Ofwat publishes State of the Market report

Photo by Ilona Frey on Unsplash

The fourth annual State of the Market Report, published today by water regulator Ofwat, concludes that while business customers who are active and engage in the water retail market continue to benefit from competition and choice, the market is ‘working less well’ for smaller business customers.

Ofwat finds that over a quarter (28%) of larger business customers have been active in the market over the last 12 months, compared to 8% of micro-businesses.

The evidence also suggests that larger customers have greater incentives to engage in the market than smaller business customers – Ofwat finds medium-sized business customers can expect to save around £250 per year from switching retailer compared to £15 for small customers.

Georgina Mills, Director Business Retail Market at Ofwat, commented on the report: “Our state of the market report demonstrates that while the market continues to deliver benefits for some, mainly larger, business customers, the market is working less well for smaller customers.

“We consider the market can deliver improved outcomes for customers, but this requires urgent action from market participants, including to improve data quality.

“A strong and sustainable business retail market should benefit customers, but not if costs from inefficiencies are passed onto them. Our review of the business retail price caps will look to address this.”

Ofwat considers the business retail market has the potential to deliver improved outcomes for customers, society and the environment, but it is ‘clear this will require market participants to take action’, including by stepping up efforts to resolve poor quality market data.

The report highlights that market participants have worked collaboratively over the past year to improve interactions between retailers and wholesalers, with the introduction of a new bi-laterals ‘hub’ in September 2021, which will streamline retailer requests to wholesalers on behalf of customers.

Nevertheless, urgent and coordinated action is required to improve the quality of market data. For example, a lack of timely and accurate meter reads can result in inaccurate or disputed bills for customers, which remains a key source of customer complaints.

Ofwat has also published a consultation on its review of the price and non-price protections applying to business customers who have not actively negotiated or agreed new contract terms with their retailer.

The water regulator assesses that competition is ‘not yet working effectively’ for smaller customers and so proposes to retain price protections for these customers. The review will include an assessment of if and how price caps need to be revised, taking into account the forward-looking costs an efficient retailer is likely to incur.

Ofwat plans to publish proposals on any necessary revisions to price and non-price protections next summer, with a decision expected by end 2022. The ‘Business retail market: 2021-22 Review of the Retail Exit Code’-consultation is open until 5pm Monday 31 January 2022.

Any revisions are expected to take effect from April 2023. The review will not affect the prices paid by household customers.

The ‘State of the market 2020-21’-report can be found from the Ofwat website.