Competition Research

Competition Research | 27th April 2007

Business customers’ views on competition in the water industryPaul Le Masurier, Jo Christensen MVA Consultancy, Simon Gordon-Walker WRc | 27 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


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


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 2nd Feb to 7th March


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’


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


Profile of sample

• Majority of respondents eligible to change supplier (> 50Ml per year)

10

8

9

26

23

24

0 5 10 15 20 25 30

Less than 1000 m³ / month

1000-1999 m³ / month

2000-3999 m³ / month

4000-9999 m³ / month

10000-20000 m³ / month

More than 20,000 m³ / month

Percentage


Profile of sample

• Majority of eligible and ineligible respondents expect their level of water use to remain the same in the short-term

1

6

4

11

3

22

53

0

1

4

9

5

14

67

0 10 20 30 40 50 60 70 80

Fluctuate > 10%

Fluctuate 1-10%

Go up > 10%

Go up 1-10%

Go down > 10%

Go down 1-10%

Remain the same

Percentage

Eligible (Base 499) Ineligible (Base 171)


Profile of sample

• Water costs generally make up a low percentage of total operating costs

9

9

15

42

1

10

16

52

0 10 20 30 40 50 60

5+%

3-4%

1-2%

Less than 1%

Percentage



Current Water Supply Services

• Thinking of your last water bill, how satisfied were you with the price in terms of value for money?

7

19

47

24

4

0 10 20 30 40 50

Not at all satisfied

Not very satisfied

Neither satisfied or not satisfied

Quite satisfied

Very satisfied

Percentage



• Representatives of multiple sites were, in general, slightly less satisfied

6

19

44

27

4

10

18

54

15

4

0 10 20 30 40 50 60


Not very satisfied


Quite satisfied

Very satisfied

Percentage

Single site (Base 508) Multiple site (Base 164)



• Why? - Very/Quite satisfied

• Why? – Not at all/Not very satisfied

28

35

43

50

59

72

0 10 20 30 40 50 60 70 80

Price

Never had a problem

Speed of response to on-site problems

Service provision

Customer relations

Reliability of water supply

Percentage

4

12

17

18

19

24

80

0 10 20 30 40 50 60 70 80 90

Reliability of w ater supply

Other

Service provision

Speed of response to on-site problems

Increases not accompanied by improvements

Customer relations

Price

Percentage



• How satisfied are you with the quality of service you have received from your current water service supplier?

2

12

27

41

17

1

16

26

46

11

0 10 20 30 40 50


Not very satisfied


Quite satisfied

Very satisfied

Percentage




• How satisfied are you with the quality of service you have received from your current water service supplier?

1

10

24

47

19

7

21

35

29

7

0 10 20 30 40 50


Not very satisfied


Quite satisfied

Very satisfied

Percentage




• Why? – Very/Quite satisfied

• Why? – Not at all/Not very satisfied

4

21

30

32

54

87

0 20 40 60 80 100

Other

Flexible arrangements tailored to needs

Willling to consider/suggest reducing usage

Never had a problem

Responds quickly to any problem

Water supply is reliable

Percentage

8

12

31

35

54

55

0 10 20 30 40 50 60

Water supply is unreliable

Other

Poor value for money

Unwilling to consider ways of reducingusage

Poor response to on-site problems

Reactive rather than proactive

Percentage


Knowledge of the competition market



• Prior to the survey, had you heard about competition in water supply services for large users?

Had you heard about competition in water supply

services for large users of water?

Percentage

Yes 68%

No 29%

Not sure 3%

(Base 674) 100%

• 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%)



• 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)



• Have you received or actively sought information regarding competition?

11

14

32

43

0 10 20 30 40 50

Actively sought

Received andsought

Receivedinformation

No

Percentage



• Have you received or actively sought information regarding competition? – By eligibility

39

61

34

20

159

12 9

0

20

40

60

80

100


Pe

rce

nta

ge

No Received information Received and sought Actively sought



• Have you received or actively sought information regarding competition? – By respondent type

50

24

31

33

9

25

917

0

20

40

60

80

100


Pe

rce

nta

ge

No Received information Received and sought Actively sought



• 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

Organisation Percentage

New suppliers 42%

Current water supplier 35%

Ofwat 34%

Other 18%

Consumer Council for Water 9%

(Base 208)



• 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



• 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

Service Percentage

Lower bills 48%

Customer service tailored to business needs 26%

More accurate billing 13%

Tariff structures tailored to large users 9%

A more reliable supply <1%

(Base 46)



• 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

50

62

66

72

74

91

0 20 40 60 80 100

How to sw itch back

Services offered by competitors in your area

Changes in service rights or obligations/risks

How to sw itch supplier

Which competitors offer services in your area

Tariffs offered by competitors in your area

Percentage


Engagement in the competition market



• In principle, are you supportive of competition in the water industry?

3

2

12

33

50

0 10 20 30 40 50 60

Not at all supportive

Not very supportive

Neither supportive or not supportive

Quite supportive

Very supportive

Percentage



• Do you think that your business is eligible to change supplier?

