Ofwat has announced measures to tackle concerns expressed by retailers in late 2017 in a number of complaints about the availability and quality of meter reading services in the business retail water market.

Ofwat subsequently wrote to wholesalers and retailers in March 2018, flagging the complaints and the issues raised, including a questionnaire to collect evidence on the issues.

The regulator has now made a number of recommendations, primarily directed at wholesalers, to improve meter reading services in the market.

Retailer complaints included allegations of wholesalers associated with a retailer treating their associated retailer and other retailers on different terms.

They also expressed the view that inefficient market design on meter reading was leading to suboptimal outcomes due to lack of industry standards, which may create additional complexity, costs and risk for retailers.

Retailers told Ofwat that by having to negotiate with each wholesaler separately, they may incur significant search costs in acquiring meter reading services. They could also experience coordination problems when seeking national reading services, which may not necessarily be addressed by opting for a national provider if alternative providers were more expensive or unable to replicate essential features.

Commenting on the current onus of meter readings on retailers and not on wholesalers, some retailers argued that placing the onus of meter readings on wholesalers instead of retailers could enable some scale economies deriving from the joint provision of household and non-household meter reading.

However, others said that retailers could be better placed than wholesalers to differentiate and innovate their services by the types of meter reading they offer and transferring the onus of meter readings to wholesalers could limit such benefits.

The regulator said that at this stage analysis had not led it to conclusively identify any competition issues. In a letter to all water wholesalers and retailers outlining the recommendations, Ofwat Senior Director for Customers and Casework, Emma Kelso said:

“Since the business retail market has opened relatively recently, we consider that competition in the meter readings market may still take some time to fully develop, and that the price and quality of these services may improve alongside other outcomes, such as better data quality.”

Ofwat said it was concerned at the lack of transparency around these services and that the priority was to improve transparency. This would reassure and help retailers and reduce the risk of any anti-competitive behaviour taking place in the future.

The recommendations are as follows:

to decrease administration costs and improve transparency for wholesalers and retailers, all wholesalers should state clearly and in a relevant area of their website if they offer meter readings or not;

to avoid potential competition issues, wholesalers should not renew the transitional service agreements for the provision of meter reading services still in place since market opening (if any);

to improve transparency, wholesalers who offer meter reading services should publish their standard terms and conditions on their website as best practice; and

to address potential complexity, costs and risks for retailers that may stem from a lack of industry standards concerning meter reading services, wholesalers who offer meter reading services should explore with retailers who purchase, or wish to purchase such services, the possibility of establishing common or standardised approaches to presenting terms and conditions for the provision of meter reading services.

Emma Kelso commented:

“Poor interaction between wholesalers and retailers has a knock-on impact on customers and the quality of services they receive. Our recommendations call for the wholesalers to take immediate action to improve meter reading services by making these services more transparent to all market participants and customers.

“We expect to see significant improvement and if necessary, we will use regulatory tools if we believe there has been anti-competitive behaviour.”

Ofwat has concurrent competition powers with the Competition and Markets Authority to carry out investigations into anti-competitive behaviour, as well as a number of other regulatory tools which could be used where it considers there has been anticompetitive behaviour by market participants.

The regulator said it would explore further issues with retailers, wholesalers and national readings providers in the coming weeks and if these raised significant concerns, it would not rule out taking formal action.

Ofwat has no plans to take action using its formal powers at this time.