PN 41/21 Ofwat finds business retail market continues to deliver benefits for larger customers, while competition is working less well for smaller customers

The fourth annual State of the Market Report, published today by 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.

Ofwat considers the business retail market has the potential to deliver improved outcomes for customers, society and the environment, but 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. Ofwat 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.  Any revisions are expected to take effect from April 2023. The review will not affect the prices paid by household customers.

Georgina Mills, Director Business Retail Market at Ofwat said:

“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.”

Notes for editors

  • The Consultation: Business retail market: 2021-22 Review of the Retail Exit Code is open until 5pm Monday 31 January 2022. Responses to this consultation may be sent to [email protected] with the subject “REC review December 2021 consultation”.
  • State of the market 2020-21: Review of the fourth year of the business retail water market
  • Ofwat expects to consult on specific proposals in summer 2022. Final decisions are expected towards the end of 2022, with any revisions taking effect from April 2023.
  • The REC price and non-price protections were last revised in 2018-19, with revisions to terms for both price and non-price protections taking effect from April 2020.
  • Ofwat has previously identified three main market frictions that undermine the business retail market from working more effectively and delivering improved outcomes for customers: poor quality (customer, consumption and asset) data; inadequate wholesaler performance; and cumbersome and inefficient wholesaler-retailer interactions.