31

6

5

31

27

0 5 10 15 20 25 30 35

Don't know

Not at all

Not quite

Yes probably

Yes definitely

Percentage



• 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



• Perceived eligible – How likely to do you think it is that your business will consider a change in supplier?

6

21

11

38

23

0 5 10 15 20 25 30 35 40

Very likely to remain

Quite likely to remain

Neither

Quite likely to change

Very likely to change

Percentage



• 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

8

13

15

17

19

21

28

30

40

53

0 10 20 30 40 50 60

Unsure of process

Too much effort

Other

Lack of confidence in process

Agreed guarantee of supply

Lack of information

Lack of confidence in new suppliers

Unsure of benefits

Nothing to gain

Content with current supplier

Percentage



•Perceived ineligible/don’t know – If your business were to become eligible how likely would you be to change supplier?

0

14

25

52

9

0 10 20 30 40 50 60

Not at all likely

Not very likely

Neither

Quite likely

Very likely

Percentage



• 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

93

4940

27 24 2115 13 10

3

0

20

40

60

80

100

Lower

bills

Bette

r ser

vice

Gua

rant

ee s

witch

back

Curre

nt ch

arges t

oo h

igh

To ex

ercis

e ch

oice

Suppli

er's

repu

tatio

n

Custo

mer

serv

ice

Not ta

ilore

d

Curre

nt se

rvice

poo

r

Oth

er

Pe

rce

nta

ge



• How much cheaper would a competitor’s services need to be?

0%

5%

9%

24%

12%

33%

3%6%

1%

6%

0%

5%

10%

15%

20%

25%

30%

35%

No dif

fere

nt

1-2%

3-4% 5%

6-9% 10

%

11-1

4% 15%

16-1

9%20

% +



• What services do you currently receive and what new services or improvements would you like to see offered by new suppliers?

28

42

18

44

14

50

27

27

53

29

60

25

0 10 20 30 40 50 60 70 80

Regular meetings

Billing / consolidated accounts

Leakage detection on site

Dedicated point of contact

Water efficiency audits

Account manager

Already receive Would like to receive



• Would you be prepared to pay higher water bills in order to receive a more tailored service?

39

32

26

4

1

0 10 20 30 40 50

Very unwilling

Quite unwilling

Neither willing nor unwilling

Quite willing

Very willing

Percentage


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

16

11

34

31

9

0 5 10 15 20 25 30 35 40

Don't know

Definitely not

Probably not

Yes maybe

Yes definitely

Percentage



• 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

42

16

42

0 10 20 30 40 50

Don't know

No

Yes

Percentage



• 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



• 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

5

67

2

26

0 10 20 30 40 50 60 70 80

Other

Once regime has been successfullyestablished

Once the first customer has switched

As soon as possible

Percentage



• Do you expect to establish a long-term relationship with the licensee, or are you likely to switch more than once?

12

46

9

33

0 10 20 30 40 50

Don't know yet

Always looking forthe best deal

Short termcommitment

Long termcommitment

Percentage



• How does the current competition market compare with the market for suppliers of energy and other utilities?

22

38

34

6

1

0 5 10 15 20 25 30 35 40

Very unfavourably

Quite unfavourably

Neither

Quite favourably

Very favourably

Percentage



• How often does your business switch its energy supplier?

6

32

48

13

0 10 20 30 40 50 60

Never

Once every fiveyears or less

Every couple ofyears

Once a year ormore

Percentage


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



• How confident do you feel that the competitive regime will deliver benefits to customers?

4

25

41

26

4

0 10 20 30 40 50

Not at all confident

Not very confident

Neither confident or not confident

Fairly confident

Very confident

Percentage



• (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)



•What do you think should be done to further develop the competitive market?

10

12

13

16

17

18

23

24

37

38

52

53

64

0 10 20 30 40 50 60 70

P rocess of becoming a supplier easier

Domestic customers

Database of eligible customers

Return customers have original service level

Integrated utilities provision

P rovide better publicity

Relax eligibility criteria

ALL business customers eligible

Improve communication

New suppliers able to operate everywhere

Creation of a competitive market

Incentive for wc's to offer competitive price

More competitive pricing between suppliers



• 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



• Assuming that no changes are made to the current provision for

competition, what sort of future do you think the water market faces?

1

2

4

4

66

6

7

9

23

33

0 5 10 15 20 25 30 35

Confusion/chaos

Ongoing pressure from Ofw at

Improvement in service provision

Don't know

More profit for w ater companies

Very few companies sw itching

Profit is too low to sustain new suppliers

Decreased service provision

Environmental pressures

Increased prices for customers

No change/very slow change

Percentage


Key findings and issues for consideration


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


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


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


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


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)



• 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



• 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



• 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



• 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


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


Questions

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

Documents

water industry slide

competition regime

water act

level of water

water consumption

water bill

profile of sample water