The water industry has been gearing up for the introduction of competition in the non-household water market from April 2017, but yesterday the Chancellor took the industry by surprise by announcing that there could be retail competition for household water customers by 2020.

Context

The announcement was part of a wider policy paper, A better deal: boosting competition to bring down bills for families and firms released by HM Treasury and the Department for Business, Innovation and Skills.  It follows on from July's paper, Fixing the Foundations: Creating a more prosperous nation, which outlined the Government's approach, built around two key pillars: encouraging long-term investment in infrastructure and promoting a dynamic economy.  The Government sees more open, competitive markets as a cornerstone of a dynamic economy.

The proposals

It seems that the Government has looked at the potential benefits that opening up retail competition in the non-household water market from 2017 could bring, and decided that it should be extended to households.  Ofwat is tasked with providing an assessment by summer next year of the costs and benefits of extending retail competition to household water customers, and then the government will work with water companies to begin the transition to retail competition before the end of this Parliament (2020).

If customers are to be able to switch their water billing (as in reality the water will still come from the same place), then they will need to have access to data to enable them to compare prices and service levels.  The Government will ensure, using legislation if necessary, that by 2017 consumers across the regulated sectors (which we assume will include water) have easy access to the data they need and can authorise intermediaries like price comparison websites to access this data on their behalf using secure APIs.  Companies will need to make tariff data available in machine readable form.

Implications

Ofwat has a tough task ahead as it now has to assess the costs and benefits of opening up retail competition to the household market by summer 2016, almost a year before the non-household market competition starts, so there will be no direct data it can use in its assessment.  Whilst this policy clearly brings together the government's objectives for consumer competition across the wider utilities sector, it feels like it is particularly challenging for the water industry given the current timetable and challenges for retail competition in the non-household market.

Water companies will now have to factor in the household market to their current preparations for retail competition in the non-household market, which may well impact on timings and resources and mean a re-think of processes and risks.