It’s a no-brainer. Water is a necessity and customers buying it, whether individuals, small businesses or major corporations, need and deserve a degree of protection. Since the sector was privatised more than 25 years ago, they have been afforded that protection by not one but three powerful regulators, Ofwat, the Drinking Water Inspectorate, and the Environment Agency, not to mention Defra and the various European bodies with oversight.
On 3 April, for business customers, that changes. The sector will still be regulated, because retailers must be licensed by Ofwat, which will monitor the market closely and intervene if necessary. But there’s a loophole in the protection Ofwat is able to offer. Many customers will buy their water from brokers, or third party intermediaries (TPIs), and at least some of those customers will not be fully aware, and will not be made fully aware, of the difference between buying from a broker and buying from a retailer. So those customers, likely to be small businesses, will be buying from an unregulated company without appreciating the risks that might entail.
That’s not to suggest that all, or even most, brokers are looking to rip off water customers – but the profession itself admits it has a problem. Last week, broker Peter Sceats of the Grand Union Water Company told Utility Week the water market faced the same “Flash Harry” tactics that plague the energy market. Ofwat’s current consultation on a code of conduct for TPIs enumerates problems with transparency, redress and selling practices as common features of an intermediated market. The miss selling scandals alone that have plagued the energy industry should be enough to send shivers down water bosses’ spines.
With the opening of the water market, policymakers and regulators have a chance to learn from the mistakes of energy. Taking a wait and see approach isn’t good enough. How many customers will have to be ripped off before regulators are given the power to protect them?
Ofwat has called for powers to regulate brokers – and it should be heeded. Customers of all sizes deserve a baseline protection
for such a basic necessity as water. For other market participants, the implications of a new breed of player are more tricky. Retailers looking to compete with brokers for direct customers may have to sharpen up their practice; wholesalers will have to adapt to a more complex value chain. And that is the competitive market in action.
As the opening of the retail market inches closer, the reality of what it means to operate outside of a regulated monopoly is dawning on the sector. It will not always be comfortable.
To find out more and to see see a link to the consultation Ofwat have published please click here.
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