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Competition Research | 27 th April 2007 Business customers’ views on competition in the water industry Paul Le Masurier, Jo Christensen MVA Consultancy,

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Presentation on theme: "Competition Research | 27 th April 2007 Business customers’ views on competition in the water industry Paul Le Masurier, Jo Christensen MVA Consultancy,"— Presentation transcript:

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

2 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 2 nd Feb to 7 th March

5 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 Profile of sample Majority of respondents eligible to change supplier (> 50Ml per year)

8 Competition Research | 27 th April 2007 Profile of sample Majority of eligible and ineligible respondents expect their level of water use to remain the same in the short-term

9 Competition Research | 27 th April 2007 Profile of sample Water costs generally make up a low percentage of total operating costs

10 Competition Research | 27 th April 2007 Current Water Supply Services Thinking of your last water bill, how satisfied were you with the price in terms of value for money?

11 Competition Research | 27 th April 2007 Current Water Supply Services Representatives of multiple sites were, in general, slightly less satisfied

12 Competition Research | 27 th April 2007 Current Water Supply Services Why? - Very/Quite satisfied Why? – Not at all/Not very satisfied

13 Competition Research | 27 th April 2007 Current Water Supply Services How satisfied are you with the quality of service you have received from your current water service supplier?

14 Competition Research | 27 th April 2007 Current Water Supply Services How satisfied are you with the quality of service you have received from your current water service supplier?

15 Competition Research | 27 th April 2007 Current Water Supply Services Why? – Very/Quite satisfied Why? – Not at all/Not very satisfied

16 Competition Research | 27 th April 2007 Knowledge of the competition market

17 Competition Research | 27 th April 2007 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 single site representatives (64%)

18 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 Knowledge of the competition market Have you received or actively sought information regarding competition?

20 Competition Research | 27 th April 2007 Knowledge of the competition market Have you received or actively sought information regarding competition? – By eligibility

21 Competition Research | 27 th April 2007 Knowledge of the competition market Have you received or actively sought information regarding competition? – By respondent type

22 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 Engagement in the competition market

27 Competition Research | 27 th April 2007 Engagement in the competition market In principle, are you supportive of competition in the water industry?

28 Competition Research | 27 th April 2007 Engagement in the competition market Do you think that your business is eligible to change supplier?

29 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 Engagement in the competition market How much cheaper would a competitor’s services need to be?

35 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 Engagement in the competition market Would you be prepared to pay higher water bills in order to receive a more tailored service?

37 Competition Research | 27 th April 2007 Barriers to the opening-up of the competition market

38 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 Barriers to the opening-up of the competition market How often does your business switch its energy supplier?

45 Competition Research | 27 th April 2007 Experience of and aspirations for the competition market

46 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 Experience of and aspirations for the competition market How confident do you feel that the competitive regime will deliver benefits to customers?

48 Competition Research | 27 th April 2007 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 Competition Research | 27 th April 2007 Experience of and aspirations for the competition market What do you think should be done to further develop the competitive market?

50 Competition Research | 27 th April 2007 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

51 Competition Research | 27 th April 2007 Experience of and aspirations for the competition market Assuming that no changes are made to the current provision for competition, what sort of future do you think the water market faces?

52 Competition Research | 27 th April 2007 Key findings and issues for consideration

53 Competition Research | 27 th April 2007 Key Findings – Current situation Only 28% of large user business customers are satisfied (very/quite) with the current price of water services Most not willing to pay higher bills to receive a more tailored service Two-thirds aware that competition regime exits, however only 33% who are eligible based on water use are ‘definite’ that they are eligible (34% probably and 25% don’t know) 43% do not recall receiving any information and only 12% could name a licensee 91% want Ofwat to provide them with a range of further information (e.g. tariffs offered by competitors in their area), ideally in the form of an email 77% consider service they received unchanged or changed little since introduction of competition

54 Competition Research | 27 th April 2007 Key Findings – The idea of competition 84% supportive of competition in principle 60% think regime compares unfavourably with other utilities 61% ‘quite/very likely’ to consider switching in the right circumstances Only 31% thought that the current regime would encourage a competitive market

55 Competition Research | 27 th April 2007 Key Findings – What would encourage customers switch? 93% would be more likely to consider switching if offered lower bills (for the majority this needs to be at least 5%) 49% would be more likely to consider switching if service provision improved 43% would be more likely to consider switching if there was a guarantee of switching back New service offerings – water efficiency audits, leakage detection 84% believe there are barriers to the current regime being effective or are unsure Two thirds would wait until regime is shown to be working properly before switching

56 Competition Research | 27 th April 2007 Key Findings – Making this happen 64% want to see a re-structuring of the industry to facilitate more competitive pricing between suppliers 53% believe the incumbent water companies need incentives to offer competitive prices 52% want to see the development of framework for the creation of a competitive market (e.g. a national supply network) 38% want new suppliers to be allowed to operate everywhere 37% want more, and better, information

57 Competition Research | 27 th April 2007 Key issues for consideration Reviewing eligibility criteria Not the main barrier to success Worth consideration once shown to be working for those currently eligible Inclusion of multiple sites - removal of geographical boundaries for suppliers (potential service improvement as well as cost savings)

58 Competition Research | 27 th April 2007 Key issues for consideration Restructuring of water industry to facilitate competitive pricing Comparison to energy sector (wholesale, distribution and retail parts of business kept separate) Potentially difficulties in economic and political terms Need to consider benefits to all customers not just high-water users Price of water supply is key factor, need to offer at least 5% savings on water bills

59 Competition Research | 27 th April 2007 Key issues for consideration Incentives for incumbent water companies Currently no incentives to promote or co-operate with the competition regime Encourage water companies to be transparent and helpful Ofwat should review opportunities for developing incentives

60 Competition Research | 27 th April 2007 Key issues for consideration National water supply network Water scarcity in some areas Ability to sell water for regions with abundance However, feasibility investigated and rejected on cost benefit grounds

61 Competition Research | 27 th April 2007 Key issues for consideration Improved provision of information General awareness high but understanding variable Information supplied by Ofwat via an email alert Competitors operating in each area and their tariffs, and logistics of changing supplier

62 Competition Research | 27 th April 2007 To summarise Current eligibility threshold not the main barrier Price of water supply is the key factor, need to offer savings of at least 5% Consideration of incentives for water companies Provision of information on competitors and their tariffs

63 Competition Research | 27 th April 2007 Questions


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