Major water users encouraged to switch as price protection drains away

Following the recent blog post “Water users encouraged to switch as price protection drains away” from our sister company, LASER Energy, we wanted to re-iterate the importance of Oftwat’s plans for deemed contracts in their new Retail Exit Code (REC) documents. The plans involve altering the maximum charge a retailer can place on a customer based on their water consumption. The charges will come into effect after April 2020 and will affect the biggest water consumers who do not actively engage in the market or renegotiate a supply deal after this date.

The new tariffs will be applied according to the users’ current consumption band; 0-0.5Ml, 0.5-50Ml, or >50Ml.

0-0.5Ml

0-0.5Ml customers will be least affected, with price caps only increasing by an inflation adjustment. Retailers have been instructed in the REC that the default tariffs are “not to exceed the wholesale charge”, but the retailer is able to apply a charge to serve and small net margin.

0.5-50Ml

Customers within the 0.5-50Ml band will be subject to a small increase in overall water cost. The updated REC allows retailers to charge 8% and 10% more than the wholesale charge for water and waste respectively. This means the final bill will go up by about 2-4% according to Ofwat’s predictions.

>50Ml

Customers with a consumption of >50Ml will have the highest price cap increase, as there is no explicit price cap in the new REC. Ofwat have instructed retailers to only charge customers a price which is “reasonable and non-discriminatory”, and believe that there is no requirement for an explicit cap due to these larger consumers’ ability to contract and negotiate more.

It is important to note that these changes will only affect customers who have not negotiated a new contract. If the customer contract is still valid by April 2020, their bill will not be affected. Retailers may also decide to gradually increase the prices, rather than immediately applying the new increases. There does not appear to be any specific barriers stopping the retailer from immediately increasing prices from April however, therefore, the prices could increase sharply for those on default contracts.

Wholesale water costs

Controversies in recent years have put the water market under increased pressure for transparency. According to the University of Greenwich, almost £20 billion of pre-tax profit was made by the private water companies and almost the same amount was paid to investors and shareholders. With Ofwat likely to impose tougher regulations on transparency, these companies may be likely to reduce the amount they pay their leadership, and as a consequence, charge consumers less.

In 2018, Ofwat also announced a bundle of reforms that will be present in its Price Review 2019. These reforms will require water companies to be more transparent with their financial activities, and will see customers sharing in the financial gains made by companies with a high level of debt. This will likely see charges for wholesale services decrease, and the improvement of supply reliability to all customers.

How Lumina can help

Our Water Procurement service offers online water management and consumption analysis to simplify your portfolio requirements and consolidate your potable water and sewerage. The service also includes; full tender analysis, AMR meter options and leak detection for additional savings.

We have already completed a comprehensive tender process in order to find a water supplier that we can trust, interviewing a number of different suppliers and monitoring their responses in regards to; price, customer service, response times, billing methods and billing frequency. Following this process, Everflow Water was selected, and have since proven to be a reliable and trusted supplier to customers, working with Lumina for over a year.

For more information, please contact us at info@luminaenergy.co.uk or call 01622 236 888 to speak to one of our Energy Consultants.

 

More information on the updated REC are available on the Ofwat website via the following links:

https://www.ofwat.gov.uk/publication/future-protections-for-business-retail-customers-decision-on-retail-exit-code-price-protections/ 

https://www.ofwat.gov.uk/publication/future-protections-for-business-retail-customers-decision-on-retail-exit-code-non-price-protections/ 

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