CEO Quarterly Market Review Q3 2017/18

Transcription

1 CEO Quarterly Market Review Q3 217/18

2 The market to date (as 1 January 218) 25 wholesalers 37 retailers in the market self-supply retailers national retailers regional retailers 2.7m supply points 5.2m transactions 1 91,96 services switched 31 code changes considered by the Panel 5 committees established 3 working groups established 2 market code dispute Financial settlement of around 213m a month planned settlement runs corrective settlement runs cost of 1.1m per month to operate the market 1 Transactions relate to all interactions by trading parties with the central system (CMOS), e.g. switches, meter readings, etc.

3 Contents Foreword 1 Review of the third quarter 3 The market landscape 3 Switching 8 Settlement and data quality 16 Market change 17 Looking forward 19

4 1 MOSL CEO Quarterly Market Review Q3 217/18 Foreword Welcome to our third Quarterly Market Review, reflecting on non-household retail water market activity from October to December 217. We have seen encouraging developments in the last three months, with two new retailers Marston s and First Business Water joining us over the quarter and more on their way to doing so. Switching increased from Q2 levels, with over 3, switches processed, and over 91, switches in the market so far. Ofwat, the industry regulator, is looking to create a means of monitoring contract renegotiations by customers, another equally important indicator of engagement in the market. We have been busy working on our market reporting capabilities over the quarter and I m excited to share with you our latest market insight, including for the first time geographic data sets and information around data quality. We have seen very low levels of disputes, with just one submitted over the quarter. This is very encouraging and testament to the hard work of trading parties in working through issues as they have arisen. The Panel, supported by its sub-committees, has considered 14 change proposals over the quarter, spanning a broad range of topics, from a full review of the market performance framework to improvements to meter validation messaging. The Panel also established a new Trade Effluent Issues Committee to prioritise trade effluent issues and look to resolve some of the most common areas of concern for trading parties. A Trade Effluent Training Workshop was also held in November led by MOSL and trade effluent experts to cover the end-to-end process of applying for a consent and getting set up on CMOS. MOSL is working with trading parties to develop its plans for further sessions on this important issue in the near future. The Market Incident Management Plan (MIMP) Committee, made up of 3 retail and 3 wholesale members, was established during the quarter. The committee governs the maintenance of the appropriate level of guidelines, compliance and planning required to manage a Market Level Incident should it materialise. The committee will hold its first meeting in the coming quarter. We have also been looking at how digital innovation can reduce barriers to entry and further stabilise the market. The Digital Strategy Committee is playing a key role in this respect, and held its first meeting over the quarter. Amongst other things, the Committee has agreed an approach to data quality improvement and commissioned a questionnaire to better understand data relating to bilaterals and its impact on the industry, with a view to identifying opportunities to reduce market friction.

5 MOSL CEO Quarterly Market Review Q3 217/18 2 Switching increased from Q2 levels, with over 3, switches processed, and over 91, switches in the market so far. We are currently running the first market audit, designed to increase confidence in the market by providing independent assurance on trading party compliance, MOSL compliance and on CMOS. We have highlighted the 6 key themes within the report and are working with the market to respond to the issues raised. Market systems and processes are stabilising, with CMOS 3.5 delivered into the production environment on 1 December as planned. Stabilisation is critical in a context when we will still be running processes for the first time well into the summer. It is also the golden thread underpinning our 218/19 Business Plan, which was approved by our voting members at a General Meeting on 15 December. The approval of our 218/19 Business Plan was a great vote of confidence in our plans and our people. Our Business Plan sets out our priorities for the coming year, provided under five pillars: Stabilisation, Service, Engagement, Innovation and Governance. The past quarter saw us move location to our new offices in Monument, London; a decision that enabled us to deliver on our promise to our members of putting cost-efficiency at the heart of everything we do through annual savings of over 2k compared to our previous premises, while also being able to deliver collaboration opportunities by enabling us to host meetings of our members and stakeholders on site. We were fortunate enough to be joined by the Minister for Water, Thérèse Coffey, who officially opened our offices in November and took the opportunity to reiterate the importance of continued successful partnership working between the Open Water Programme partners, Defra, MOSL and Ofwat, in the live market. We look forward to working with our members and stakeholders in the months ahead, including as we approach the milestone of one year since market opening. Chris Scoggins Chief Executive Officer, Market Operator Services Limited (MOSL)

