Ofwat is warning that ongoing market frictions continue to require urgent attention in its review of the third year of the business retail market.

According to the regulator, the third year of the market has seen customers who are active, in particular those who have switched or re-negotiated new deals, continue to benefit from competition.

However benefits, in terms of money, water and time saved, have tended to accrue more strongly to larger, higher consumption customers; in part because they are also more likely to be aware of the market and to be active.

Many smaller customers, who continue to be less aware of and less active in the market, remain protected by Ofwat’s updated price and non-price protections that came into effect in April 2020.  

Industry efforts to improve how the market is working have accelerated in the third year, aided by collaborative leadership from the market operator (MOSL).

Ofwat said it is starting to see progress in tackling the three market frictions identified in its previous reports:

1. Poor quality market data; poor quality consumption, customer and asset data
2. Inadequate wholesaler performance
3. Cumbersome and inefficient interactions between wholesalers and retailers

However, despite this, Ofwat has concluded that the market frictions continue to require urgent attention from all trading parties if the improvements seen to date are going to really gain traction and increase going forward.

Key findings in the report include:

• Awareness levels have increased – 58% of eligible business customers are now aware that they have a choice or retailer, up from 53% in 2018/19. Almost all (96%) large customers are now aware of this.
• Customer activity levels have been broadly steady – Just under 8% of eligible customers were active in the last 12 months rising to 16% of larger SME customers (50-249 employees) and 26% of large customers (250+ employees). The annual rate of switching and/or re‑negotiating remains at around 4%.
• Satisfaction levels remain stable – with 78% of customers reporting they are satisfied with their current provider.
• Complaint levels remain higher than before market opening but are falling – complaints recorded by the Consumer Council for Water (‘CCW’) have fallen. However it remains clear that, where customers are dissatisfied or lodge complaints, the main issues are still customer service and problems with billing.
• Take up of water efficiency services has increased but remains low – only around one in twenty (6%) switchers in the last 12 months reported receiving new water efficiency or leak detection devices as a result of switching.
• New entrants are acquiring more customers – at the end of year three, new entrants (those who entered the market without acquiring a customer base from the previous monopoly incumbents) are gaining around 1% market share per year.
• Self-supply continues to be a popular option amongst larger customers – in year three, an additional three self-supply licences were granted (Nottingham City Council, John Lewis Plc, and Kelloggs); bringing the total to 12 as at end March 2020.

Georgina Mills, Director, Business Retail Market at Ofwat, said:

“The market is delivering benefits for customers who exercise their choice to find a better deal. But awareness and activity continues to be lower for smaller customers, many of which continue to be protected by regulation. It’s positive to see complaint levels falling in year three and we hope this trend continues into year four.

Industry efforts to address market frictions have accelerated in year three, aided by collaborative leadership from the market operator (MOSL). But resolving these issues of basic market functioning – in particular poor quality consumption, customer and asset data – requires the urgent attention of all trading parties if the market is going to deliver improved outcomes for customers, society and the environment. MOSL has set out a programme of work to support more effective market functioning and we strongly encourage all trading parties to work collaboratively with MOSL in delivering this.”

Click here to read the report in full

https://www.ofwat.gov.uk/wp-content/uploads/2020/08/State-of-the-market-2019_20.pdf