Our review of five years of the water retail open market

Business Customers' experience of the water retail market

In April 2017, the water retail market opened to all businesses in England, allowing them to choose their water and sewage provider. We were keen to monitor any issues and make recommendations for improvement based on research, complaints, and conversations with businesses.

Our campaign for change in the water retail market starts with this review.

Download 5 years of the water retail open market report (pdf – 4 MB)
Download 5 years of the water retail open market report - Welsh (pdf – 4 MB)

It has been just over a year since we published our Five Year Review of the business retail market. From our comprehensive review of business customers’ experience of the market, we made clear that we want to see stronger incentives on retailers and wholesalers to deliver for businesses. This will be achieved through a revised Market Performance Framework (MPF).

The current MPF is a set of service standards that retailers and wholesalers have to deliver. Tasks such as taking meter readings or repairing meters must be completed within a certain timeframe, with financial penalties charged if these are not met. When service standards set out under the MPF are not delivered, this can result in complaints to CCW from business customers who are experiencing poor levels of service. Issues about billing and charges cause the majority of complaints to us.

In order for the new MPF to deliver for business customers, we want to see the following principles applied:

Be flexible

To minimise the impact of poor performance on business customers, we have called for a flexible MPF. For example, the more meters that a retailer fails to read, the higher the financial penalty should be. This is only possible if the MPF is designed to allow for measures and penalties to change quickly. We are pleased that the principle of flexibility has been part of the development process.

Be clearly linked to customer impact

Currently, there is an emphasis on retailers and wholesalers completing individual tasks in service delivery, rather than how well they deliver overall service to their customers. They should clearly consider how the overall service is delivered and the impact it has on customers.

An indication of what matters most to businesses was highlighted in our 2022 Testing the Waters research. This showed the most common causes of complaints include inaccurate billing based on estimated reading and meters not being fixed quickly enough. In the new MPF, customer priorities need to be a primary focus and should include:

  • Meters being frequently read, and bills being as accurate as possible;
  • Broken meters repaired quickly, and the swift replacement of missing ones;
  • Customer requests and complaints resolved as quickly as possible; and
  • Clear and timely information to customers affected by an incident, such as a water supply interruption. This is particularly important for those for who heavily rely on water, such as hospitals and care homes.

Hold the correct company accountable and robustly measure performance

Retailers and wholesalers are responsible for delivering different services to business customers, but these are often linked. For example, retailers read their customers’ meters and wholesalers are responsible for repairing or replacing them. Customers getting an accurate bill depends on both a retailer and wholesaler doing their job correctly, so it is important that both are accountable for their particular role in delivering that service.

In another example, when a meter needs repairing, wholesalers should not only be measured on how quickly they are doing this, but also how many requests they have received before taking action in relation to the same meter. This will provide an overall picture of the level of service wholesalers are providing to customers and incentivise them to improve. We will know whether improvements are being made if we can see a reduction in complaints, and if customer research shows more satisfaction in this area.

Set targets that are stretching, and reflect customers’ expectations

Delivering services to meet customers’ expectations is crucial. We know from our research on small businesses meter reading preferences that they want bills to be based on what they actually use, rather than estimates of water use. This cannot be achieved when meters remain unread. Service standards in this area need to be stretching, particularly given the current scale of problems in the market. We want retailers to meet customers’ expectations by taking frequent meter reads across their entire customer base.

A set of effective interventions that fill the ‘natural incentives’ gap that currently exists

n an open market, the risk of customers switching away would normally be enough to encourage retailers to naturally improve their services. However, only a small amount of businesses are switching their retailer each year with many (particularly micro-businesses) not having the time and inclination to do so. In addition, customers can not choose the wholesaler who provides their water and sewerage services. While there is a lack of competitive pressures on retailers to improve their services , there needs to be alternatives – such as strong financial penalties – to encourage these improvements.

Careful design of interventions, and to not reward companies for simply getting the basics right

Under the current MPF, retailers and wholesalers pay relatively small penalties. This can mean it may be cheaper to pay the penalty, rather than invest in improving their services. Penalties need to be set high enough to genuinely encourage wholesalers and retailers to improve in key areas, such as meter reading and repairs.

The new MPF may feature a ‘rewards’ system where retailers and wholesalers could receive payments if they provide a certain standard of service. While performance remains poor, rewards should only be paid when an exceptional service has been delivered, for customers.

These are our key asks of a revised MPF, and we are working hard to ensure these are delivered. Our commitment remains steadfast in advocating for the interests of business customers as we work towards a new MPF. By implementing these principles, we aim to cultivate a more transparent, responsive, and customer-centric business retail market.

