Ofwat has launched a new consultation on strengthening wholesaler performance and service in the business retail market.

The water industry regulator has issued a Call for Inputs (CFI) seeking stakeholders’ views on how incentives can be strengthened or introduced to improve wholesaler performance, including the possible introduction of greater financial penalties.

Launching the consultation, Ofwat said:

“There is a general consensus among retailers that there is a lack of effective reputational and financial incentives for wholesalers to deliver high quality services to the business retail market.”

In July this year Ofwat published its report Open for Business which reviewed the first year of the business retail water market. The report identified a number of market frictions which needed to be addressed as a priority if the business retail market is to reach its full potential for customers, including poor aggregate wholesaler performance and interactions between wholesalers and retailers.

Ofwat’s recent freeze-thaw report Out in the Cold also found that poor communication and information sharing between wholesalers and retailers had left business customers confused about who to talk to.

The CFI examines the issues the regulator believes are having the biggest impact on wholesaler performance in the business retail market and the quality of service received by retailers. It also sounds a warning note over the potential for Ofwat to intervene directly if insufficient progress is made:

“We want wholesalers and retailers to take the lead in making the market work. We are concerned that trading parties have not made full use of the channels available to them so far..….

"We could also take further steps directly if we consider that insufficient progress has been made in addressing the concerns.”

Current financial penalties are "relatively small"

In Open for Business Ofwat flagged up its concern that in the current system, financial penalties under the Market Performance Framework (MPF) are “relatively small” when compared the possible detriment to customers. The MPF is intended to promote continued performance by the Market Operator MOSL , retailers and wholesalers and enable appropriate action to be taken to resolve performance failures.

The CFI says that “Other regulatory incentives which are based on customer detriment impose much higher fees. “

Ofwat’s final PR19 methodology indicated that if it was thought appropriate to introduce an incentive mechanism for improving wholesaler performance, Ofwat would expect to do this by the draft determinations.

The CFI suggests that a potential mechanism could be similar to the system in place for C-Mex each year, whereby:

• Top performers could receive a performance payment (in C-Mex this is 1.2% of residential retail revenues);
• The poorest performers could receive a penalty (in C-Mex this is up to 2.4% of residential retail revenues annually)

Inaccurate or missing data costing millions

According to Ofwat, data continues to be a key area of concern, with most of the retailers who responded to the regulator’s request for information indicating that “poor or absent data” in CMOS creates problems when invoicing customers, raising correct bills and providing accurate quotes.

The CFI says that a number of retailers were able to illustrate the “considerable resource and financial impact” that inaccurate or incomplete data is having on their operations.

Ofwat cites the example of one specific retailer who had confirmed that since the market opened it had identified issues with inaccurate or missing data that prevented or delayed it from billing 13,895 SPIDS, with an estimated value of £12.3 million.

Some wholesalers had also commented that legacy issues with their data sets such as wrongly assigned, missing, inaccurate or incorrectly migrated SPIDs have had a significant impact on their own performance during year one of the market.

Deadline to submit responses to the Call for Inputs is 9:30am on 10 December 2018 - click here to access the consultation document Call for Inputs: Strengthening wholesaler performance and service in the business retail market