When the water retail market opens in April 2017, it is important to know how third party intermediaries like ourselves add value to the reform.
In order for customers to reap the benefits of competition, the retail margin needs to be big enough for retailers to be able to offer savings to customers. At the moment, the wholesale prices in England have been set at such a high level that the resulting margin is only 6% on average, compared to more than double that currently in Scotland.
This will make it difficult for new entrants to compete in the market and almost impossible to offer customers any type of discounts. In addition, low margins will mean no money available to fund innovation and service enhancements that will be lacking in this sector.
We have first-hand experience of the impact margins can have to a competitive market, as initially the gross margins available in Scotland were not sufficient to attract entry. It was only once wholesale prices were lowered further that the market became attractive to entrants.
The regulator is committed to reviewing the retail prices in two years and we would urge that wholesale prices are also reviewed so that they can be lowered, which in turn would help to widen the margins in advance of market opening. This will help stimulate competition, which will benefit yourselves and take advantage of water brokers providing a service that is comparable to the gas and power market.