This blog first appeared as a guest blog for Utility Week on 3 April 2013.

The world was supposed to end on 21 December last year in the Mayan Apocalypse. It did not. Some said that introducing a retail competition framework would have a similarly - though perhaps more localised - catastrophic effect. Others said that the reform did not go nearly far enough. Yet, in defiance of these 'end-of-worlders', the market is five years old this week.

Five years on, and a hearty rendition of 'Happy Birthday' later, I believe I can show that the market is operating more robustly than ever. Eight licensed suppliers are now operating in the market, with more (so they promise me) on the way. Scottish Water as the wholesaler works well with the different retailers and certainly shows no favouritism to its own Business Stream. Business Stream has radically reduced its costs and levels of bad debt. And real credit should go to Scottish Water, which has continued to improve its efficiency and its environmental and customer service performance.

We have dealt with exits from the retail market - both voluntary and enforced - and the consequent reallocation of customers and liabilities. We have taken steps to ensure that customer lists are as complete as possible (with an incentive payment for each property identified this can be a nice little earner for the retailer!). And we've developed the market further to allow for choice and innovation in trade effluent, new connections and metering. The market continues to evolve - at present we are working with others to make sure that connection applications can be made as efficiently as possible.

The vast majority of non-household customers have renegotiated their tariffs and levels of service. Customer service no longer stops at the meter! The retailers are running pro-active water and waste water management businesses, providing water efficiency advice, water reuse, effluent management, rainwater harvesting and so on. Key here is that the retailers follow through - staying around to help customers implement these solutions (often being paid for their efforts on a success fee basis).

The wounds are healing nicely! Those who said that upstream reform and business separation would be necessary to see any benefits from a retail reform have been proved conclusively wrong. Competition is not an end in itself. It is a means by which the customer experience might be made better.

In Scotland we are moving on - beyond retail. Scottish Water is now actively looking for situations where changes in customer behaviour can reduce costs and/or reduce water abstraction and improve environmental performance. Building resilience, whether water or waste water, is vital and Scottish Water recognises the importance of identifying any partners who can help - from farmers to smaller companies with innovative technologies, or simply those with the enthusiasm and energy to consider new approaches. Discounts are available to customers who help with this.

For the forthcoming price review, Scottish Water will negotiate (within the Government's objectives for the industry) with the Customer Forum. The Forum consists of both household and non-household members, including the two largest retailers. The outcome of that negotiation would form the basis of the Commission's Draft Determination. In my view, retail competition (and the lessons learned from its implementation) has contributed significantly to Scottish Water's goal of becoming "Scotland's most valued and trusted business".

There is no room for complacency. As with any five-year old, there is still much cajoling and encouraging to be done. But the progress is unmistakable and goes well beyond the purely retail.

Is there a lesson from this experience? My view is yes, but it is not that England and Wales simply adopt what we have done; it is that, hopefully like us, they should think big, but act small. And it is important that those charged with implementation could usefully keep in mind that acting is 'doing' or 'implementing'. It is not wrapping oneself in the comfort blanket of process. How much longer will non-household customers in the rest of the UK have to wait? It is, after all, more than ten years since we first began to establish a retail framework and were roundly criticised by both the Olivers and the Bumbles.

This blog first appeared as a guest blog for Utility Week on 15 February 2013.

At a recent water industry customer conference I was struck by the enthusiasm shown towards Stephen Littlechild's interesting work on negotiated settlements and constructive engagement. Will customers now get what they want? Or just what others have decided that they ought to want?

Clearly, investment in maintaining public health or improving our environment benefits us all. But it benefits us to different degrees at different times - and sometimes it benefits people who do not normally live in the area (or indeed in the country) who pay little towards the benefit they have enjoyed. Decisions about whether or not to fund such improvements cannot be left to the paying customer or, indeed their representatives, as they are essentially political choices. However, I can see no reason why customers should not be involved in a discussion about how, and with what level of risk, we should seek to make such improvements.

