Open Letter to Ofwat, Panel, CCW, MOSL Aug 2024

Open Letter to:

• Ofwat (Dan Mason, Shaun Kent)
• The Strategic Panel (Trisha McAuley OBE)
• MOSL (Dr Sarah McMath)
• CCW (Dr Mike Keil)

Dear Dan, Shaun, Trisha, Sarah and Mike,

Remedial action required to ensure the NHH water market settlement design is acceptable to customers

The Settlement system and codes we are using are unacceptably out of date. The codes are based very largely on the Scottish equivalent, which were developed around 2005, ahead of the Scottish market opening in 2008. They operate on a basis which does not cater for either the bulk resolution of issues on the scale seen in England (roughly 10x the size of the Scottish market), does not provide acceptable accuracy of charges, nor do they use modern system designs to ensure payments flow rapidly.

CMOS is a Settlement system – it calculates the charges between each wholesaler and each retailer. In itself, this is not a “market” – the prices are already set, there is no price negotiation, no agreement of terms. Market activity happens at the retail interface, between retailer and customer. The fundamental simplicity of Settlement in principle, with no negotiation over pricing or contract terms, makes it possible for charges calculated in CMOS to be accurate and provided rapidly.

In other areas of commercial activity, customers now expect and receive rapid and accurate transactions, and the time to effect transactions has reduced to a fraction of timings in c. 2005. As an example, bank transaction times were up to 5 days in 2005, now Faster Payment transactions take place intra-day. However, there has been no reduction in the time required to complete the settlement process since the Scottish market opened in 2008. Bank account and credit card account charges and balances can be calculated many times per day.

There are three major unacceptable flaws in the water market Settlement design:

1. Settlement timetable: this can take a period of 8 months to return incorrect charges. Customers typically are now dealing in other spheres with platforms where charges can be calculated and errors rectified on a same day or next day basis. It is not acceptable for Wholesalers to be able to sit on funds which should be returned to retailers and then to their customers for any length of time, let along a period of several months. As a point of comparison, Castle aims to make customer refunds within one week, and in some cases sameday. It is positive that the Roadmap does acknowledge the need to develop Smart Settlement, but the timescales and prioritisation of this are out of kilter with other sectors, and will result in further progressive loss of confidence in the NHH market.
   
2. Meter accuracy: customers would find it completely unacceptable if they knew that meter accuracy standards accept a variation of up to 20%. At Castle Water, our aim is to make billing completely accurate, which is clearly the expectation of our customers. This is simply not possible to the level expected by customers. Meter accuracy needs to be addressed in tandem with the rollout of smart meters – the implications of not doing so are obvious, given meter tolerances are greater than targeted efficiency gains.
   
3. Bulk notification of errors: the market Codes still presume a very manual and SPID by SPID data flow, which is inefficient and slow. The failure to build systems to provide information flows on a bulk basis lets down customers, and is inefficient to administer. The latest proposals for MPF reform relating to M01 cyclic meter reads will necessitate a significant increase in bilateral submissions. However, the processing of these will be inefficient to submit, manage and analyse, as there is still no provision for bulk management of these. This change will in effect require all skip data to be processed through individual bilaterals (or punitive charges can be incurred) – an expensive and inefficient process. Castle has worked with wholesalers, including Thames and South East, to develop more efficient ways to rapidly manage resolution of asset-related issues identified through meter-reading. It is notable that these work outside the Settlement process, are efficient and improve customer outcomes, but are threatened by MPF reform.

Not related to the fundamental design, but nonetheless important are the two specific issues, each affecting thousands of customers, which I have raised over a period of years and are still unresolved:

1. Rateable Value charging: this remains punitive, and unfair, and results in many of the smallest customers being systematically over-charged;
   
2. Sub-meters: despite 2 years of work by MOSL, the obvious and effective resolution has not been implemented, and retailers are still unable to enter sub-meter reads into CMOS where the retailer is responsible for the main meter but not the sub-meter. I have not come across a single customer who finds this acceptable.

There are two issues where I have previously raised concerns about harm being caused to customers, where increased reporting and enforcement are necessary. These continue to be a significant problem for affected customers, and I would ask for an update on how these are to be monitored and reported:

1. Transfer reads: some retailers continue to routinely use estimates to enter T reads into CMOS, apparently on the basis of the cost of carrying out the read. This results in a relatively high level of subsequent changes, and must also mean that quotes for services are likely to be misleading. I have not seen recent analysis of this by MOSL/the Panel, but would repeat that the widespread use of estimated T reads is against both the Codes and customer interests, although little action seems to be taken to address this. As a minimum, MOSL or the Panel should publish monthly the percentage of T reads which are estimated submitted by each retailer.
   
2. Blocked switches: when a customer chooses a supplier, two issues at the forefront of their consideration should be the price, and their ability to exercise a future choice to switch again. This is frustrated where, as we have seen in the Scottish market, switches are routinely blocked. Ofwat is clearly addressing this in part through changes to the Code of Practice. However, I continue to believe it is essential that MOSL or the Panel should publish the statistics on the percentage of switch attempts blocked by each retailer. This is important information for customers, the information is available, and it is clearly more important than some of the data routinely published to inform customers of market behaviour.

None of these issues – the structural flaws, or the two areas highlighted which each affect thousands of customers, or areas requiring improved reporting – are being properly tackled by the Roadmap, or appear to be a priority to any of the Panel, MOSL, Ofwat or CCW. This is despite these all being important issues for customers, and affecting confidence in the NHH market. I welcome some initiatives in the Roadmap, notably the focus on ensuring that data is made available to customers, something for which I have advocated. However, the NHH “market” will simply not be acting in an acceptable manner if these issues are not addressed. Any market, to be successful, must have the confidence of all parties to transactions, including customers. None of the protracted settlement timetable, poor meter accuracy, and lack of bulk notification of errors would individually enable customers to be confident in the market. Put together, these constitute a flawed system. It is the responsibility of the addressees in some combination to address this, and I would ask for your proposals on how you will do this.

I have written this as an Open Letter, and will share it with Castle Water’s customers. I would be very happy to discuss these issues with you in more detail.

With best wishes,

John