Five years open for business – taking stock: Review of the fifth year of the business retail water market 2021-22

Following the opening of the business water retail market in England in April 2017, around 1.2 million businesses, charities and public sector organisations can choose their retailer. This is our fifth assessment of the business retail market, covering the period April 2021 to March 2022, and it updates our previous reports.

To inform our assessment, we commissioned research from business customers. Following challenges with participation rates last year (2020-21), this year we reduced the length of the questionnaire as well as the sample size. This successfully improved the participation rate, but it also means we need to treat some of the comparisons with a little more caution than in previous years. Where this is the case, we have made it clear.

This year’s findings have been presented using an interactive data-based format and are focused on a smaller number of key metrics. The findings have been informed by quantitative business customer research undertaken by Opinion Research Services (ORS), on behalf of Ofwat and CCW, to form our Customer Insight Survey 2022 (CIS 2022).

We have also drawn on data and information from the market operator MOSL, including switching data and information from their Annual Market Performance Report (AMPR); CCW’s Business Customer Complaints report for 2021/22; as well as information from stakeholders, including a roundtable discussion with members of the Major Energy Users’ Council Network (MEUC).

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You can also download a copy of Five years open for business – taking stock: Review of the fifth year of the business retail water market 2021-22.

Headline findings

Findings from our 2021-22 customer research show that overall awareness of the market, activity in the market and satisfaction with current retailer are broadly in line with previous years with no significant changes in the results from last year’s survey. We find that larger customers continue to be more active in the market compared to smaller customers.

  • Nearly half of business customers are aware that they have a choice of retailer – Our research found that 48% of business customers are aware that they have a choice of retailer. This compares to 43% in the 2020-21 survey and 58% in the 2019-20 survey. This year we observe a reduction in awareness amongst larger business customers sampled, compared to last years’ sample (57% compared to 75% in the 2020-21 survey).
  • 10% of business customers are engaged, with larger customers continuing to be more active in the market – Our research indicates 9.9% of eligible business customers were active in the last 12 months, compared to 8.5% in the 2020-21 survey and 7.8% in the 2019-20 survey. Larger businesses continue to be more active in the market (23.4%).
  • There are indicators that switching and re-negotiation has increased, but the extent of this increase is unclear – Our research indicates 7.9% of business customers have switched or re-negotiated in the last 12 months. This compares to 3.9% in the 2020-21 survey and 3.8% in the 2019-20 survey. MOSL data indicates 3.2% of supply points (‘SPIDs’) switched retailer in 2021-22, compared to 2.4% in 2020-21.
  • Business customers that were operating when the market opened are more aware of and active in the market – Business customers that were already operating from a business premises prior to market opening in 2017 display significantly higher levels of awareness compared to those who started operating after 2017 (59% aware as opposed to 33% aware). Levels of activity and switching are also significantly higher amongst business customers who were already operating in 2017 (14% active compared to 4.1% active).
  • Reliable water supply remains the top priority for business customers – When asked about what is most important to them as a customer, over half (55%) mentioned a reliable water supply and/or no supply interruptions. Around two fifths mentioned price (42%), while others mentioned customer service (23%), billing services (15%) and water efficiency (7%).
  • The majority of business customers continue to state that they are satisfied with their current retailer – Our research found that 77% of business customers reported that they are satisfied with their current retailer. This compares to 73% in the 2020-21 survey and 78% in 2019-20. The difference in satisfaction levels between large customers and the rest of the market has narrowed compared to last year.
  • Customer complaints about retailers continue to fall from their peak in 2018-19 – Customer complaints received by CCW have fallen by 19% with billing and charging issues remaining the most common reason for complaints.
  • Incumbent retailers continue to lose market share to new entrants – New entrant retailers increased their market share by almost 50% since last year, representing 6.1% of the market consumption (5.5% of SPIDs) in 2021-22, compared to 3.8% of market consumption (3.8% of SPIDS) in 2020-21. Despite gains made by new entrants and self-suppliers, incumbent retailers continue to account for the large majority of market share (93.6% of all SPIDs).

Progress on market frictions

Our market monitoring consistently highlights three main ‘market frictions’, which are preventing the market from working effectively and delivering better outcomes for customers. Despite significant progress on key initiatives aimed at improving market frictions, such as the MOSL-led bilaterals programme, we find that market frictions continue to affect the effective functioning of the market.

The business retail market is now five years old and we urge all market participants to continue to drive progress aimed at getting these basics right, in particular to improve the quality of market data as well as trading party performance.

1. Data quality

Poor quality customer, consumption and asset data can significantly undermine the customer experience. Customers want timely and accurate bills, and this is simply not possible if the quality of market data is poor. Good quality data is also a crucial enabler of innovation, including in relation to water efficiency (“if you can’t measure it, you can’t manage it”). Improving the quality of market data therefore remains a key and urgent priority for the market.

Both MOSL and the new strategic panel have identified data quality as a key market priority, and we are supportive of MOSL’s data strategy, including the aspiration to improve access to market data to facilitate innovation. We also support the additional performance indicators (APIs) on data quality that have been introduced via the new holistic peer comparison reports.

These reputational measures are incentivising trading parties to make improvements to the quality of market data. We would like to see stronger incentives on trading parties to improve data quality included in the Market Performance Framework (MPF) to incentivise further improvements. Trading parties have code and licence obligations in relation to the provision and maintenance of good quality data, which they must comply with, and financial incentives can be a useful means of further incentivising compliance with these requirements.

2. Wholesaler performance

Inadequate wholesaler performance will lead to a poor customer experience and unnecessary costs for trading parties. As part of PR24, we are proposing a new performance commitment to improve the quality of wholesale services provided to retailers and business customers (‘BR-MeX’). Reform of the MPF and the introduction of holistic reporting also provides a key opportunity to sharpen incentives on wholesalers (and retailers) to improve more specific aspects of their performance and deliver better service to customers in the market.

3. Wholesaler-retailer interactions

Cumbersome or ineffective interactions between retailers and wholesalers result in poor customer experience. This can also lead to unnecessary costs for retailers. During 2021-22 market participants, led by MOSL, have made significant progress to improve bilateral processes between retailers and wholesalers through the introduction of the bilateral hub. This programme has reduced the time and effort required by trading parties’ to resolve bilateral requests. It has also resulted in faster issue resolution and smoother processes with reduced rejection rates, which should improve the customer experience. The strategic panel has also indicated their ambition to identify opportunities to further simplify and align industry policies, processes and interactions where this is possible and appropriate.

Customer insight survey

(To be added shortly)