Member Article

While water resource management can, ironically, be one of the driest of topics in mixed company, the
future supply of fresh water is becoming an increasingly critical global issue. This week experts from around the globe are converging on Dundeefor an international conference, discussing security and sustainability issues around water. While the UNESCO event being staged by the University of Dundee ill focus mainly on accessibility of clean drinking water and how this impacts on the wider global community, there will be a specific focus on the introduction of competition for business water services.

Scotland’s non-domestic water market was deregulated by the Water Industry Commission for Scotland in April 2008 when Scottish Water’s retail subsidiary Business Stream separated from its parent company to enter a brave new competitive world. While some
critics say that that strong competition has yet to materialise – with Business Stream still maintaining the majority of business customers –the introduction of competition has delivered real benefits for businesses in Scotland.

Notable successes include a reported reduction in costs and better services for the more than 50 per cent of business customers who have switched from what was the existing, default, price and service package. Over 25 per cent of the business market has now been able to tender its water and sewerage services, achieving lower prices and/or better services as a result.

Business Stream, which remains in public ownership, has reduced its costs by over £8 million per annum. Its stronger customer service culture has also helped create a significant reduction in bad debt when compared with other UK
water companies –all the more impressive given today’s economic climate. The separation of the retail division from
Scottish Water also helped identify inefficiencies and duplicated efforts within the network systems, allowing its wholesale operations to become more efficient. The Water Industry Commission put in place safeguards to ensure that no customer would be
worse off as a result of the changes to the market by introducing a default package based on the price and service standard which existed before competition. The regulatory regime was also designed to help create a level
playing for new entrants.

Looking at these positives, it’s little wonder that the international water community visiting Dundee this week will be viewing the Scottish experience to see how they might apply these competitive principles back home. A similar model may also be introduced
for England and Wales.However, resting on its laurels is not a position the water industry in Scotland can afford to take. Most in the water industry generally recognise that the future challenges of variable weather patterns; carbon reduction targets and
increasing environmental standards are not going to be met easily.

More and more difficult choices between funding investment and increasing customers' bills are going to have to be made.  Customers
need to better understand what they are getting before they can be asked for  pay more for it. In working with Scottish Water to meet these challenges, the  Water Industry Commission is looking for incremental improvements. Competition in the retail sector has certainly benefited business customers in Scotland and it  is now looking to improve the dialogue between Scottish Water and all its
customers.

The Commission is working to reform its price control processes to improve customers' visibility of, and say in, the difficult
choices needed when setting prices. It is also looking to revise the incentives regime to ensure it encourages customers, retailers and Scottish Water to work together to innovate and reduce costs across the industry.

So, while talk of an improved regulatory structure may not light up your next dinner party, it should help reduce the burden on the public purse, improve service to customers and further enhance Scotland’s reputation as an innovative place where new ideas can be put to the test.