottish Water Implementation
The Scottish water market implementation
provides a business case for the industry changes
impending for England and Wales. Retail deregu-
lation for non-domestic customers in the Scotland
water market became operational in April 2008
and impacted roughly 130,000 non-domestic or
non-household customers. Estimated benefits
include about £138 million in 30 years, with £37
million counted up to 2015.6
The Scottish market representatives are playing an
instrumental role in shaping the open water market
structure, including input on maintaining an arm’s
length relationship between incumbent suppliers
and their retail units; managing the switching
element, connections, consumption data and data
quality; applying of performance penalties.
The structure of the open water market in the
UK is similar to Scotland’s model (see Figure 3).
The major difference is that Scotland has only
a single wholesaler – Scottish Water – while
England and Wales have 32 incumbent service
providers for water and sewerage services.
This adds to the complexity of managing
transactions among the various wholesalers
and retailers. To this end, the new Wholesale-
Retail Code and wholesale contract have been
included in the new market arrangement.
UK Gas and Electricity Deregulation
In comparison, the electricity and gas market is
more operationally intensive, given the transac-
tions among market players and the multiple
complexities of the end-to-end implementation.
Unlike the retail-only deregulation in the water
market, the gas and electricity markets are open
to competition for almost the entire value chain
of wholesale, transmission and distribution, and
retail. However, this market provides a good
indicator of how robust processes and systems
need to be in order to operate in a deregulated
market. The relationships among generation,
transmission and distribution companies provide
useful case studies on how business arrange-
Figure 3
Scottish Water Implementation
Non-Household Customers
Wholesaler
(Scottish Water)
Central Market Agency
(Effective market
operation)
Water Industry
Commission for Scotland
(Policy & licensing)
Licensed Suppliers/Retailers
Non-Household
Customers
Money
Retailer RetailerMarket
Operator
Figure 4
UK Electricity Market Structure
DISTRIBUTION
Power Station
Sales
Wholesale
Spot Market/
Power Exchange
Financial Market
Transmission Company
System Operator
Balance Responsible
Energy Service
Providers
Distribution
Companies
Network Access
Management
Metering
Aggregator
Customer
GENERATION TRANSMISSION
Energy Ownership Money Product Service

4. cognizant 20-20 insights 4
Source: This table contains data analysed from numerous sources, including “Domestic Retail Market Review
Evaluation Survey: 2015,” Ofgem, September 2015 (https://www.ofgem.gov.uk/publications-and-updates/domestic-
retail-market-review-evaluation-survey-2015-results), “Water and Sewerage Services in Scotland: An Overview of the
Competitive Market,” Water Industry Commission for Scotland, October 2013, (http://www.watercommission.co.uk/
UserFiles/Documents/WICSHouseofCommonsPaper(C).pdf), and the Central Market Agency website.
Figure 6
Comparative Analysis of Deregulation in Various UK Utilities
Parameter Scottish Water Market UK Electricity UK Gas
Number of
Retailers
13 (April 2014)
18 (March 2015)
Non-domestic (June 2015): 59 (24 provide both
gas and electricity; 18 provide electricity only,
17 provide gas only).
Domestic (June 2015): 31 (26 provide both gas
and electricity; 2 provide electricity only,
3 provide gas only).
Top Retailers • Business Stream, Scottish Water
• Commercial Services, Thames
Water
• United Utilities
• Veolia Water
• Commercial Water Solutions
• British Gas
• E.ON
• EDF
• RWE npower
• Scottish Power
• SSE
• British Gas
• Total Gas & Power
• Carona
• Gazprom
• SSE
• E.ON
New Retail
Entrants
2013-2014: 4 new players
2014-2015: 5 new players
Non-domestic
2005-2010: 8 new players
2012-2015: 18 new players
Domestic
2012-2013: 9 new players
2013-2015: 8 new players
Cross-Market
Entrants
United Utilities, Thames Water,
Severn Trent, Veolia Water,
Northumbrian Water, Anglian
Water, South West Water
Centrica, Scottish Power, E.ON, EDF, RWE, SSE,
Gazprom
Customer
Switch Rate
5% switched
50% renegotiated contracts
Domestic (2002-2014): 70% switched among
electricity customers and 82% for gas customers.
