Ofwat's proposals for PR24 lack focus on the non-household (NHH) market in PR24 according to both MOSL and the Strategic Panel. In their responses to Ofwat’s consultation on the forthcoming price review both bodies found things to praise in the methodology, but they shared a number of concerns.
MOSL noted that it and the regulator had made "considerable progress" on addressing three market frictions that formed Ofwat's focus to date: data quality, wholesaler/retailer exchanges and wholesaler performance. But MOSL chief executive, Sarah McMath, said: “Our view, which is supported by the market health report last year, is that the market still has fundamental issues which won’t be solved by tackling market frictions alone, for example, retailer margins.”
MOSL’s three, key messages to Ofwat were:
• more work is needed to establish the business case for the proposed BR-MeX incentive, and the value it could deliver to the market compared to using separate metrics;
• an enhanced metering strategy needs to be developed that encompasses both household and NHH customers and takes into account the benefits from a national, rather than regional, perspective; and
• while the proposal to include business demand reductions in the performance commitments is welcome, the proposed exclusion of the largest NHH customers from this metric means it must still include a targeted incentive for customers to reduce their demand or move to more sustainable water usage.
The Strategic Panel mapped the extent to which the draft PR24 methodology covered issues outlined in its recently published list of market priorities. It's chief concerns included the cost and complexity of operating in the NHH market, and that the consultation is “largely silent on the importance of metering, particularly in the context of the role metering can play in driving water efficiency and ensuring all customers receive accurate bills based on actual consumption”.
The Strategic Panel’s three key messages to Ofwat were:
• BR-MeX is welcome but the detail needs to be worked through;
• a national, longer term enhanced metering strategy should be considered encompassing roll outs, technologies, data and interoperability standards; and
• Ofwat should ensure metering, the market, and the role of NHH customers are sufficiently prominent in its thinking in setting the direction for water companies in achieving demand reduction targets.
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