MOSL urges Ofwat to rethink retail price caps

MOSL has urged Ofwat to reconsider its plan to retain price protections at current levels for the smallest (0.0.5Ml, known as Group One) and medium to large (0.5-50Ml, known as Group 2) water customers, as proposed in the Retail Exit Code (REC) consultation.

The market operator pointed to evidence including the following points.

The vast majority of retailers made losses in their most recent financial reporting.

Low usage customers remain loss making even for an ‘efficient’ retailer. It gave the example: “With retailers’ margins capped at 2.5% for low consumption (Group One) customers, a simple meter read, which can cost anywhere between £2 and £20 depending where in the country a retailer operates – can wash away any small profit they may make from that customer.”

The current REC protections do not reflect all the costs of operating – “For example, MOSL costs (market operator charges), additional market costs, challenges arising from changes in responsibilities, such as retailers performing meter reading without the economies of scale afforded to wholesalers before the market opened.” It added: “…the rationale for not including any costs related to data quality and other market frictions is not clear.”

Retailers are often unable to invest in water efficiency or other new services.

MOSL said: “We therefore encourage Ofwat to reconsider the proposal to retain Group one and Group Two REC price protections at current levels in order to enable improved service offerings to customers, in the way of water efficiency and tailored services."

It also pointed out that while it is a priority, reform of the Market Performance Framework “must not be seen as a catch all for addressing all areas of performance and incentivisation in the non-household retail market. It will have its limitations. For example, the actions and improvements that wholesalers and retailers will need to undertake in support of good customer or environmental outcomes (and which may be driven by any future Market Performance Framework) will remain bound within the wider market and economic structures outlined through PR24 and the REC review…

We are keen to work closely with Ofwat through its REC review, PR24 and the reform of the MPF to ensure they form a complementary regime that can deliver improved outcomes for business customers, the environment, and the market itself.”