Getting water retail flowing

The water retail market may still be in its infancy but has been dogged by problems from day one, with Covid-19 adding a new dimension to the challenges. In the first of a two-part feature on the non-domestic market in its fourth year, Utility Week talks to retailers about slowly-improving bilateral relations, getting better data and questioning self-governance.

More than three years since the opening of the non-household water market, complaints to the water watchdog are falling and the number of long unread meters has reduced by 40 per cent year-on-year, however the regulator and trading parties know there is more to be done.

Despite improvements, Ofwat’s recent State of the Market report highlights recurring issues that can no longer be called teething problems.

Persistent friction points

Inefficient interactions, underperformance and a lack of quality data around consumption, customers and assets are all once again in the spotlight.

The same friction points have been identified in all three annual reports on the market. In this year’s, Ofwat says industry efforts to improve the market functioning have accelerated but a landscape where each of the 17 wholesalers has separate policies makes interactions complex.

Neil Pendle, managing director of self-supply agents Waterscan, has long called for an end to the “blame game” between trading parties. He told Utility Week there was a need for fresh thinking and that Ofwat was providing it.

Improving bilateral interactions is top of market operator MOSL’s agenda in its business plan for 2020/21. Ofwat “strongly encourages” participation from all trading parties and highlighted a lack of common standards; lack of consistency between wholesalers’ services and prices and a need for more timely, consistent responses.

Market performance standards (MPS) tasks completed on time by wholesalers rose from 80 to 87 per cent and 81 per cent for retailers last year, up from 75 per cent in 2018/19.

The number of operations performance standards (OPS) tasks completed on time improved from 63 per cent in 2018/19 to 81 per cent last year. These performance standards were paused in March because of the pandemic and the additional pressures facing all parties.

One sector source says: “Ofwat are being ever more paciferous in their views around market frictions, because they are the same issues that have been around from the beginning. These are caused by a mix of the inability of retailers to effectively bill customers on a consistent basis, poor level of meter readings, poor level of data held in the market all cause poor customer outcomes.”

Ofwat’s Review of Incumbent Support for Effective Markets (RISE) report showed improvements have been made in the past year but there remains a need for a customer-centric approach to performance and incentives.

Misaligned incentives

The current incentive mechanisms in the market are, according to one retailer, causing discrepancies of performance – with retailers and wholesalers not incentivised to the same end.

Castle Water chief executive John Reynolds suggests there will not be a dramatic improvement in conditions for customers until it is addressed.

“There is a misalignment of incentives,” he explains. “Ofwat and MOSL really need to drive the alignment of incentives between wholesalers and retailers or they will be working towards different outcomes.”

This view is shared by Pendle who says the performance levels are far too low, particularly on meter reading. “The penalties on market performing charges are still not incentive enough to get good behaviours from the market. The market performance committee and MOSL are keen to see improvement in these areas. There shouldn’t be any redistribution or cap on charges. After three years there is no excuse to have a cap or redistribution, if you are failing you are penalised.”

Data, data, data

The problem of data quality flagged up in the report and RISE is a structural issue that pre-dates the market opening. Although there have been improvements, particularly around unread meters and occupancy status, one retailer called the speed of progress “relatively disappointing”.

As interactions between parties have improved more meters have been located and read as wholesalers are incentivised to help resolve this point of frustration for customers. The number of meters needing reading fell by 40 per cent since April 2019, but still fell short of the target.

Pendle feels progress is being made but says it takes time and collaboration. “It should be much easier than it is, and we are working with partners to make it easier. There are code changes to let wholesalers put meter readings into the system, there are other code changes to make it easier to share data.”

On occupancy data, Ofwat noted the number of flagged vacant premises had begun to come down after concerted efforts from MOSL and trading parties but since March this year the number shot up as part of the code changes Ofwat introduced to buffer customers and the market during lockdown.

Complaints

The sector has been dogged by complaints which, as watchdog CCW noted, remain above pre-market opening levels despite falling each year. Overall customer satisfaction with services was static at 78 per cent, but issues with billing and customer service remained.

One commentator says complaints to the watchdog are “only the tip of the iceberg” and suggests dissatisfaction is more far-reaching.

Between April 2019- March 2020 3,208 complaints were made to CCW, 388 to Ofwat and there were 14,363 written complaints to retailers.

With the winding down of coronavirus-related measures it is likely that retailers and wholesalers alike will see complaints rise.

Pendle echoes the view that lockdown and reopening will mean a very difficult time through until December: “The quicker we can get good meter reading data into the market, the better the better outcomes we can deliver to customers.”

Water efficiency

Reducing water consumption remained a low priority for businesses considering switching. Only six per cent of switchers utilised water efficiency services or leak detection services. There remains very little incentive for retailers to promote water efficiency measures, something that MOSL hopes to see change. Funds from its innovation competition, due to be awarded earlier this year but postponed by Covid, are due to be reintroduced soon.

Sarah McMath, chief executive of MOSL told Utility Week she hopes to see some fresh thinking around efficiency. She praised wholesaler tariffs that incentivised business customers to use water outside of peak consumption hours and says retailers are looking at lot more closely at efficiency.

Although there is no incentive for retailers to encourage their customers to use less water, many provide leakage detection services to reduce water lost in this way.

Market governance

Self-governance is at the heart of the sector and, while many agree it is the best approach, there are concerns that competing priorities can slow down decision-making.

“Ofwat wants the market to lead, which is great in theory but it’s difficult to expect 30 companies who are competing with each other to be able to reach agreement,” Reynolds says. “It hasn’t happened over the past three years so I don’t feel confident it will happen.”

He adds that the pace of code changes introduced in response to the pandemic could set a precedent for facilitating change in the future.

Looking ahead

The State of the Market report’s publication delayed because of the coronavirus outbreak and the market has moved on significantly since then because of Covid-19, the lockdown and the recession. Covid-19 has made a challenging situation more difficult but also brought collaboration between trading parties to work together and more flexibly through a tough time.

No one knows what pressures the coming months will add to an already troubled market, but it is clear continued cooperation through the sector will keep the market going in the right direction.

Utility Week caught up with MOSL’s Sarah McMath to hear how MOSL is helping the sector address some of the inherent problems, you can read about it in the second part of this feature next week.