A merger of the non-household customer businesses of United Utilities and Severn Trent is set to create Britain’s largest unregulated water company.
The two groups have entered into an industry-changing joint venture before the deregulation of the commercial water market next year.
The shake-up of the non-household market will allow regional suppliers to compete against each other for corporate customers for the first time. Multisite operators such as supermarkets, other retail chains and hotel groups will be able to employ only one company to handle supply, billing and sewage clearance, instead of such groups having to deal with up to 20 different regional suppliers.
It also will allow large single-site, water-thirsty industrial facilities such as chemicals, building materials or energy plants to shop around for the best value for money.
English water companies have been gearing up for the change in April 2017 by competing against each other for business customers in Scotland. The Scots opened up their non-household supply market eight years ago. United Utilities already has won the contract to serve all Tesco’s operations north of the border.
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Severn Trent’s decision to throw its lot in with United Utilities changes the dynamics of the market, however. The new standalone joint venture will operate outside the regulated, domestic supply, listed operations of the two companies and becomes by far the biggest player in the new market. As such, it will trigger a Competition and Markets Authority investigation.
While the point of the new joint venture will be to use the companies’ collective marketing muscle to win new corporate customers, it inherits a dowry of industrial and commercial Britain. Its existing base of corporate customers between United Utilities (formerly North West Water) and the Midlands group Severn Trent will stretch from Gloucester through Birmingham and Manchester to the Scottish border.
With both companies’ Scottish operations (United Utilities is the second-largest player in the country behind Scottish Water’s Business Stream operation), the joint venture starts with annual revenues of £940 million on which it makes pre-tax profits of £9.7 million.
While supplying water and clearing sewage will remain low-margin operations, new unregulated companies will be able to offer corporate customers a range of other services, such as providing new water sources, installing anaerobic digestion facilities to deal with waste and implementing water saving and other environmental devices.