It’s been 18 months since I joined the MOSL Board, and just over a year since I became Chair. You don’t need me to spell out the challenges and difficulties that we have all faced, both personally and corporately, over that period. However, it is always important to reflect, if only briefly, before looking forward. While COVID-19 has stymied many things, thanks to platforms such as Microsoft Teams and Zoom, I have still managed to “meet” many market participants over the course of the past year. Those meetings have been of great significance to me and have very much helped my thinking to date. I believe an essential part of my role is listening to the voices in the market – particularly those who have been operating during what has been a highly unpredictable and unstable period.
COVID-19 has revealed the fragility of the non-household water market. We knew that there were market frictions, which we have been seeking actively and collectively to address, but we have also seen more structural issues. These will require our shared energy to tackle and may need a more fundamental look at how things are done.
You might also observe that when the market was created, whilst we acknowledged the challenges of leakage and per capita consumption, and worried somewhat about climate change, population growth and water scarcity, the focus was launching a market on time, within budget and meeting expectations. Now, in 2021, the stakes are much higher. The need to tackle those structural issues that are preventing us from delivering against wider sector goals has evolved to being an absolute imperative. In fact, the water industry is highly ambitious in these targets – setting its net zero target, for example, 20 years ahead of the UK Government’s aim of 2050.
Let’s consider first the health of the market. We can see that there is relatively little competition, with 95 per cent of non-household customers still served by a geographic incumbent and switching rates remaining low. Ofwat has called for improvements in wholesaler performance and Board-level engagement on more than one occasion through its RISE report. Retailers tell us that they are deeply affected by lack of profitability, that new entrants perceive the market as “just too difficult” and that the creation of value-added services is inhibited by these factors. The Market Performance Framework does not necessarily encourage the optimum behaviours leading to customer benefit. Tariffs are complex and confusing. And customers at the lower consumption end of the market feel they are not able to enjoy the benefits of an open market. At a more practical level, we are all aware of the challenges around data quality and meter reading which have not helped us take significant steps forward in water efficiency.
I have heard all this first-hand in the meetings that I have had over the past year. These are very real concerns. I have heard, too, that “one size does not fit all” – that not all customers are created equal, yet the market is set up as though they are. I know from experience in other markets, that this is a hurdle we need to get over if the market is to thrive. There is a shared recognition, too, that while we are all working to remove market obstacles, that it is crucial that we revisit some of the decisions made at market opening and ask ourselves honestly what changes are needed to create a healthier and more vibrant market and address today’s challenges.
So, that is where we find ourselves. Now, you may ask what MOSL’s role is in all this? As the market operator, we have a role to play in ensuring the market operates effectively, as well as actioning change to improve market operations. As part of this, we believe that we have valuable insight to offer which will enable the market to evolve. So, at a recent MOSL strategy session, we considered where we find ourselves as a market, and assessed whether our existing business plan would help move things forward. We established that improvement programmes such as the Bilateral Transactions Programme and the Strategic Metering Review were progressing well with the very focussed aim of tackling market frictions. Our work on data insight and segmentation can only help to inform the wider debate. We are looking at incentives through the review of the Market Performance Framework and the Market Governance Review (of which more in a minute) should help effect and enable the pace of change. We identified some areas where innovations we can put in place such as a sandbox and ways to open up data might assist. But we recognised that there are areas where wider collaboration is needed, such as meter reading and ownership, water efficiency drivers and incentives, or pricing and tariffs. We can add insight and enable debate, but these are for others to push forward on.
One thing that has, of course, changed during the last year is the Panel. I am the first MOSL chair not to be chair of the Panel and the separation gives us all an opportunity to have a strategic body which can focus on how best to help the market develop. The last year has seen a governance review which has resulted in the creation of a Strategic Panel and a Code Change Committee, two structures which I believe will play a hugely significant role in addressing the issues that I have identified. My congratulations, too, to Trisha McAuley on her appointment as Strategic Panel chair.
Timing is everything. As PR24 begins to be considered and shaped, we would urge that the development of the business market is a key consideration. After all, there are 1.2m non-household customers using up to 30 per cent of the total water consumed in England. Given the conversations around water efficiency and water scarcity, it is important that these customers, and the water savings they can provide, are not ignored.
More broadly, we now understand the market more than we ever did, and every day we understand a bit more. So rather than say “we got things wrong” we must say “we know more, and we have learnt more”. That understanding is key to unlocking and enabling a successful market, where customers enjoy better service and value for money and are encouraged to use their water appropriately with an eye to the future. I personally believe that a successful market can be created if we work together now and are open about what we need to tackle and how best tackle it.
You can also view this blog via Anne Heal's LinkedIn, available here.