Ofwat finds support for markets is patchy among incumbents

Financially incentivised retailer and business customer satisfaction metrics, greater tariff structure harmonisation, and regulatory endorsement of the work of the Retailer Wholesaler Group (RWG) all featured among the actions Ofwat is planning in the business retail space following publication of its review into incumbent water company support for effective markets.

In a report of its findings published last week (delayed from April by Covid 19), Ofwat found:

• incumbent companies should play a more active role in supporting the business retail and developer services markets;

• there are real differences between companies and within companies: some companies performed much better than others in many areas; others performed well in some areas and poorly in others;

• incumbent companies wrongly use competition law as reason not to collaborate or as reason not to be more responsive to the needs of individual market participants; and

• incumbent companies need greater commitment at senior or board level to effect change, so that supporting markets goes beyond compliance to behaviour and culture.

Ofwat listed among the actions it had planned for the business retail market:

• supporting MOSL in reforming the current Market Performance Framework, including the encouragement of a financial B-MeX incentive and further development of R-MeX into a financial incentive;

• strengthening decision making and governance to focus more on customers and facilitating innovation;

• supporting MOSL’s focus on data quality improvement, including if necessary through use of regulatory levers;

• all wholesalers to publish a table on their websites by the end of October setting out whether they have adopted RWG good practice guidance on minimum standards – “If wholesalers are not forthcoming in making this information available, we will work with the RWG to make this a requirement under the market codes”;

• wholesalers and retailers to work collaboratively – for example through the RWG – to explore the feasibility of greater tariff structure harmonisation;

• wholesalers and retailers to sign up to the Memorandum of Understanding being developed by the RWG to reduce the probability of customer disputes arising – again this could be mandated under the codes if trading parties are not forthcoming; and

• further guidance to be provided on credit by March 2021.

In the developer services market, Ofwat said the plan was for incumbents to focus on learnings from D-MeX and new asset adoption models over the coming months. Depending on progress, there could be a study of the self lay provider market, “focusing on companies with weaker support for the SLP market, where market share is low”.

With respect to other markets, Ofwat’s short term focus is on bioresources. “We intend to commence work to investigate how bioresources markets are currently operating, what barriers might exist, and how Ofwat and the bioresources sector might work together to secure greater benefits for all.”

The chief executive of each English water company received a letter containing company specific observations and Ofwat’s expectations. Welsh companies were excluded from the review given fewer activities are contestable there.