6 3 MOSL CEO Quarterly Market Review Q3 217/18 Review of the third quarter The market landscape The third quarter of the market has seen new self-supply and national retailers enter the market with more progressing through the licensing and market entry assurance process. The new retailers that entered the market during the quarter, brought the total number of retailers to 37. Of these companies, 23 retailers have licences to operate nationally. The retailer landscape continues to include organisations who serve a limited geographical area such as retail arms of NAVs (New Appointment and Variation) who typically serve single premises or new development sites. Other regional retailers include retail arms of companies yet to exit the market and self-supply retailers. The geographical spread of retailers actively switching supply points across wholesale areas can be seen in the map, showing that there are at least 13 retailers operating in each wholesale area. Number of Retailers in Wholesale Areas Number of Retailers with Supply Points As at 2 January 218 One new self-supply organisation joined the market in the quarter and the market will continue to see a mix of retailer types as more self-supply retailers enter and incumbent companies exit the non-household market Please note, the following small water or sewerage wholesalers have not been included on the map due to their small size: Albion Eco, Albion Water, Icosa Water, Independent Water Networks, Peel Water Networks, Severn Trent Connect, SSE Water and Veolia Water Projects.

7 MOSL CEO Quarterly Market Review Q3 217/18 4 The 5 largest national retailers account for more than 8% of the total number of supply points served by national retailers. Number of Supply Points by National Retailer Total Supply Points as at 2 January: 2,358,975 Water Plus 863,966 Castle Water 57,86 Anglian Water Business NWG Business Business Stream Water2business Pennon Water Services Affinity for Business SSWB Ltd SES Business Water Everflow Clear Business Water The Water Retail Company Pod53 Regent Water Water Choice South East ADSM Three Sixty Water Cambrian First Business Water Waterscan Veolia Water Retail Thames Water Commercial Services 248, ,945 15, , ,634 73,596 44,814 21,567 12,543 2, k 4k 6k 8k 1k Number of Supply Points Water Sewerage

8 5 MOSL CEO Quarterly Market Review Q3 217/18 The total number of supply points served by regional retailers has decreased since market opening due to customers switching across to national retailers. Number of Supply Points by Regional and Self-Supply Retailer Total Supply Points as at 2 January: 311,321 Yorkshire Water 253,585 South East Water Choice 51,859 Greene King 3,187 Marston s 1,693 Independent Water Networks 358 SSE Water 254 Veolia Water Projects 157 Dwr Cymru Welsh Water 111 Albion Water 5 Leep Water Networks 49 Dee Valley Water 17 Albion Eco 1 Icosa Water Severn Trent Water 5k 1k 15k 2k 25k 3k Number of Supply Points Water Sewerage

9 MOSL CEO Quarterly Market Review Q3 217/18 6 The consumption charts show that national retailers serve the majority of the water and wastewater produced within the market. The consumption figures within these charts include the total water and sewerage volumes produced in million litres per month. The 5 largest national retailers, by number of supply points, account for almost 8% of the total consumption by national retailers. Consumption by National Retailers As at 2 January Water Plus Castle Water Anglian Water Business NWG Business Business Stream Water2business Pennon Water Services Affinity for Business 4,455 7,996 6,773 8,7 4,132 13,687 3,325 39,856 SSWB Ltd SES Business Water Everflow Clear Business Water The Water Retail Company Pod53 Regent Water Water Choice South East ADSM Three Sixty Water Waterscan Veolia Water Retail Thames Water Commercial Services First Business Water Cambrian 1,996 1,741 1, k 1k 15k 2k 25k 3k 35k 4k Million Litres/Month Water Consumption Sewerage Consumption

