MOSL and the Panel challenge Ofwat’s Retail Exit Code position

Both MOSL and the Strategic Panel have significantly criticised Ofwat’s Retail Exit Code proposals, which will set price terms for retailers from April 2023.

While they endorsed Ofwat’s conclusion that the market isn’t working well for small customers (0-0.5Ml users), they disagreed with Ofwat’s diagnosis of the cause and its suggested solution.

MOSL for instance said: “The most likely explanation that the market is not currently working is an insufficient profit motive for retailers to compete, as a result of price caps being set too tightly.”

It called on Ofwat to publish a reconciliation of its model against research undertaken by Economic Insight which found a 33% gap between actual retailer running costs and proposed allowed costs – in advance of or alongside its final decision document. MOSL also disputed Ofwat’s view that inefficiency is the key reason for overall market losses or the significant gap between actual costs and the proposed allowed level.

The market operator argued: “We recognise that a loosening of price caps will lead to higher prices for customers in the short term, than would otherwise apply under the current proposals. However, we believe that this will be outweighed by the medium and longer term harm from maintaining price caps at the proposed levels, which are too tight and impede competition.”