Ofwat calls for wholesalers to support competitive markets

The water regulator has called on incumbent companies to do more to support the efficacy of the business retail market, especially around persistent friction points.

Data quality, cumbersome wholesaler-retailer interactions and standardising wholesaler tariff structures were some of the key areas for improvement identified by Ofwat.

Chief executive Rachel Fletcher wrote to wholesalers last year to address insufficient support being shown by incumbent companies within the markets.

Since then Ofwat has reviewed companies’ progress and concluded that boards should be supportive and ensure their businesses are adequately resourced to deliver wholesale services.

“We encourage company boards and CEOs to continue to use their leadership positions to support the behaviours needed to make markets work and to ensure adequate resources are made available within their businesses to achieve this,” the report said.

The report referred to competition between retailers as well as developer services – those connecting water in new developments – and markets such as bioresources and water resources.

Ofwat found “marked differences” in the level of support offered by wholesalers to the retailers. It said Yorkshire, South West and United Utilities were among the best performers, while SES and South East were among the worst.

Even within companies, performance varied, as South West was identified as reluctant to offer credit agreements with retailers despite all-round good performance. South Staffs was commended for developing the R-MeX incentive system yet was labelled broadly average overall.

Ofwat encouraged wholesalers to be proactive in understanding and responding to the needs of end customers and tailor their services accordingly rather than relying on retailers.

Ofwat also said improvements could be made to the governance of the market. Although it supports the self-governed approach, Ofwat said it should facilitate innovation and support real changes instead of small amendments.

It said competition law is too often cited as a reason to avoid interaction or joint working that could support markets. “In our view, the sector needs to become more sophisticated in its understanding of competition law, and do more to collaborate to support markets to the benefit of customers.”

Emma Kelso, senior director of markets and enforcement at Ofwat, said: “Markets that work well can deliver a wealth of benefits for customers, society and the environment. They drive innovation, improve performance, provide greater choice and quality of service as well as lower prices. Water companies have a fundamental role to play and by providing high quality services to markets and we want to see a positive culture change in companies to support them”.

From the beginning of lockdown Ofwat and market operator MOSL called for wholesalers to show more flexibility to support retailers and their customers when many businesses were affected by coronavirus.

Wholesalers have until the end of October to publish the areas they are adopting good practice as set out by the Retailer Wholesaler Group (RWG) and where they are not.