10 7 MOSL CEO Quarterly Market Review Q3 217/18 Consumption served by regional retailers reflects the variety in size and customer type served by this diverse group of organisations. Consumption by Regional and Self-Supply Retailers As at 2 January Yorkshire Water 12,175 South East Water Choice 2,172 Greene King 537 Marston s 274 Independent Water Networks 131 SSE Water 26 Veolia Water Projects 4 Dwr Cymru Welsh Water 2,672 Albion Water 1 Leep Water Networks 12 Dee Valley Water 1 Albion Eco 2 Severn Trent Water Icosa Water 2k 4k 6k 8k 1k 12k 14k Million Litres/Month Water Consumption Sewerage Consumption

11 MOSL CEO Quarterly Market Review Q3 217/18 8 Switching Levels of switching increased in the third quarter compared with those seen in the second quarter. There were 3,649 switches in the last 3 months of 217. This quarter has seen the largest number of switches since the market opened, once the pre-market switches are taken into account. This means that since market opening there have been 91,96 supply point switches representing almost 3.5% of the 2.7 million supply points in the market. Cumulative Switching of Service As at 2 January 218 1k 8k Number of Supply Points 6k 4k 2k 3 April 1 April 17 April 24 April 1 May 8 May 15 May 22 May 29 May 5 June 12 June 19 June 26 June Transaction Date, Week Commencing Total Switching Water Services Sewerage Services 3 July 1 July 17 July 24 July 31 July 7 August 14 August 21 August 28 August 4 September 11 September 18 September 25 September 2 October 9 October 16 October 23 October 3 October 6 November 13 November 2 November 27 November 4 December 11 December 18 December 25 December

12 9 MOSL CEO Quarterly Market Review Q3 217/18 Switching shown as a weekly activity rate demonstrates the quarterly upturn in underlying activity in addition to the peaks of switches associated with large multi-site national contracts being secured by retailers. Weekly Switching Rate Total Supply Points switched as at 2 January: 91,96 6k 5k Number of Supply Points Switched 4k 3k 2k 1k 3 April 1 April 17 April 24 April 1 May 8 May 15 May 22 May 29 May 5 June 12 June 19 June 26 June 3 July 1 July 17 July Transaction Date, Week Commencing Total Water Sewerage 24 July 31 July 7 August 14 August 21 August 28 August 4 September 11 September 18 September 25 September 2 October 9 October 16 October 23 October 3 October 6 November 13 November 2 November 27 November 4 December 11 December 18 December 25 December

13 MOSL CEO Quarterly Market Review Q3 217/18 1 Proportion of Switches in Wholesale Areas Number of Switches per 1, SPIDs As at 2 January 218 The proportion of switching by wholesale area shows that the highest levels of relative switching activity can be seen in the south and southeastern areas of England Please note, the following small water or sewerage wholesalers have not been included on the map due to their small size: Albion Eco, Albion Water, Icosa Water, Independent Water Networks, Peel Water Networks, Severn Trent Connect, SSE Water and Veolia Water Projects.

14 11 MOSL CEO Quarterly Market Review Q3 217/18 Volumes of supply points switched during the quarter show new entrants retaining the level of uptake at c.35% of the supply points switched as in the second quarter. The term new entrant is defined as those retailers who are not an associated company of a wholesaler. Switching of Service by National Retailers As at 2 January Water Plus -2,558 19,215 Castle Water -26,115 5,236 Anglian Water Business -7,594 11,74 NWG Business -6,421 3,85 Business Stream -6,717 1,516 Water2business Pennon Water Services Affinity for Business SSWB Ltd -4,584-2,229-3,672-1,913 1,225 2,546 2,874 3,875 SES Business Water ,872 Everflow ,375 Clear Business Water -1 2,826 The Water Retail Company Pod53 Regent Water Water Choice South East ADSM Three Sixty Water First Business Water Waterscan Veolia Water Retail Thames Water Commercial Services Cambrian k 25k 2k 15k 1k 5k 5k 1k 15k 2k Number of Supply Points Water Gain Sewerage Gain Water Loss Sewerage Loss