Re-watch the launch of our review

On 15 March we launched a live, interactive event to hear about our five year review of the water retail market and the recommendations that we are making to improve the experience of all business customers in England.

Mike Keil, Director of Policy, Research and Campaigns and Christina Blackwell, Head of Business Customers speak at our live stream event of five years in the retail market launch.
Watch the live streamed event of the launch of our 5 year review of the water retail market for business customers

Questions and answers from the live launch

Thank you for watching the live launch of our ‘Five Year Review of the Water Retail Market’ and we’re grateful to those that posted questions for us during the event.

We set out the questions that were raised on the day, many of which we answered during the live question and answer section. To help put the questions into context we have set them out under the specific recommendation(s) that they relate to from our report.

If you have any questions for us that are not answered, please email us at [email protected]

Recommendation to change eligibility criteria

There should be a change to the eligibility criteria in England unless tangible benefits are realised for micro-businesses, measurable by the rate of switching and contract re-negotiation.

We would expect the number of switches by businesses using up to 0.5Ml of water a year to increase by 10% points on the current levels in the next two years to 2025. Similarly, we want to see an increase in contract re-negotiation by 5% points for these customers by 2025.

If these targets are not met within two years we will recommend a change in legislation to amend the market eligibility threshold in England so both current and future customers, using up to 0.5Ml of water a year, are no longer eligible unless they have already switched retailer and re-negotiated their contract.

Question 1: Why the focus on numbers rather than outcomes? Surely it’s about quality of service and levels of consumption rather than switches. Is customer satisfaction not the key indicator? 

We agree in principle that customers’ experience of the market should be measured by more than just the numbers of those engaging in the water retail market, and ideally we would want to look at outcomes. However, many small business customers don’t even know that the open market in England exists.

The number of engaged business customers is one of the primary measures of how successful the market is, as businesses will not be motivated to switch (or re-negotiate) unless there is something in it for them.

Our report is clear on the outcomes we want to see, and the measures of success across the key areas that are important to business customers. In addition, having compared the switch rates we have seen in the energy market, and other sectors, we believe the target we have set is realistic and achievable.

Question 2: Do you think splitting consumers into household and non-household is conducive to providing consistent service? Splitting businesses further into low and high usage is likely to create even more delays in assessing eligibility.

Household and non-household customers should be receiving consistent levels of service. However, the needs of business and household customers can vary due to usage, size and affordability. It is also recognised that struggling households can be offered financial support schemes if they fit certain criteria.

Retailers are required to know which of their customers sit in each of the three consumption bandings in the Retail Exit Code (REC) due to the different regulatory protections applying to each one. Therefore, understanding the numbers of business customers using up to 0.5Ml of water a year (Customer Group 1 in the REC) for the purpose of eligibility should be relatively straightforward for retailers.

Question 3: One of the promised benefits from competition was savings for customers. Has CCW looked at how the retail charges for small businesses compare to households?

Our exploration of this area has highlighted just how difficult it is to make a straightforward comparison, as there are so many different tariffs in the market. Not being able to get a clear understanding and compare prices represents a challenge for small businesses if they are looking at whether it is financially worth them engaging in the market.

We will continue to explore this area further in order to help customers.

We have not reached a conclusion on whether or not the average business customer is paying more than before market opening due to the complexity of tariffs. This is an area that we are continuing to explore. However, we strongly believe that switching activity remains a key metric as an accurate indicator for whether or not customers are taking part in and benefiting from an open market.

Our Testing the Waters tracking research, carried out every two years, asks questions about customer engagement in the market, including whether a customer has re-negotiated their contract with their retailer. This has allowed us to track this activity since market opening, but we could enhance this by working with others to obtain more accurate insight.

Through research, we are also proposing to examine the views of low water users to understand whether there is a difference in satisfaction between those who have, and have not engaged in the market.

Question 6. What about businesses such as churches that operate on a voluntary basis. Is there a benefit to them being in the market? Is this being looked at? Should further consideration be given to charities?

The review has not focused specifically on such businesses, but we do know from CCW complaints data that businesses of this type can be disproportionately impacted in terms of time and cost in trying to resolve an issue such as an inaccurate bill.

If further analysis identifies that these customers are receiving a particularly poor service, then we may need to make additional recommendations. However, a large number of charities are likely to be low water users, so they would be covered by our proposed eligibility change recommendation for customers using up to 0.5Ml of water a year.

Recommendations to remove all temporary building supplies

Changes to be made to legislation and market codes to remove all temporary building supplies from the market with business customer premises only entering the retail market at the point when the permanent water connection is complete.

Wholesalers should be given clear responsibility for ensuring data on temporary building supplies is correct in the market until this change in legislation is enacted.

