Measures aimed at: combating the spread of Covid-19; and strengthening protections for Non-Household customers who are late paying their bills; could result in higher than expected levels of bad debt in the business retail market.
In April 2020, we committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of Non-Household revenue, which we considered was the level of bad debt an efficient and prudent Retailer should have planned for.
On the basis of available information, levels of bad debt across the market are likely to exceed this 2% threshold.
As a result, we are consulting on proposals to amend the price caps in the Retail Exit Code (REC), which apply to small and medium sized business customers who have not engaged in the market. Retailers will be expected to bear market-wide bad debt costs up to 2% in full. We propose adjusting the price caps to enable market-wide bad debt costs in excess of 2% to be shared between business Retailers and Non-Household customers. If bad debt costs turn out not to exceed the 2% threshold, we will unwind any additional protections implemented.
Our consultation sets out the following preferred positions in relation to:
- Timing – Retailers’ accounting estimates should be used to estimate initial bad debt costs with an initial adjustment to the price caps in April 2022. A subsequent adjustment will be made once more accurate information is available.
- Recovery mechanism – We propose to make a market-wide, uniform uplift to price cap levels, giving Retailers additional freedom to adjust their prices in the light of increased bad debt costs.
- Sharing factors – If market-wide bad debt costs exceed 2% we propose the following sharing factors:
- Outturn bad debt costs up to 3% – Retailers and Non-Household customers should each be expected to bear 50% of any market-wide bad debt costs in excess of 2%.
- Outturn bad debt costs exceed 3% – Retailers should be expected to bear 25% of any market-wide bad debt costs in excess of 2% and Non-Household customers 75%.
How to respond
We are seeking views and evidence from all interested stakeholders by 5pm Tuesday 6th April 2021. Any response to this consultation may be sent to [email protected] with the subject ‘Customer Bad Debt March 2021 consultation’.
Webinar – Wednesday 24 March, 2pm-3pm
On Wednesday 24 March 2021 2pm – 3pm, we held a Business Customer Bad Debt Consultation webinar. The webinar provided an opportunity for interested parties to ask questions on this March 2021 consultation document and any issues arising.