15 MOSL CEO Quarterly Market Review Q3 217/18 12 When switching is shown by consumption levels, new entrants gains were 4% lower this quarter than in the second quarter. Switching of Service by Consumption - National Retailers As at 2 January Water Plus -2,871 1,984 Castle Water -3, Anglian Water Business NWG Business Business Stream ,327 Water2business Pennon Water Services Affinity for Business SSWB Ltd SES Business Water Everflow ,121 1,51 Clear Business Water 136 The Water Retail Company 433 Pod53 Regent Water Water Choice South East ADSM Three Sixty Water Cambrian Veolia Water Retail Waterscan Thames Water Commercial Services First Business Water k 3k 2k 1k 1k 2k 3k Million Litres/Month Water Gain Sewerage Gain Water Loss Sewerage Loss

16 13 MOSL CEO Quarterly Market Review Q3 217/18 The switching of service by supply points and consumption for regional retailers reflects a varied picture including organisations that have yet to exit and are less active than their national counterparts and self supply organisations bringing water and sewerage services onboard for their premises. Switching of Service by Regional and Self-Supply Retailers As at 2 January Yorkshire Water -8,517 South East Water Choice -2,878 1,481 Greene King -3 3,36 Marston s 1,729 Independent Water Networks SSE Water -4 Veolia Water Projects Dwr Cymru Welsh Water -4 Albion Water Leep Water Networks Dee Valley Water Albion Eco Icosa Water Severn Trent Water 1k 8k 6k 4k 2k 2k 4k Number of Supply Points Water Gain Sewerage Gain Water Loss Sewerage Loss

17 MOSL CEO Quarterly Market Review Q3 217/18 14 Switching of Service by Consumption - Regional and Self-Supply Retailers As at 2 January Yorkshire Water -954 South East Water Choice Greene King 541 Marston s 276 Independent Water Networks SSE Water -12 Veolia Water Projects Dwr Cymru Welsh Water -39 Albion Water Leep Water Networks Dee Valley Water Albion Eco Icosa Water Severn Trent Water Million Litres/Month Water Gain Sewerage Gain Water Loss Sewerage Loss

18 15 MOSL CEO Quarterly Market Review Q3 217/18 Switching has continued in all customer segments. The cumulative switching rate within M5 (e.g. farm, mine), M7 (e.g. chemical factory, brewery) and M9 (e.g. oil refinery, port) segments shows a continuing trend of higher switching propensity for trade effluent service points. Proportion of supply points switched within segment Total Supply Points switched as at 2 January: 9196 Supply Points, Proportion of Segment 25% 2% 15% 1% 5% % 1.1%.8% M1 1.4% 1.1% 3.4% 5.1% 2.1% 3.4% 6.3% 6.6% 6.5% 5.3% Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 Q2 Q3 7.2% 6.7% 7.1% 3.5% 7.7% 2.1% 4.% 5.5% M2 M3 M4 M5 M6 M7 M8 M9 4.7% 3.5% 1.4% 5.7% 7.7% 6.2% 11.% 12.1% 4.1% 3.2% 1.6% 6.% 1.4% 8.% 6.7% 1.9% Water Sewerage Consumption Profile Threshold - Water Consumption Per Supply Point, Litres Per Day (l/d) Trade Effluent Customer Example M1 less than 1 l/d No Church, bank M2 1 l/d to 1, l/d No Pub, hairdresser M3 1 l/d to 1, l/d Yes Residential building site, local garage M4 1, l/d to 3,5 l/d No Hotel, warehouse M5 1, l/d to 3,5 l/d Yes Farm, mine M6 3,5 l/d to 13,7 l/d No Supermarket, university M7 3,5 l/d to 13,7 l/d Yes Chemical factory, brewery M8 greater than 13,7 l/d No Airport, power plant M9 greater than 13,7 l/d Yes Oil refinery, port

