£300 Million a Month: Is Water Settlement Fit for the Future?
Every month, nearly £300 million passes through the English business water market's settlement arrangements. But as smart metering transforms the information available to retailers and wholesalers, is it time to rethink how settlement works?
£300 million is a lot of money
Settlement is one of those subjects that rarely attracts attention outside the water industry.
Customers generally don't know it exists.
And, provided everything works correctly, they shouldn't need to.
But behind every business water bill sits a substantial financial process.
Retailers purchase wholesale water and wastewater services from regional wholesalers. The charges are calculated through the market's central settlement arrangements, using information held in CMOS.
According to MOSL, trading parties were settling nearly £300 million every month in 2025.
That's approximately £3.6 billion a year.
So even relatively small discrepancies can become financially significant.
A difference of just 1% across that monthly value would represent £3 million.
And that raises a fairly obvious question.
How confident are we that the market is calculating the right charges, at the right time, using the right information?
Settlement was designed for a different market
When the English non-household market opened in April 2017, its settlement arrangements were designed around the information and technology available at the time.
Meter readings were relatively infrequent.
Consumption frequently needed to be estimated.
Market data could change retrospectively.
And it was necessary to allow time for more accurate information to become available.
The solution was a series of settlement runs.
First, provisional settlement.
Then successive reconciliation runs as actual meter readings and corrected market information became available.
Finally, the RF settlement run.
This is a perfectly understandable approach.
But it has an interesting consequence.
The wholesale charges associated with a particular month can continue changing long after that month has finished.
A month of water can take 16 months to settle
Consider a customer consuming water in January.
The retailer needs to understand the wholesale cost of supplying that customer.
But the market's settlement timetable involves several stages.
P1 provides provisional charges before the consumption month begins.
R1 provides the first reconciliation shortly after the month ends.
R2 follows approximately two months later.
R3 follows approximately eight months later.
RF, the final scheduled reconciliation, follows approximately sixteen months after the original consumption month.
Each run may incorporate additional meter readings, corrected market data or other changes affecting the calculation.
That means a retailer may still be reconciling charges associated with water supplied more than a year earlier.
There are good reasons for this.
But from a financial management perspective, it creates some interesting challenges.
The real problem isn't necessarily the calculation
It would be easy to argue that settlement simply needs to be faster.
But I think that misses something important.
The fundamental requirement for a retailer isn't necessarily to receive a final settlement number immediately.
It is to have a reliable understanding of its wholesale liabilities.
- What does it owe?
- Why does it owe that amount?
- How confident can it be in the calculation?
- What might change?
- And what is the likely financial impact of those changes?
Those are the questions that matter to a retailer's finance team.
Because wholesale charges aren't a minor overhead.
They are generally the largest component of a retailer's cost base.
Uncertainty in settlement is uncertainty in the retailer's financial position.
Cashflow matters
The timing of settlement has commercial consequences.
Retailers may bill customers monthly, quarterly or annually.
Some bill in advance.
Others bill in arrears.
Meanwhile, wholesalers expect payment according to the applicable market arrangements.
Those two cashflows don't necessarily align.
A retailer may therefore need to fund wholesale charges before receiving the corresponding customer revenue.
Or it may receive customer revenue based on estimated consumption and subsequently discover that its wholesale liabilities were materially different.
Now add retrospective corrections.
- A meter reading arrives late.
- An estimated consumption figure is revised.
- A service component changes.
- A meter exchange is corrected.
- A tariff or market-data issue is resolved.
- The wholesale liability changes.
And the retailer needs to reconcile the difference.
This is why settlement accuracy isn't simply an accounting issue.
It affects working capital, forecasting, pricing, credit requirements and ultimately the commercial sustainability of retailers.
Can retailers independently verify settlement?
There is another question worth asking.
Should a retailer simply accept the settlement values produced by CMOS?
Clearly, the central market system provides the authoritative market calculation.
But that doesn't mean retailers shouldn't be able to understand and independently assess those figures.
Indeed, there are good reasons why they should.
A retailer ought to be able to examine the underlying information:
- The SPID.
- The services provided.
- The meter and consumption data.
- The relevant wholesale tariff.
- The applicable dates.
- And the resulting charges.
From that information, it should be possible to calculate an expected wholesale liability.
Then compare it with the actual settlement result.
Where the figures agree, excellent.
Where they differ, the system should help explain why.
Settlement assurance should be about identifying the exceptions, not manually checking every calculation.
The importance of understanding change
One of the most useful questions a retailer can ask is:
What changed between R1 and RF?
Suppose the original settlement charge for a SPID was £1,200.
By R2, it has increased to £1,350.
At R3, it becomes £1,310.
And at RF, it settles at £1,425.
The final figure may be entirely correct.
But the retailer should understand what caused those movements.
- Was it a new meter reading?
- A revised estimated consumption?
- A correction to the meter history?
- A change to the service information?
- Or a different charging component?
Simply knowing that the total changed isn't particularly helpful.
Understanding why it changed is considerably more valuable.
And across thousands of SPIDs, that becomes a data-analysis problem.
Smart meters change the assumptions
There is a major reason why this discussion is particularly relevant now.
Smart metering.
The original settlement methodology was developed in a market where consumption information was often sparse.
That is beginning to change.
The Smart Meter Read Hub is making more granular consumption information available.
Wholesalers are installing substantial numbers of smart meters.
And retailers are increasingly able to access more frequent consumption data.
