Ofwat scopes out potential business retail incentive mechanism

Ofwat is scoping out a PR19 incentive mechanism (B-MeX) to improve wholesaler performance in the business retail market and wants stakeholder views on this and other matters designed to produce better wholesaler outcomes.

Last week, the regulator issued a call for inputs from stakeholders at large, having engaged with retailers and wholesalers and analysed market data. It said this had suggested the following four issues have the biggest impact on wholesaler performance and the quality of service received by retailers:

• Inadequate metrics to measure wholesaler performance and service

• Weak reputational incentives

• Weak financial incentives

• Wide variance in policy approaches.

As well as setting out the problems, the new paper looks at work already underway to address them, as well as what more Ofwat, MOSL and others might do. In its final PR19 methodology, Ofwat indicated it could introduce an incentive mechanism for improving wholesaler performance, and would expect to do this by the time of draft determinations. It updated in its call for inputs: “We have considered what a wholesaler performance incentive mechanism could look like as part of PR19 and believe that the scheme could draw upon aspects of what we have outlined for D-MeX and C-MeX.

The scheme could have service level metrics, based on performance against MPS and OPS, which could be combined with retailer satisfaction metrics. We could rank companies based on their overall score and publish results annually.”

Ofwat plans to use the information it receives to inform existing and potential initiatives, raise code modifcations, or potentially to inform the design of a PR19 based scheme. The deadline for responses is 10 December 2018.