Competition comes to Scotland

The starting date may be April 1 but it is no joke - water deregulation is coming to Scotland. Claire Smith reports

From the beginning of next month, Scottish businesses will be able to choose where to buy their water supplies. Every business north of the border will have the option to switch suppliers in a new competition framework, which is unique in the world.

Alan Sutherland, chief executive of the Water Industry Commission for Scotland, said: "From April 1, there will no longer be a one-size-fits-all solution to water supply. Competition in the Scottish water industry will help ensure that customers see further significant improvements in value for money.

"Now all organisations in Scotland, from the smallest newsagent in the Western Isles to the largest industrial sites, from small council offices to leisure centres and hospitals, will be able to choose who supplies their water and sewerage services. This is a further small step in helping to improve the competitiveness of businesses operating in Scotland."

The framework for the new system was laid out in the Water Services Scotland Act 2005, which required the Water Industry Commission for Scotland to license new entrants to the Scottish water market.

Scottish Water, which is currently both the supplier and the retailer to all domestic and business customers in Scotland, will continue to be the wholesale supplier. But the area of the organisation which sells to business customers has been rebranded Business Stream - a company which will have to compete with new entrants to the market.

So far, Business Stream, which will initially retain all 130,000 business customers in Scotland, has three competitors: Aquavitae, Satec and Osprey Water Services, which is part of the Anglian Water group.

Mark Powles, managing director of Business Stream, said the initial separation from Scottish Water has been a difficult and challenging operation. But he believes that the new company is now ready to offer better deals to business customers.

"It's not just about the tariff. It's about what we can do to drive down the real cost of water and wastewater."

Helping large customers simplify their bills has already started happening under Business Stream. "We have a number of customers that have gone from receiving more than a hundred water bills to receiving just one."

One of Business Stream's competitors will be Aquavitae, which already has more than 100 customers in England - ranging from chemical plants to hospitals.

Business development manager David Buckell said the company was excited about the possibilities offered by the Scottish market. "This is the first effective competition in the Scottish Water Market. England and Wales have had deregulation for two years - but it hasn't fulfilled its potential," he said.

One of Aquavitae's big selling points is its ability to provide detailed monthly electronic bills to their customers, which give a run down of charges for water, wastewater and trade effluent charges.

In addition, its engineers provide water efficiency surveys and suggest ways to cut down water usage and waste. In one recent case, the company suggested a large business should dig its own boreholes - a move which cut bills by 50% and which paid for itself over 18 months.

Satec's business development director, Mark Curran, said his company had expertise in major water and effluent treatment engineering in the UK and overseas, and could develop tailor-made water engineering for its customers.

The newest entrant to the market is Osprey, which is part of the Anglian Water group, one of the largest water companies in England.

While all four water companies believe they can bring savings to customers in water and wastewater, the charges for trade effluent in Scotland are certain to increase. Over the next three years, the current capping system is to be phased out - which will mean 200% increases in trade effluent charges for some users.

Donnie Maclean, of Business Costs Consultants, said many companies were starting to realise what savings could be made by more efficient use of water.

His company recently carried out efficiency surveys at Celtic and Rangers football clubs. At Celtic, consumption was reduced by 40.5%. Rangers reduced its consumption by 71.9% - which resulted in around a 30% reduction in bills.

"Both these companies believed they were running quite efficiently and were quite convinced there was nothing that could be done. It wasn't until we presented them with the solutions that they worked out what could be done."

Waterscan, which runs the Water Conservation Programme for Tesco, has also begun looking at properties in Scotland as part of the company's environmental programme.

At a superstore site in Dundee, Waterscan has already organised a £50,000 rebate for surface water drainage, saved £10,000 by repairing leaks and £5,000 by introducing more efficient equipment.

The company has also introduced 14 rainwater-harvesting systems across the UK, collecting 28,000m3 since 2006.

Claire Holmes of Waterscan said: "Tesco are fantastic at the retail business. What they are not very good at is water."

Large consumers of water such as nuclear power stations are also looking carefully at the deals offered by different suppliers.

Peter Starkie, contract manager for British Energy said: "We are not necessarily after cost reductions. We are after value for money. We want to pay the right price at the right time.

"One of the most important things for a nuclear power station is security of supply - but we are also looking for improved customer service, flexible tariffs, help to drive out inefficiency and innovation through extra services."

But he said he feared deregulation would allow water retailers to cherry pick customers, choosing to pass on savings to big companies rather than smaller businesses.

David Simpson, deputy chairman of the Water Industry Commission for Scotland, said one of the main benefits of deregulation would be encouraging businesses to look closely at their use of water.

"Market competition can be described as a process where both managers and customers are incentivised to find new and better ways of doing things.
"As far as we know, this is the first time that competition in its present form has been introduced into the water industry anywhere in the world. So Scotland leads the way."

Andrew Bainbridge, director general of the Major Energy Users Council, said he hoped the new competitive structure would bring a new environmental awareness.

"We are becoming a much thirstier world. It takes 16,000l of water to make a kilo of beef, and 2,700l of water to make a T-shirt. It's been my view for many years that the majority of businesses don't have real expertise in place to use water efficiently. So many business people don't know or care and simply grumble when they have to pay higher bills or higher taxes. Water has always been the poor relation, and that has got to change."

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