Question 7: I agree with the recommendation to remove Temporary Business Supplies from the market. It was recently reviewed by Ofwat and they have decided not to remove. How will this recommendation change their view on this?

Question 8: During the recent Ofwat Eligibility guidance consultation in 2022 both MOSL and the RWG suggested removing TBS from the market but Ofwat decided to keep it in. How will CCW approach this with Ofwat?

It is clear from our analysis that Temporary Building Supplies (TBS) are not working in the market as a competitive activity and we are recommending that they should be removed through a change in legislation.

Based on our report findings, we will build a strong case to show the issues customers are experiencing, along with highlighting the shared drive for change.

It is clear there is cross industry support for TBS to be removed from the market (both CCW, MOSL, and retailers and wholesalers via the RWG), which needs to be presented to Ofwat and Defra as an evidenced unified position to bring about the necessary change.

While we focus on this change, in the interim, wholesalers need to take responsibility for flagging a water supply as a Temporary Building Supply. Our proposals highlight that the market should be agile and react where changes can be made quickly.

The rapid changes that were made during the Covid-19 period were a good demonstration of how the market is capable of rapid change when needed

Customers are being let down by administrative problems in the current TBS process. There are delays in flagging TBS in the market, leading to a lack of clarity regarding billing arrangements. It is, therefore, right that wholesalers are made responsible for this process while the premises is still a temporary supply in the competitive market. Improved processes are vital to ensure households do not incorrectly enter the water retail market, thereby avoiding the associated impacts on customer billing.

Recommendation to receive two bills

CCW to submit a change request to the Customer Protection Code of Practice in 2023 to ensure business customers receive at least two bills based on an actual meter reading each year.

Question 10. Given the proposal to change the Code of Practice to have customers billed on a minimum of two actual reads per year, what is CCW’s view on the responsibility of meter reading?

We know from previous research into small business customers metering preferences that customers want frequent meter reads so they can be sure they are being billed accurately. It was also clear that the vast majority would not want this frequency reduced.

While retailers are responsible for reads, and should make every effort to read meters frequently, accepting customer reads is also valid. We also expect wholesalers to assist retailers with locating meters where this is hampering the provision of frequent meter readings being taken.

Our proposed requirement would not necessarily lead to cost increases for retailers. It is important to remember that for the majority of meters, retailers are already obliged to submit two meter readings a year to MOSL’s Central Market Operating System (CMOS). These reads can therefore be used for billing purposes.

In addition, our recommendation for increasing smart metering will ultimately improve the availability of actual meter reads in the long term and lead to cost reductions.

Recommendation for unread meters

Retailers and wholesalers to be incentivised to address meters left unread for 12 months or longer, through the new Market Performance Framework, so no meters remain unread.

Question 11. Reducing long unread meters to 0; part of the issue is blockers. Wholesaler policies on accredited entities and not allowing others to install and bill. Does CCW agree that market requires more open competition/ leniency for meter installs?

As the network is wholesaler owned, careful consideration would need to be given on a practical level as to whether this would work effectively. However, the primary concern needs to be whether allowing more open competition in this space would lead to service standards improving for customers.

It is clear that a unified approach by retailers and wholesalers to resolve the problem of long unread meter has historically been lacking. More needs to be done to better incentivise collaboration between retailers and wholesalers in this area, and our report is very clear that this kind of collaboration is needed across a range of issues.

Recommendation to improve the retail market transition process

Ofwat to provide greater clarity and consistency on premises eligibility for the market and work with CCW to improve the transition process where a premises leaves or enters the retail market.

The key concern here is primary usage, which is why we have made our recommendation that the market eligibility guidance needs to be clearer, and interpreted more consistently by retailers and wholesalers.

We do not believe that all mixed-use premises should be removed from the market, but only those that have been correctly identified as predominantly household.

While there may always be some differing conclusions, a more robust eligibility guidance process should allow these assessments to become relatively straightforward and clearer for customers.

General questions on the report

Through our involvement on industry working groups, we know this is an important area of focus in the market, and that efforts are being made to address this.

Our report is very much focused on what complaints and research are telling us, with vacant properties not featuring as an issue of importance for the majority of customers. However, we believe it’s fair that everyone should be paying for the water they use, and that by doing so, businesses may start to experience some potential benefits from being in the market.

Firstly, it is difficult to comment in full at this stage as we haven’t seen the full impact of the recent REC review in terms of implementation, and how this will impact retailers’ margins.

Secondly, we believe it’s in customers’ interests for retailers to diversify if doing so produces tangible benefits, so we would always encourage greater innovation where it is done well.