In other markets that have been liberalised, the introduction of competition has created opportunities for some companies, and risks for others. There are winners and losers. Companies that lose respond in a variety of ways, including taking management action to reduce costs and the capital employed by the business. Ultimately, losers may choose to exit the market. However, the Water Bill currently passing through UK Parliament precludes the latter, and partially prevents the former, as existing licensees must retain the capability to provide retail services.
This report, which has been prepared jointly for WICS and Ofwat, estimates that incremental losses to the incumbent operators arising from losing the most attractive customers in the sector could amount to around £190m in net present value terms over a ten-year period.
While this figure cannot be directly compared to that in the government’s regulatory impact assessment, as it has been prepared on a different basis, it is clear that precluding full exit could reduce the benefits that are envisaged from the non-household retail reforms and, ultimately, could impose additional costs on all water and sewerage customers.