19 MOSL CEO Quarterly Market Review Q3 217/18 16 Settlement and data quality In addition to 24 planned settlement runs, 28 corrective runs were provided for trading parties to address settlement issues. These runs are usually required as a result of inaccurate data elements being submitted such as meter reads. The aggregate settlement value chart only includes P1 (provisional monthly settlement report using forecast consumption information) and R1 (first monthly settlement report including actual meter readings) settlement runs. R1 settlement charges were 2% on average higher than those charges calculated in P1 for periods since the market opened. This difference is mainly driven by the inaccuracy of the retailer meter reads, but lower differences are being seen in more recent months. Aggregate Settlement Value 25M 24M 23M 22M 21M 2M GBP 19M 18M 17M 16M 15M April May June July August September October November December January P1 R1

20 17 MOSL CEO Quarterly Market Review Q3 217/18 Number of Supply Points Settlement is most significantly affected by missing or incomplete data items (user exceptions), the accuracy of meter reads and missed meter reads. These are data driven reasons for a supply point not settling accurately. The number of supply points with user exceptions decreased sharply in August due to data cleansing activity performed by wholesalers to improve the quality of the market data. The last quarter has not seen this level of reduction continue. The Looking Forward section of this review outlines areas of focus for improvements to data quality. Supply Points with User Exceptions 8k 7k 6k 5k 4k 3k 2k 1k April May June July August September October November December User Exceptions Market change Panel and Committee activity In the last quarter, the Panel established the Market Incident Management Plan (MIMP) Committee that will oversee the governance processes surrounding the Business Continuity Management Framework, as described in CSD 7 (Business Continuity Management). The Committee will delegate its role and functions which relate to the strategic management of an incident to a sub-group, called the Incident Management Group. The Panel also established the Trade Effluent Issues Committee (TEIC) to consider concerns raised by Trading Parties around the operations of this area in the new market. The TEIC will meet through 218. Its initial focus will be on temporary trade effluent consents and the potential for a new Operational Performance Standard. In support of this work we staged a Trade Effluent Training Workshop in partnership with the Trade Effluent Practitioners Network. This workshop looked at the legislation and the operational process for obtaining a consent and how these are entered into CMOS. We are looking to hold similar sessions in the future. The work of the General Data Protection Regulation (GDPR) Issues Committee is expected to conclude, following the Committee providing its recommendation to the Panel. This recommendation consists of MAC and WRC change proposals and is expected to be issued to Ofwat for decision by the end of January 218.

21 MOSL CEO Quarterly Market Review Q3 217/18 18 The Market Performance Committee (MPC) also provided a recommendation to the December Panel on two draft change proposals relating to its review of the market performance standards (MPS) and operational performance standards. In early January 218, these change proposals were issued to trading parties for consultation, with the intention these will be implemented ahead of market performance charges commencing from April 218. Change The Panel has considered 31 change proposals since market opening, with 14 raised during the last quarter. These covered a range of topics from the review of market performance standards, system error codes, GDPR and data protection updates. Of these change proposals, 18 have been recommended to Ofwat for approval, 2 have been recommended for rejection, 1 has been withdrawn and 1 are underway. Since market opening, 1 code changes have been implemented and, as of mid-january, a further 4 are awaiting decision from Ofwat. Market audit PwC has provided MOSL with the interim trading party market audit report which is a thematic view of the key issues in the market. This report summarises at a high level the audit findings from the individual site visits that encompassed every trading party in the market, July through November 217. PwC have discussed the six key themes at the User forum and Panel and MOSL has drafted a response to the findings which sets out where the market resolution will be tracked and reported on and this will be published alongside the report. The six key themes are: 1. Data quality 2. Deployment of the Wholesale-Retail Code 3. Bilateral processes 4. Frequency and accuracy of meter reads 5. CMOS functionality 6. Trade effluent processes Whilst these issues are not a surprise to the market and work is already underway to address them, the report provides further granularity and recommendations providing a structure to track remediation. We hope this serves to raise the profile of these issues and drive market and individual resolution. In formulating the thematic review report, PwC have provided each trading party an individual report that highlights specific findings for the trading party involved. The early identification and reporting on issues provides trading parties with an opportunity to rectify the audit findings before the end of the year. Market Operator compliance We have completed a review of our compliance against the 1,156 identified Market Operator obligations contained within the market codes. Compliance results were presented to the Market Performance Committee, with particular focus on the market impact of those obligations with which we remain non-compliant, and our proposed mitigation plans and actions. We plan to publish these results on our website so that it is made available to Trading Parties.