In theory, that should reduce some of the uncertainty associated with estimating consumption between infrequent manual reads.
But we should be careful.
More meter readings don't automatically mean more accurate settlement.
The data still needs to be validated.
Meters need to be correctly associated with SPIDs.
Missing intervals need to be handled.
Meter exchanges need to be recorded accurately.
And consumption information needs to be translated into the market's settlement requirements.
Nevertheless, the direction is clear.
If we know considerably more about actual consumption, perhaps we should eventually need to estimate considerably less of it.
Do we still need the same reconciliation model?
This leads to an interesting question.
If the market eventually has reliable daily or hourly consumption information for most SPIDs, should we continue using essentially the same settlement timetable?
Perhaps.
There will always be corrections.
Data will arrive late.
Disputes will occur.
And some consumption will still require estimation.
But the balance between estimated and actual information could change dramatically.
That creates an opportunity to reconsider the purpose of each settlement run.
- Could provisional settlement become more accurate?
- Could early reconciliation provide greater confidence?
- Could material discrepancies be identified sooner?
- Could retailers receive better information about expected adjustments?
- And could some of the lengthy reconciliation processes eventually become less important?
These are questions rather than proposed answers.
But they seem worth asking.
MOSL is asking similar questions
MOSL's Settlement Improvement Programme is now examining the future of settlement.
The programme follows a Settlement Strategy approved by the Strategic Panel in March 2026.
Its stated objective is to develop a settlement process that is:
Faster. More reliable. Lower-cost. Trusted by trading parties. And capable of supporting future innovation.
The programme also recognises that settlement needs to evolve alongside smart metering and potential changes to tariff structures.
Interestingly, MOSL's October Market Focus reports that the programme's discovery phase has been extended.
The consultation on the Outline Business Case has moved from November 2026 to May/June 2027, with implementation expected to begin from April 2028.
The reason is important.
MOSL needs more time to establish the scale and financial impact of the problems that the programme is intended to solve.
That seems a sensible approach.
Before redesigning settlement, we should be clear about what isn't working and what improvement would actually be worth.
Faster isn't necessarily better if the numbers are wrong
There is a temptation with systems modernisation to focus on speed.
Faster processing.
More frequent calculations.
Shorter reconciliation periods.
But speed isn't the only measure of success.
A settlement system that produces an incorrect figure in seconds isn't necessarily an improvement on one that produces the correct figure tomorrow.
Likewise, more frequent settlement calculations could create additional operational work if each one generates unexplained changes.
Perhaps the better objective is:
More accurate information, available earlier, with greater transparency about how it was calculated.
That would benefit retailers and wholesalers alike.
Could settlement become more continuous?
There is also an intriguing longer-term possibility.
Today's settlement model is organised around defined monthly invoice periods and scheduled reconciliation runs.
That makes sense when information arrives relatively infrequently.
But smart-meter data changes the pattern.
Consumption information may become available daily.
Corrections may be identified automatically.
Market changes may be communicated through integrated systems.
In that environment, it is worth asking whether settlement calculations could eventually become more continuous.
Not necessarily continuous financial invoicing or payment.
Those are separate commercial and regulatory questions.
But continuous calculation of expected liabilities.
A retailer might be able to see, throughout the month, how its expected wholesale charges are developing.
And as new information arrives, the forecast could become progressively more reliable.
That would be valuable for cashflow management and financial planning.
It would also provide a much clearer view of emerging discrepancies.
And what about future tariffs?
Settlement reform cannot be considered in isolation from tariff innovation.
We have previously discussed the possibility of more sophisticated wholesale tariffs reflecting seasonal demand, subscribed capacity or water-resource conditions.
Some of these structures already exist in limited forms.
Others remain possibilities for the future.
But the more complicated tariffs become, the more important it is that settlement can calculate and explain them correctly.
Imagine tariffs with different rates applying during particular periods.
Or charging structures that depend on daily demand.
Or incentives linked to water-efficiency performance.
Each creates new requirements for consumption allocation, effective dates and calculation transparency.
A settlement system designed for yesterday's tariffs may struggle with tomorrow's.
That is another reason why the current improvement programme matters.
What should good settlement look like?
From a retailer's perspective, I would suggest several practical characteristics.
First, settlement should be predictable.
Retailers should have a reliable view of their expected wholesale liabilities.
Second, it should be transparent.
They should be able to understand how charges were calculated.
Third, it should be reconcilable.
Differences between expected and actual charges should be identifiable without excessive manual investigation.
Fourth, it should be timely.
Corrections and improved consumption information should be reflected as quickly as is practical.
Fifth, it should be adaptable.
The methodology should accommodate smart metering, new tariffs and future market requirements without repeated fundamental redesign.
And finally, it should be trusted.
Because trust in settlement is essential to the commercial operation of the market.
The £300 million question
Nearly ten years after market opening, the English business water market is changing.
Smart meters are transforming consumption data.
Market systems are being modernised.
Tariffs may become more sophisticated.
And retailers are under continuing pressure to operate efficiently while delivering better customer services.
Against that background, settlement reform is not simply a technical exercise.
It is an opportunity to improve one of the financial foundations of the competitive market.
The current arrangements have served an important purpose.
But perhaps the question is no longer simply whether CMOS can calculate the charges.
It is whether retailers can understand, anticipate and trust those charges throughout the settlement process.
Because when nearly £300 million is changing hands every month, confidence in the numbers isn't a luxury.
It's fundamental to a functioning competitive market.