Switch rate 2014: Approximately 3 million for
electricity customers and 2 million for gas customers.
Non-domestic (2002-2014): 71% switched.
Reason for switch: price (90%); customer service
(11%); nearing contract renewable period.
Note: Switching rates were in decline from 2008
and spiked in 2013.
Post-Reform
Pricing
Trends
More than 60% of non-household
customers in Scotland are now
paying lower prices, receiving
better service or both in the five
years since deregulation.
Prices dropped through 2004 and have increased
ever since for both power(8%) and gas (12%) in
the last 10 years.
Figure 5
UK Gas Market Structure
Foreign
Production
Foreign
Production
Domestic
Production
Imports
Locals
Imports
Shipper Transmission Trunk Line
Spot Market
Storage
Sell Buy
Stall Retrieve
Shipper
Entry
Points
Exit
Points
Utility
Distribution
Distribution
Power
Plant
Factory
Residential
Exploration/Production Companies Transmission Companies Distribution Companies
Upstream Midstream Downstream
LNG
Plant
Well
Head
Well
Head
Metering
Metering
Metering

5. cognizant 20-20 insights 5
ments should be managed between wholesalers
and retailers.
• Electricity market: Unlike the big-bang
approach used for the gas market, deregula-
tion for the UK electricity market was phased
in, beginning with large customers in 1990,
and followed by medium-use custo mer in
1994 and all customers by 1998 (see Figure 4,
page 3).
• The gas market: The UK gas market was
deregulated in 1996 for all domestic and
non-domestic customers, impacting roughly
874,000 non-domestic customers (see Figure
5, previous page).
Lessons Learned from Deregulation
By analysing deregulation activity in related
markets (see Figure 6, previous page), we can
conclude that many retailers in the UK water
market will encounter new market arrangements,
including incumbent service providers, Scottish
market retailers and perhaps a few cross-market
players, such as electricity and gas providers that
could sell packaged utility offerings of electricity,
gas and water services. Almost all the retailers
from the Scottish market have indicated interest
in the England and Wales market. Though there
is no clarity yet on which geographies the new
retailers will target, incumbent players from
England who are currently part of the Scottish
market will have an upper hand given their
experience in both geographies.
Retain and Win Customers with
Differentiated Offerings
We estimate that customer switch rates under
the new market arrangement will not be as high
as what was witnessed in the electricity and gas
markets, but would be similar to or higher than
that in the Scottish market (almost 5% switched
retailers and 50% renegotiated their contracts).
A survey by Consumer Council for Water (CCW),
which included participants from non-household/
non-domestic customer segments, shows that
low-spend customers might switch suppliers if
offered a better price; high-spend customers
would also do so if offered better value for the
money.7
New retailers, therefore, should offer not
only competitive pricing but also differentiated
service offerings.
Market it Right
In other markets, such as in Scotland, many
customers were unaware of the new market
arrangement, and confusion persisted following
deregulation.8
Although communicating the new
market arrangement is considered the responsi-
bility of regulatory bodies and the government,
utilities can engage in proactive and multi-chan-
nel marketing to build customer confidence and
gain business.
New retailers should showcase their capabili-
ties and reliability as a service provider to win
customers, and offer them a quick, streamlined
and hassle-free switching process. The CCW
survey, however, emphasised the ineffective-
ness of hard-sell marketing and the need to
make a positive first impression on customers,
as more than half said they would return to their
incumbent supplier if service levels were not as
they expected.
The importance of marketing is also underlined by
research conducted by Social Market Research on
small and medium-size customers in the Scottish
water market, which found limited awareness
among most respondents about the deregu-
lated water market and their ability to switch
suppliers. When customers were made aware of
the available service offerings, they were willing
to explore switching options.
