This document discusses the benefits of markets for water customers and the sector's evolution towards greater use of markets. It summarizes Ofwat's pro-market regulatory approach and various market opportunities in areas like water resources, sludge processing, and business retail. It also addresses challenges like population growth, climate change, and changing customer expectations. Customer data is discussed as having an important role to play in enabling new markets and driving innovation.

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What have markets ever done for me? Benefits of markets
for customers
Nicci Russell, Director
16 November 2016

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An evolving sector
Our pro-market regulatory approach
Retail market opening for non-residential customers
Ofwat’s role in the new retail market
Opportunities for innovation and the role of data
A potential new market
Where next?
I’m going to talk about…..

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Trust and confidence – our vision for the sector

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The sector is delivering more for customers than ever before - 2014 price review

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And we’re pushing water companies to get even closer to their customers

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We’re stepping back as the sector steps up – but we remain the safety net
Companies use own discretion to provide
assurance beyond baseline requirements
Companies lose discretion on some areas of
assurance beyond baseline requirements
Companies lose discretion on many areas of
assurance beyond baseline requirements
Self
Assurance
Targeted
Prescribed
As part of the CMF, we rate each water company
against the three assurance categories:
Annual
Performance
Reporting
Company
Monitoring
Framework
Water companies publish annual
performance reporting, and own the
relationship with consumers and
wider stakeholders
Our Company Monitoring Framework
challenges companies to publish
information that stakeholders can trust,
understand and use.
New for 2016
Find out more
All companies published Annual
Performance Reports by July 2016.
These are available on company
websites.
We will publish the results of our
Company Monitoring Framework
assessment in late November
2016.

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Photo © Environment Agency
Population
Growth
Climate
Change
Affordability
Water
Scarcity
Resilience
Future challenges
And changing
customer
expectations

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Our regulatory approach is pro market

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Because markets can deliver greater benefits…..

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….. our ‘Water2020’ proposals are about making greater use of markets

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Environmental benefits

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Promoting markets to benefit customers, the environment and society
Direct procurement for customers (new infrastructure)
Water resources
• Focus on new resources as most
benefits from wider consideration
of options for resources across
company boundaries to promote
efficiency and resilience.
• Trading is below its optimal level,
and taking steps to mitigate
identified barriers to this could
result in benefits of £800m for
customers
• We will also enable third party
resource providers to directly
contract with retailers as
provided for in Water Act 2014
Sludge
• Enable better and more
effective optimisation
• Greater participation from
firms operating in wider
waste markets
• OFT/Ofwat study
identified significant
benefits from
development of markets
for sludge
processing/transformation
to gas and fertiliser
• Possible benefits of
£780m
Direct procurement for customers: benefits include competition to provide finance as well as services and revealing
information about the market price of capital. Possible benefits of £625m.
Business Retail
• 2014 Water Act delivers retailer
choice for business customers by
2017
• Benefits from improved efficiency
and M&A of retail operations as
well as improving service and
increasing customer focus
• Environmental improvements
and water efficiency services
Residential Retail Review
• UK Government asked us to
reviewed the case for extending
retail competition to residential
customers (we reported in Sept).

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One size does not fit all – competition coming soon
Image © Getty Images

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Retail market opening
Retail market opening involves opening the retail market to competition for 1.2
million business customers in England in April 2017
22Millionhouseholds1.2Million
business
customers
2016
Regional companies
supply all residential
and most business
customers in their
area so there is no
choice.
April 2017
Households will still be
provided by one
regional supplier with no
choice
1.2 million business
customers can choose
from many retailers
26,000 business
customers with >5Ml/yr
can choose

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• MOSL
MOSL is the system market operator. It co-ordinates
all of the transactions between companies that allow
companies to switch. It is not involved in any price
setting, legislative or regulatory activity.
• Ofwat
We are the market regulator. We make sure that
companies obey legislation and meet the standards
we set, and we ensure that compliance is as required.
We also ensure that consumers do not incur any
economic detriment.
• Defra
Defra is in charge of the legislative framework for the
water sector.
Who does what .. Welcome to Openwater
The Open Water programme was set up by the UK Government to deliver the
competitive market by April 2017.

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Go live
Key parts of the regulatory framework
switched on and used ‘as live’
Defra/Secretary of State introduce final
parts of legislation and sign off codes
Market operator runs shadow market
as live to ensure that companies and
systems can operate on a day to day
basis.
Systems updated as required
All companies should be engaged with
shadow market operations.
Overview of the plan to market opening
Design and build Testing Shadow
Ofwat to draft key elements of the
regulatory framework (codes, licences
etc).
Market operator to plan and build the
central market operating system
Defra develops licences and
commences key parts of the legislation
Ofwat to consult and finalise its
regulatory framework.
Market operator (and users) test the
market operating system
Companies finalise own systems and
start to upload data into system
Defra finalises key regulations on retail
exit and appeals
April 2016 October 2016 April 2017

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Protecting customers in the new market
How will TPIs be regulated in the new retail market?
1. General consumer law
The Business Protection from Misleading Marketing Regulations
(BPMMRs) prohibit misleading advertising and sales activities
(Ofwat is not an enforcement body)
2. Customer protection code of practice
• All retailers to comply with a new CPCoP
• Third parties acting for Retailers: retailers to take all reasonable
steps to ensure that these third parties are aware of, and
understand and comply with, the provisions of the code.
• Third parties acting for Business Customers: Retailers to obtain
written confirmation – known as a letter of authority (LoA) –
from the relevant Customers that:
(a) the named third party is acting on their behalf;
(b) the extent of the third party’s authority; and
(c ) how the third party’s fees are being paid.
Where the business customer is also a micro-business, the written
confirmation shall be in the form of a template(see draft on our website).
3. Voluntary TPI codes of conduct
Customer protection code of practice
(which binds only retailers: licensed and
appointee)
What role could the TPI play?
Awareness
Route to market
Contract management
Specialist knowledge
We will consult later this month on our TPI policy.
We will use our monitoring framework to pick up any future issues - we
are aware of potential teething problems in the early years but we will
make sure our policy is fit for purpose.

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Innovation – in service and technology
New markets, resilience and water
efficiency – a virtuous circle for
customers and the environment

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Customer data: new markets and the evolving sector
Business retail
market opens April
2017
Water resources &
sludge markets
Monitoring &
assuring company
performance
Customer data has a key role to play as the water sector evolves
Possible future
residential retail
market
Driving efficiencies
and improving
resilience
Customer data can bring huge
opportunities: it can help companies
address bad debt, reveal customer
preferences and drive innovation
Good customer data is key for
markets to work effectively: in
particular with the opening of the
new business retail market in April
2017 Customers should have trust and
confidence that companies are
effectively and appropriately using
their data
Inclusive service for all: ensuring that all customers are treated
fairly

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Competition for Residential Retail – Our overall assessment
Photos © DWP, Lumix2004, Hortongrou, Brian Norcross, Adriana Herbut, Getty Images
We adopted a scenarios based approach to our cost
benefit analysis, recognising that no one can accurately
predict the future. Our scenarios reflect how key features
of a competitive market could develop.
We have set out in our view the prospects for competition.

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Trust and confidence – our vision for the sector