The case for customer involvement in maintaining assets is perhaps even clearer. This would require customers to be given much better information about the risks that are being run and what the impact of any asset failure or exceptional event could be. Leakage rates are a good case in point of where we currently look at the symptom rather than the problem. The real issues are: how reliable is the service that is being provided to the customer; what environmental damage is being done in providing that service; and is there a cheaper/more reliable/more environmentally friendly way of providing the service? Customers can and ought to want to make judgements on what level of service they receive relative to the bill they pay.

The clearest case for greater customer involvement is, of course, in the area of discretionary expenditure to improve the levels of service provided to customers.

So how are we matching up? Are we ready to give customers real discretion in how the service is provided to them? In Scotland, with the support of Scottish Water and Consumer Focus Scotland, we have established a Customer Forum, a small group that includes the licensed water and sewerage retailers and individuals.

The Forum is charged with trying to reach agreement with Scottish Water about how, and for what price, the outcomes defined by the Scottish Government should be delivered. In the event that they agree, and we, in the Commission, can see that the Forum's independence has been maintained, our draft determination would be consistent with this agreement.

The Commission has already produced a detailed timeline for the Forum and for Scottish Water as well as seven guidance notes. We will shortly also begin to comment on briefing materials that Scottish Water produces for the Forum. The Commission will also comment on what it sees as the strengths and weaknesses of Scottish Water's strategic vision and its subsidiary six-year business plan. All of this material will be available on our website.

The aim is to ensure that the Forum can have a reasoned and reasonable conversation about priorities with Scottish Water and, hopefully, be able to come to an agreement of what should be done, how it should be done and at what cost.

To my mind, this is true customer engagement. It is a substantial change from the way in which economic regulation of utilities in Britain has been implemented. Customer engagement is not just more and better consultation - it is empowering customers to influence, in a real way, the services they receive and the prices they pay.

Perhaps one of the biggest benefits of a retail competition framework is the changed dynamic that is created in the regulation of the new wholesale business.

The wholesale business is still dominant in terms of its share of revenue and, because it is now being pre-paid by the retailers, it has no credit risk for its non-household activities. It does, however, now have larger and, probably, more demanding customers: the retailers. The retailers have a clear focus on the end customer – they will succeed (as is the case with other retailers) only to the extent that they keep their customers happy.

A successful retailer understands its customer base in detail and will seek to find ways to meet customers’ needs. Experience from Scotland suggests that customers of the retailers have a substantial interest in more tailored services. It also appears to be the case that the expectations of these customers has increased. 

Water efficiency advice has become a basic expectation. More and more non-household customers are having loggers fitted to their meters in Scotland. There is increased attention on more sustainable, lower carbon solutions. The incumbent retailer can no longer say "sorry but we cannot do this" when the initiative might harm the vertically integrated company. It can no longer do this because there will be a retail competitor, not related to that area’s wholesale business, who would offer that service if it is in the customer’s interests and is profitable.

This new framework has changed the dynamic of economic regulation of the water industry in Scotland. The interests of Business Stream (Scottish Water’s retail subsidiary) are now quite different from those of Scottish Water’s wholesale business. Business Stream and the other retailers have to hold Scottish Water – as their supplier – to account so that they can meet their customers’ expectations.

As a result, although still a monopoly, Scottish Water has to face up to five powerful new customers. This is quite a different prospect to dealing with a customer base where only a few of the largest industrial sites had as much buyer power as the smallest of the active retailers.

We expect the retailers to become increasingly demanding over time as customers continue to look for ever more tailored services at ever better prices. This changed dynamic allows us to regulate differently, to focus solely on outcomes and to direct our attention primarily to the satisfaction of the customer base and to ensuring that ex-post returns are reasonable.

The Customer Forum will benefit particularly from having the expertise of the retailers available to it in determining whether it is happy with the levels of service and the prices being proposed by Scottish Water.