The Strategic Panel has today published its response to Ofwat’s consultation on the review of the Retail Exit Code (REC), which aims to protect non-household (NHH) customers who have not engaged in the market since it opened in April 2017, and remain on default tariffs.
In its response the Panel set out its desire, as outlined in its market priorities document published earlier this year, that Ofwat: “balance effective protection and fair prices for new and existing customers, while enabling efficient retailers to compete on a sustainable basis and so that future customers benefit from a flourishing competitive market.”
The Panel recognises Ofwat’s statutory duty to ‘protect customers, wherever appropriate by promoting competition’ and the role that the REC plays to protect NHH customers who have not engaged in the market since it opened. It also recognises the current economic challenges for businesses as a consideration for Ofwat in setting the level of the next REC.
The Panel supports Ofwat’s broad conclusion that the market is not working for smaller customers in Group One, who are not benefiting from competition, as evidenced by a range of metrics including minimal savings from switching, low awareness and engagement. However, the Panel is concerned there has been insufficient exploration and analysis of why the market is not working for Group One customers and the implications for customers of the proposals put forward.
While the Panel recognises that a loosening of price caps will lead to higher prices for customers in the short term than would otherwise apply under the proposals it believes this will be outweighed by the medium and long-term harm for customers of maintaining price caps at the proposed levels. The Panel believes it is in Ofwat’s interests to ensure that all NHH customers can access the benefits of a competitive market as soon as possible. Defra and other UK Government departments also have an interest in seeing that the policy objective of a fully competitive retail market for NHH customers is achieved.
The Panel said it is keen to work with Ofwat to develop a strategy on how the barriers to competition among smaller Group One customers can be addressed, which should be part of a broader programme of work to help consumers further engage with the market.
The Panel does not agree with Ofwat that inefficiency is the key reason for overall market losses or there being such a significant gap between actual costs and the proposed allowed level. The Panel has also referenced a report by Dr Chris Decker commissioned by the UK Water Retailer Council (UKWRC) that has concluded there is no evidence of significant market power in the market to warrant the levels of regulation proposed.
The response also noted that, there is a significant gap between the independent analysis undertaken by Economic Insight (EI) and Ofwat’s calculation. The Panel encourages Ofwat to undertake a comparison of its findings with the analysis undertaken by EI to better understand the reasons for these differences.
Independent Chair of the Strategic Panel, Trisha McAuley said: “The Panel recognises the challenge associated with amending the REC in the context of the current cost of living crisis, and the clear desire to protect customers as a result. However, the Panel believes that the best, and most sustainable, solution for protecting customers in the longer term is likely to be a package of measures that look to fix the lack of competition in the medium term.”
You can read the Strategic Panel’s full response here.
If you have any questions on the response please email