Establish Competitive Pricing
Any new market arrangement implementa-
tion is expected to provide monetary benefits,
which can take multiple forms, such as efficient
operations, lower retail prices for customers,
investments, innovation, etc. The Scottish market
study shows more than 60% of non-household
customers in Scotland now pay lower prices,
receive better service or a combination of the
two in the five years since the market opened.9
A similar trend is playing out in the electricity and
gas markets following deregulation.
Retailers that have already started setting up
and aligning their retail operations with the
open water initiative will have an upper hand in
planning and setting retail prices. Because Ofwat
will determine wholesale pricing rules, there will
be little room for negotiation to increase the
retail margin. As a result, each retailer must study
its own customer base and service offerings and
develop suitable pricing. To do this, utilities need
to gain in-depth knowledge of customers so they
can customise pricing and service offerings.
For further optimisation, the operational utilities
across markets can partner to carry out joint

6. cognizant 20-20 insights 6
operations. A good example is Water2busi-
ness, a joint venture between Bristol Water and
Wessex Water, which will provide retail services to
businesses across the UK.
Ensure Regulatory Compliance
Market participants will need to work within the
regulatory framework defined in the new market
structure. As mentioned above, incumbent
retailers will need to maintain an arm’s length
relationship with their wholesale businesses to
ensure fair competition. This means setting up
completely new facilities, teams, operations,
processes, IT systems, etc. Scottish Water, for
example, separated its retail business by setting
up a new company, Business Stream, in 2006.
In Scotland, all retailers use standard forms,
processed via central e-mail systems, which
ensures incumbent retailers’ transactions are
processed in the same way as any other retailer’s.
Utilities such as United Utilities, Thames
Commercial Services, Severn Trent Services, etc.
have already set up separate business units.
Other regulations, such as those related to the
wholesale contract, Wholesale-Retail Code and
Market Arrangements Code of the new market
arrangement and their ownership, are still being
finalised as per the Market Architecture Plan
(MAP). In addition, all market participants will need
to conduct operational and regulatory reporting.
Looking Ahead: A Plan for Success
Providers’ operational and customer service
processes will be challenged by the new com-
petitive market scenario. Retailers can follow
a four-step process to ensure they can win and
retain customers in the deregulated landscape
(see Figure 7).
• Strategise: Based on its capabilities, each
retailer should define its business strategy
and develop a plan as to which geographies
or customers to target and which bottom
lines to maintain. Because non-household
customers’ requirements vary according to
their operations, providers need to conduct
customer profiling and segmentation to
understand their needs and map their capabili-
ties accordingly. Capability gaps should be filled
through a mergers and acquisitions strategy or
through partnerships with trusted third-parties
and other utilities.
• Invest: The business strategy will determine
investments to be made in people, processes
and technology. Robust IT systems and
processes, as well as skilled talent, will be
key to smooth operations. Many utilities have
already begun investing heavily to improve
their various lines of business. Wholesalers
will need to align their existing processes and
systems with the new market scenario.
Defining new processes, such as customer
onboarding, billing, switching, managing
breakdowns, etc., will require investment. The
systems impacted most heavily will be the
customer information system (CIS), work
management and contract management
systems. Retailers and the market operator will
need to set up all systems and processes for CIS,
sales and marketing, regulatory compliance,
wholesaler management, vendor management,
etc. Both wholesalers and retailers will need to
establish a strong communication system to
Figure 7
Open Water Approach
• Systems
• Processes
• Operations
OPERATE & MONITOR
• Target market areas
• Customer profiling
and segmentation
• Service offerings
• Mergers and
acquisitions
• Vendor/utility
tie-ups, partnerships
STRATEGISE
• Market
• Bottom lines
INVEST
• Customer services
• Sales planning
• Marketing planning
• Support functions
• Operations planning
• IT planning
• Regulatory planning
PLAN
• Systems
• Operations
• Administration
• People
• Process
• Technology
• Skilled human
resources
• Streamlined process
• IT systems
• Offices and
infrastructure
• Account
management
• Customer service
• Communications
management
• Billing and payments
• Work management

7. cognizant 20-20 insights 7
interact with each other and with the market
operator.
