In the market for solutions

The water sector faces many challenges. Solving those solutions will need innovation and collaboration. But we can also harness the innovative instincts of markets.

The water sector faces many challenges. Solving those solutions will need innovation and collaboration. But we can also harness the innovative instincts of markets.

Market Operator Services Limited (MOSL) is the market operator for the business water retail market, which opened up in April 2017 – allowing more than 1.2 million businesses, public sector bodies, charity and not-for-profit organisations in England to choose who supplies their water and wastewater retail services.

We caught up with their new CEO, Sarah McMath, to get her take on the future, the business retail market and the shared vision for the sector.

Watch: Sarah McMath talk about the challenges facing the water sector

Ofwat: Hi Sarah. Thanks for talking to us. Can you tell us a little bit about MOSL and your role?

Sarah: As market operator, we design and deploy the infrastructure, information and governance services that make it possible for new companies to enter the market, ensuring that they can do business easily and at a low cost. We also make it possible for customers to move smoothly from one supplier to another using our central IT system- CMOS – which supports 3,600 users, currently processing over 90,000 transactions every day.

The market operates through a series of rules and arrangements known as Codes. These are another key part of MOSL’s responsibilities. We provide the secretariat for the Market Arrangements Code (MAC) Panel and its committees, which oversee and review these rules, with input from our members – the wholesalers and retailers, the trading parties who operate in the market.

We operate at the heart of the market, with access to insights and data to support the continued evolution of this young market. And at the heart of our role, we are committed to making sure the market keeps improving for the benefit of its customers.
In opening this market, we made a commitment to business customers to deliver greater outcomes, in terms of greater choice, efficiency and time and cost savings. Without customers, this market doesn’t exist. In all my roles within the water industry over the past 25 years, I have always been firmly focused on delivering for customers and improving the overall customer experience. This commitment has only strengthened in joining MOSL as Chief Executive.

As CEO, I am committed to working with Ofwat, trading parties and other industry bodies such as the Consumer Council for Water to ensure customers are front and centre of our decision-making process. And that the improvements we make and incentives we put in place to drive market performance – which is a key part of our role – have a real and noticeable effect for business customers.

Ofwat: Why is the business retail market for water important? What are the benefits for businesses and the environment?

Sarah: The business retail market is just a small part of the wider water industry, but nonetheless our impact is substantial. The opening of the non-household water retail market allowed eligible business customers to choose who supplies their water and wastewater retail service. The introduction of competition in the non-household water retail market has the potential to provide huge benefits not only through lower bills, reduced water consumption and improved customer service but in terms of benefits to the UK economy and environment.

Businesses and business owners are increasingly more environmentally aware and are investing in new tools and technologies to improve resilience and sustainability to reduce their impact on the environment.  Equally, over the last few years we have seen more and more consumers looking to other industries who are already rising to the challenge of customer-led demands for increased environmental efficiencies, greater innovation and future-proofing.

By opening up competition in a market which is limited in terms of its retailer margins, water companies are forced to look at what they can offer customers beyond just cost savings. Many retailers, small and large, are providing business customers bespoke water packages – providing advice on reducing waste and lowing water consumption, providing better, more accurate data on their water usage, introducing smart metering and online, real-time and multi-channel support.

The benefits these efficiencies can drive is important to the wider issues of water scarcity and we must play our part in supporting this. As market operator, this means looking at whether we have the right incentives to drive market performance and the right set of behaviours to support water companies delivering for their customers and the environment in which they live.

Ofwat: What are the challenges facing the market?

Sarah: There are a number of challenges facing the market, but we should not play down the many improvements we have delivered to-date to make this market a success. A market, which whilst now in its third year, is still very much in its infancy.
It is vital, that we understand the frictions there are in the market and what we can do tackle them. MOSL has a strong working relationship with Ofwat and works closely with the regulator and trading parties through a number of industry and MOSL-led forums.

In recent months we have stepped up our efforts in tackling some of the biggest challenges facing the market – for example, long unread meters which lead to poor quality data in the central IT system (CMOS) and inefficient bilateral interactions between wholesalers and retailers. MOSL has committed to improving these areas in its 2019/20 Business Plan and is driving a number of market performance workstreams through the Market Performance Operating Plan, which we published this May, and reviewing the effectiveness of the Market Performance Framework. But, resolving these challenges is not solely MOSL’s responsibility. It requires collaborative working and a shared view on the biggest challenges and their potential routes to resolution.
This is another reason why we support Ofwat’s work in developing a shared vision for the future of the water industry and bringing together market participants to open up these conversations around the challenges, and opportunities in the market.

Ofwat: How can the business retail sector better engage with customers (end user customers and retailers)?

Sarah: Although MOSL doesn’t have a direct relationship with customers, we seek to work with our members and stakeholders to improve the market for the benefit of customers.

We have long highlighted the need for more effective bilateral interactions between wholesalers and retailers to reduce friction and time spent on navigating various different portals and processes – which ultimately may affect the service the customer receives. We are currently working with the Codes Panel and Ofwat to drive a technology solution to improve bilateral arrangements in the market. This is also a commitment made to the market in our 2019/20 Business Plan.

One of the biggest issues we are currently facing in the business retail sector is a lack of trust. We welcome and encourage healthy competition in the market. However, to achieve this, we first need to trust one another and each other’s efforts to improve the market as a whole.
Various industry and MOSL-led forums are already seeing the benefits of this collaborative working. For example, the Retailer Wholesaler Group (RWG) which was called out by Ofwat in its recent CFI Outcomes Report, for its work on creating guidance documents for the market. And MOSL’s User Forum, which provides retailers and wholesalers a platform to discuss current market issues and raise potential change proposals for discussion prior to bringing to the Panel to for recommendation. These are bridging that gap and strengthening those relationships.