22 19 MOSL CEO Quarterly Market Review Q3 217/18 Looking forward Business Plan 218/19 Following the approval of our 218/19 Business Plan in December, we are now focused on implementing the detailed plans and reporting framework required to deliver the stable, innovative and cost-conscious services outlined. Market performance framework The full review of the Market Performance Framework undertaken during the quarter has resulted in a set of recommended changes which are out for consultation during January with a view to implementing the agreed changes from the start of April. Data quality Prior to Market Opening a number of key data set items were identified as requiring special focus. These items impact on either financial calculation during settlement or on the day to day operation of the market processes. Examples of these items includes invalid meter reads; water and waste supply points being unpaired, or missing information that supports the accurate location of meters. To facilitate data quality improvement in these and other key items the Digital Strategy Committee (DSC) is working closely with trading parties and other committees to support rectification of these data issues. We are seeing an increasing number of changes being raised by trading parties and there is a steady pipeline of change for the Panel and its committees to consider.

23 MOSL CEO Quarterly Market Review Q3 217/18 2 Central System & digital initiatives The Central System high level plan for 218/219; reflecting the move to 2 CMOS releases a year has been published on the MOSL website. This shows the key phases in the development testing and deployment of CMOS releases. The DSC has been established to provide governance over the digital initiatives and technology components that support the obligations of the new retail market as set out in the Market Arrangements Code (MAC) and the Wholesale-Retail Code. The Committee is focusing on both longer term strategic initiatives as well as tactical issues such as data quality remediation; improvements to the low and high volume interfaces to CMOS and improved reporting. For strategic initiatives, the DSC is looking at the impact created by Bilaterals to inform a way forward on that issue as well as maintaining a watching brief on emergent technologies such as Blockchain as it relates to potential future technological developments. Market change We are seeing an increasing number of changes being raised by trading parties and there is a steady pipeline of change for the Panel and its committees to consider. The pipeline includes technical changes around SPID versioning and the use of TCORRs on inactive data entities. We will be considering changes to help tackle unpaired SPIDs. We also anticipate changes will arise from the work of the Trade Effluent Issues Committee, particularly in areas relating to temporary consents. Two changes to credit arrangements were proposed by Trading Parties in 217. In light of these proposals and feedback from Trading Parties on the current credit rules, we will work with the Panel to review the credit arrangement set out in the Wholesale Retail Code. We will ensure this work is co-ordinated with Ofwat s proposed consideration of credit arrangements. In December, the Panel conducted a review of its processes and operating practices. We will progress improvements identified at this workshop through early 218. This will include consideration of the Panel s strategic priorities.

24 MOSL, 4th floor, Monument Street, London, EC3R 8AJ Tel: info@mosl.co.uk MOSL 218 All information in this document including text, data and images, is protected by copyright. Information may not be copied, reproduced or republished without: accrediting MOSL as the data source; referencing the MOSL publication date; and including a link to the original data source on the MOSL website. For more information please see the CEO Quarterly Review Data Publication Guidance via the MOSL website.