Since the opening of the business retail water market in April 2017, around 1.2 million businesses customers in England and eligible business customers in Wales have been able to choose their supplier of retail water and wastewater services.
This Market Update provides an overview of developments in the business retail market’s sixth year of operation from April 2022 to March 2023, and replaces our usual fuller ‘State of the Market’ report.
With our recent decision on revised REC price protections in the market, this year we have not undertaken qualitative customer research to inform our assessment of market developments in the year, nor have we collected information from Retailers through our normal market monitoring information request. Instead, this year’s update draws on information from the Market Operator (MOSL) and the Consumer Council for Water’s (CCW) Business Customer Complaints report 2022-23 to provide an overview of market developments in its sixth year.
We intend during 2023-24 to review our overall approach to market monitoring and customer research to ensure our ongoing monitoring targets relevant areas of the market and continues to align with, or complements, industry objectives (for example, market priorities set out by the Strategic Panel). We anticipate publishing our next market update in the second half of 2024, which would, where relevant, reflect any changes in approach to our market monitoring.
The 2022-23 report is presented using an interactive PowerBI format. To view the report in full, please click the little double-ended arrow at the bottom right-hand side of the Power BI window below.
You can also download a copy of the Business Retail Market Update 2022-23.
Headline findings
The landscape of retail suppliers in the market continues to evolve, with new entrants consistently gaining market share each year. We have seen an increase in the number of small customers who switched Retailer in the year, although we find that higher consumption customers are more likely to switch compared to smaller customers.
- New entrants continue to grow their market share at the expense of incumbent Retailers – New entrants have increased their market share of SPIDs by around 1.2% each year, with new entrant Retailers now holding 6.9% of all SPIDs in the market, accounting for 7.7% of total market consumption.
- Incumbent Retailers still account for the for largest market share – despite the growth by new entrants and self-suppliers, incumbents Retailers still hold the largest share of SPIDs (92.2%) and consumption (90.0% in the market).
- Switching data show an increase in the total number of SPIDs that switched Retailer this year – the switching rate of SPIDs increased by 0.3% to 3.5% in 2022-23, while the proportion of total consumption that switched fell to 7.9% compared to 10.0% in 2021-22. We suggest that the increase in the aggregate SPID switching rates have been driven by a small increase in the number of low consumption customers switching Retailer in the year, while there has been a decrease in the number of the highest consumption customers switching in 2022-23.
- Business customer complaints continue to fall – Complaints to CCW and Ofwat declined in 2022-23 as the downward trend continues from the peak seen in 2018-19. The number of written complaints to Retailers fell by 16% in 2022-23, approaching the level seen prior to the opening of the business retail market. Billing and charging complaints remain the most common reasons for complaints to CCW and Ofwat. Despite the trend of decreasing complaints, we would nevertheless highlight that Retailers should not remain complacent here, as well as note that a key reason for customers to switch can be to a Retailer that offers better customer service.
Progress on market frictions
Six years following market opening, industry continues its efforts to address the three main market frictions that persist in impeding the market from functioning effectively and delivering improved outcomes for business customers. While the industry has seen initiatives begin to achieve results in addressing these frictions, including the introduction of the bilaterals hub by MOSL to improve Wholesale and Retailer interactions, it remains the case that the market is not functioning as effectively as it needs to. Our review of industry initiatives in the market’s sixth year of operation highlights the progress made to improve market functioning, although we urge trading parties to continue to drive progress at addressing frictions, especially improvements in the quality of market data and Wholesaler performance.
Data Quality
Data quality issues continue to cause significant challenges in the market, impacting both trading party performance and customer outcomes. Poor quality customer, consumption and asset data continues to impede Retailers’ abilities to operate in the market as well as undermines the customer experience, including the accuracy of customer bills and their ability to take up water efficiency offerings.
Both MOSL and the Strategic Panel have emphasised the role of data for improving customers outcomes, with the Strategic Panel outlining the importance of accurate and accessible data to support the market priority to ‘Get the Basics Right’ in its Strategic Priorities and Market Outcomes.
Market participants have made progress in their efforts to improve the completeness and accuracy of market data, with work led by MOSL encouraging and enabling trading parties to deliver a step change in the quality of market data. In particular, MOSL’s data assurance work intends to provide an evidence base for the quality of trading party data, aimed at providing measures and incentives for trading party to maintain and improve market data.
Wholesaler performance
Where Wholesalers do not adequately meet their obligations in supporting effective market functioning, customers and Retailers suffer from poorer service and higher costs.
2022-23 saw the commencement of the MOSL-led review of the Market Performance Framework (MPF) which aims to understand the key market activities that determine customer outcomes, and with aim of revising relevant metrics and possible interventions to encourage better trading party performance. The development of the ‘BR-Mex’ incentive mechanism also began in 2022-23 (part of the PR24 price control for Wholesalers), which aims to introduce financial incentives on Wholesalers to deliver better outcomes for business customers and Retailers. The introduction of formal holistic reporting in July 2022, which tracks trading party performance against existing market indicators, has also been accompanied by improvements in both Retailer and Wholesaler performance.
Wholesaler – Retailer interactions
Cumbersome or ineffective interactions between Retailers and Wholesalers can result in poor customer experience and can also lead to unnecessary and increased costs for both Retailers and Wholesalers.
This year saw the delivery of the final phase of the MOSL led Bilateral Transactions Programme, which has significantly improved Wholesaler – Retailer requests and interactions. Implementing the last of the Ofwat-mandated bilateral processes into the central bilateral hub has transformed the speed, reliability, and visibility of bilateral processes, increasing the number of transactions by 50% and reducing the number of service requests being rejected, which should improve business customer experience. MOSL’s final review of Bilateral Transactions Programme estimates that this programme is delivering savings of 120,000 hours per year, valued at an estimated £2.4m.