Work like this will inevitably lead to us having better engagement across the market. It will also lead to wholesalers having better relationships with retailers and retailers, in turn having stronger working relationships with the customers they serve.

Ofwat: Is there scope for the market to be more innovative – and how?

Sarah: Yes, there is great scope and potential for the market to be more innovative. We need to meet the demands of increasingly engaged customers, who are looking more and more at emerging technologies in other sectors and how they are providing better access to services, building more connected and collaborative communities, protecting and enhancing the environment, and as result, improving the lives of their customers.

We are seeing water companies make great strides in this area by investing in technologies such as AI, digital twins, mapping technology and blockchain. But innovation shouldn’t be used for innovation’s sake. We have a great opportunity as an industry to pull together to look more strategically at how innovation might be used to resolve current, deep-rooted market issues, improve the overall customer experience and help protect our environment in the long-term.

We also need to think innovatively to address the challenge of little switching at the low volume end of the water business market.  There is currently not a compelling service proposition for these customers, and until there is, there is little value in considering competition in the household retail market.

Ofwat: What is your ambition for the market from a MOSL perspective? What role do you see MOSL having and what do you think needs to happen to enable this? In light of this, do you have any thoughts how the structure of the Codes Panel will evolve over the longer term?

Sarah: We, in MOSL, need to focus on building the confidence and credibility in the market.  There has been a lot of good work in the past year to establish a firm platform, but the market is still not performing as it should.  Taking a pragmatic approach to a bilaterals solution for the industry will be a good step forward.  Longer term, I would like to see MOSL in a key strategic role for the further development of competition in the water sector.

The Panel and effective governance in the water retail market has been a topic of debate since the market opened. The Panel and its governance process is currently not agile or responsive enough to meet with the demands of a growing market.
In recent months, the Panel has held several workshops to look at its purpose and think more strategically about effective ways of working. I fully support efforts in this area and believe that more needs to be done to look at how the Panel may evolve to align itself with the realities of the market and in delivering positive change.

In September 2018, MOSL made the decision to review the composition of its Board to reflect important developments in our market governance.  The newly-created non-executive director role elected by associated retailers has full voting rights. This ensures all voices are effectively heard and that we have representation for wholesalers and retailers across the market.

Just as MOSL’s governance has evolved in response to the market, so too must industry groups, such as the Panel, to better represent and deliver much needed progress.

Ofwat: If you could make one change for a better retail market what would it be?

Sarah: To improve data quality – data is at the heart of every decision we make.

Ofwat: In the draft vision for the sector there are the themes of excellence, stewardship and value. How do you see these themes applying in the business retail sector?  How do you see the sector adding public value?

Sarah: At the end of 2018, MOSL launched its core values; Expertise, Respect, Clarity, and Influence. These strongly align to Ofwat’s emerging strategy themes of Excellence, Stewardship and Value and its vision for the future of the water sector.

  • Delivering everyday excellence – this is what MOSL strives to achieve through our value – expertise. How can we use our knowledge, expertise and insight to drive transformational change in the business retail market? How can we introduce innovation in a meaningful way, to reduce frictions and lead to better customer outcomes? If all market participants signed up to deliver everyday excellence to their customers and made this commitment in the way they operate, we would see the benefit to the wider utilities sector and its reputation for thinking strategically and in the best interests of customers.
  • Stewardship for the future – this theme is reflected in MOSL’s value; influence. How can we use our central position in the market to influence better outcomes for customers and the wider water sector? The environment and the damaging effect we are having on the world around us is one of the biggest challenges we face across the utilities sector – it is a political, economic and social issue. And it is our shared responsibility to plan for the long term, to make sure we have the people, processes, systems and resilience in place to protect the environment. At MOSL, we are increasing our focus on the future and on thinking strategically about our role within the business retail market and what we can deliver over the next 15 years and beyond.
  • Value for individuals and for society – Value is what we see in our values as respect and clarity. We strive to be honest and transparent at all times. Water is the cheapest of the utilities and is perceived often as a human right, rather than a utility. It is important that we work to deliver value for customer and their communities, while highlighting the huge time and financial investment in making our water safe, reliable and affordable. MOSL’s role in delivering value is through increased efficiencies in market performance, data quality and innovation which all support the delivery of better value for business consumers.

Ofwat: You may have seen our emerging strategy. What did you like? Anything missing?

Sarah: I welcome the publication of Ofwat’s emerging strategy and its commitment to bringing parties together to create a shared vision for the future of water. I am also encouraged by the relationship we have with Ofwat at various levels throughout the organisation and look forward to working with Ofwat to further develop, strengthen and communicate this vision.

As market operator for the water retail market, MOSL takes its responsibility seriously to ensure the water industry evolves and challenges itself to meet the growing social, environment and customer-led demands.

I fully support Ofwat’s focus areas – innovation, the natural environment, customer relationships and its approach to insight and reporting – as effective tools for driving transformational change. For me, what is key and what is echoed in Ofwat’s emerging strategy, is that customers must remain at the heart of the market and at the heart of the decision-making process.

Ofwat: Finally, if you could make one change for a better water world what would it be?

Sarah: A more collaborative approach within the industry. Companies, regulators and industry bodies working together to solve important sector issues such as leakage.

Ofwat: Thanks Sarah!

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