Market operator systems and processes are
defined in the Open Water market codes.
Retailers and wholesalers will need to work
closely with the market operator to understand
how access and communications will work.
Another major investment for retailers is
related to office space and infrastructure.
The decision to establish a single location or
multiple ones will depend on the company’s
operational model.
• Plan: Once the systems and processes are in
place, utilities should plan how their systems,
operations and administration will work to
meet their targets. These include customer
service activities, customer queries, mainte-
nance work, etc. Operations planning will be
required for account management and related
daily operations, as well as support functions,
such as human resources, finance, administra-
tion, legal, regulatory, etc. As most systems
and processes will be IT-intensive, substantial
IT planning will be necessary.
• Operate and monitor: Once the market goes
live or utilities are in operation, emphasis needs
to be placed on running operations as planned,
along with a strong monitoring framework to
track operations against the plan. The most
critical systems and processes will be those with
direct customer touchpoints, such as websites,
telephony, customer service, CIS, sales and
marketing. Back-end systems and processes,
such as account management, communica-
tions management, billing and payments, work
management, etc., should enable the front-end
systems mentioned above.
Footnotes
1 “Open Water,” UK Government, http://www.open-water.org.uk/.
2 “Water for Life,” Department for Environment Food and Rural Affairs, December 2011, https://www.gov.uk/
government/uploads/system/uploads/attachment_data/file/228861/8230.pdf.
3 “Post Vendor MAP” Open Water, September 2015, http://www.open-water.org.uk/download-
documents/?cat=post-vendor-map.
4 “Retail Market Opening Programme Review,” UK Government, May 28, 2015, http://www.ofwat.gov.uk/
wp-content/uploads/2015/11/rpt_com201506baselinereview.pdf.
5 Business Stream website, http://www.business-stream.co.uk/about-us/what-we-do.
6 “Water and Sewerage Services in Scotland: An Overview of the Competitive Market,” Water Industry
Commission for Scotland, October 2013, http://www.watercommission.co.uk/UserFiles/Documents/
WICSHouseofCommonsPaper(C).pdf.
7 “Uncharted Waters: Non-Household Customers’ Expectations for Competition in the Water Industry,”
Consumer Council for Water, March 2014, http://www.ccwater.org.uk/blog/2014/06/19/uncharted-waters-
non-household-customers-expectations-for-competition-in-the-water-industry/.
8 “Navigating Unfamiliar Waters: SMEs’ Awareness and Experience of the Water Market in Scotland,” Social
Market Research, March 2013.
9 “Water and Sewerage Services in Scotland: An Overview of the Competitive Market,” Water Industry
Commission for Scotland, October 2013, http://www.watercommission.co.uk/UserFiles/Documents/
WICSHouseofCommonsPaper(C).pdf.

8. cognizant 20-20 insights 8
References
• “Market Blueprint,” Open Water, January 2014, http://www.open-water.org.uk/media/1041/market-
blueprint.pdf.
• Jochen Kreusel, “Entering a New Epoch,” Transmission & Distribution World, April 1, 2015, http://
tdworld.com/sponsored-articles/entering-new-epoch.
• “Central Market Agency: Business Review, 2014-2015,” Central Market Agency, 2015, http://www.
cmascotland.co.uk/kcfinder/upload/files/Business%20Review/CMA%20Business%20Review-2014-
15(1).pdf.
• “Retail Energy Markets in 2015,” Ofgem, September 2015, https://www.ofgem.gov.uk/publications-
and-updates/retail-energy-markets-2015.
• “Market Operator Target Operating Model,” OpenWater, January 2014, http://www.open-water.org.uk/
media/1042/market-operator-target-operating-model.pdf.
• “Water and Sewerage Retail Competition in Scotland,” Water Industry Commission for Scotland,
February 2012, http://www.watercommission.co.uk/UserFiles/Documents/Water%20and%20
sewerage%20competition%20in%20Scotland.pdf.
• “Comments from Scottish Water on Open Water Market Architecture Plan,” Scottish Water, July
2014, http://www.open-water.org.uk/media/1253/140814-comments-from-scottish-water-on-open-
water-market-architecture-plan-final.pdf.
• “Wholesale and Retail Charges: A Consultation,” Ofwat, January 2014, http://www.ofwat.gov.uk/con-
sultation/wholesale-and-retail-charges-a-consultation/.
• “Consultation on Wholesale and Retail Charges for 2015-16 and Charges Scheme Rules,” Ofwat, May
2014, http://www.ofwat.gov.uk/wp-content/uploads/2015/10/pap_con20140530charges.pdf.
• “Draft Determination Representation: Annex RNHH02--Additional Costs of Market Opening,” Thames
Water, October 2014, http://www.thameswater.co.uk/ofwat/Appendices/Appendix%20E/RNHH02.pdf.
• “Ofwat’s Review of Competition in the Water and Sewerage Industries: Part II,” Ofwat, May 2008,
http://s3-eu-west-1.amazonaws.com/media.aws.stwater.co.uk/upload/pdf/Competition_consultation_
part_II.pdf.
• “Default Tariffs in the Contestable Retail Market for Water and Sewerage Services: The Design and
Implementation Issues,” Economic Insight Ltd., August 2012, https://www.thameswater.co.uk/your-
business/business-regulatory-safeguards-in-deregulated-markets.pdf.
• Ruud Weijermars, “Value Chain Analysis of the Natural Gas Industry,” Journal of Natural Gas Science
and Engineering, Vol. 2, May 2010, http://www.alboran.com/files/2013/07/ES-3.pdf.
• “Domestic Retail Market Report,” Ofgem, June 2007, https://www.ofgem.gov.uk/ofgem-publica-
tions/38491/drmr-march-2007doc-v9-final.pdf.

9. About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business
process services, dedicated to helping the world’s leading companies build stronger businesses. Head-
quartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technol-
ogy innovation, deep industry and business process expertise, and a global, collaborative workforce that
embodies the future of work. With over 100 development and delivery centers worldwide and approxi-
mately 233,000 employees as of March 31, 2016, Cognizant is a member of the NASDAQ-100, the S&P
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About the Authors
AnkitPandeisaConsultantwithinCognizantBusinessConsulting’sEnergyandUtilitiesPractice.Hehasover
five years of experience in the energy & utility and retail domains in the IT services and consulting industry.
At Cognizant, Ankit provides consulting and big IT project implementations that include process improve-
ments, business analysis and digital transformation. He has strong experience in work management, asset
management, customer experience management and operations management in the utilities industry
(water, electricity and gas). Ankit holds a PGDISEM from the National Institute of Industrial Engineering
(NITIE Mumbai) and a B.TECH in production engineering from the College Of Engineering, Pune. He can be
reached at Ankit.Pande@Cognizant.com.
Gaurav Hegishte is a Consultant within Cognizant Business Consulting’s Energy and Utilities Practice. He
has over five years of experience in the product and resources industry. At Cognizant, Gaurav provides
services to utility clients related to process improvement and digital transformation. He holds a PGDIM in
industrial management from the National Institute of Industrial Engineering (NITIE Mumbai). Gaurav can
be reached at Gauravsadanand.Hegishte@cognizant.com.
Puneet Kohli is a Senior Consultant within Cognizant Business Consulting’s Energy and Utilities Practice.
He has over eight years of experience in energy and utility consulting, operations and maintenance in
the energy industry. At Cognizant, Puneet provides process improvement and digital transformation
services to clients. He holds a PGDM from the Indian School of Business. Puneet can be reached at
Puneet.Kohli@cognizant.com.
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