PN 08/20: COVID-19 and the business retail market: Ofwat consults on next steps

Ofwat, together with the market operator MOSL and other industry stakeholders have taken a number of steps to protect the interests of business customers in the water sector during the COVID-19 pandemic. This included temporary sector-specific liquidity support, the aim of which was to provide Retailers with time to establish what other support – including Government support – they could gain access to.

Now, as we begin to experience the gradual easing of restrictions and with many businesses starting to reopen, Ofwat is reviewing the temporary measures it implemented during the spring and has today published a consultation on its proposals for next steps.

Ofwat is proposing the following:

  • Liquidity support: Ofwat is consulting on two preferred options.
    • First, there is no extension of liquidity support available after July 2020. From August, Retailers will no longer have the option to defer any wholesale charges; OR
    • Second, Ofwat caps the maximum amount of total wholesale charges that can be deferred at no higher [or less] than the amounts set out in its April decision (i.e. 40% [or 30%] of wholesale charges due between March and July 2020). So long as they don’t exceed this cap, Retailers can continue to defer up to 40% of wholesale charges due in August, September and October 2020.
  • Deferred wholesale charges need to be repaid in full by end March 2021 and subject to this Ofwat proposes that Retailers and Wholesalers be given the opportunity to agree their own repayment profiles. In the absence of reaching an agreement 33% of all deferred charges will need to be repaid by end November 2020 and 66% will need to be repaid by end January 2021.
  • Temporary vacancy flag: Retailers can apply the temporary vacancy flag up to – but not beyond – 31 July 2020. And all of these flags must be removed from the Central Market Operating System (CMOS) by end September 2020. Ofwat is consulting on the introduction of additional financial and possibly reputational incentives on Trading Parties to improve the quality of consumption data in CMOS.
  •  Market Performance charges: Lifting the temporary suspension of invoicing and payment of market performance charges so that they come into effect:
    • From end September 2020; OR
    • from end October 2020
  • Credit support requirements: to maintain the credit support requirement – for all Retailers who are making use of the temporary vacancy flag – at March 2020 levels until all temporary vacancy flags are removed. Beyond this date, Ofwat proposes that credit support requirements would then be calculated based on primary charges that are due.

Ofwat is not consulting on further proposals in relation to the following:

  • Consumer Protection Code of Practice; or
  • Retailer bad debt.

Georgina Mills, Business Retail Market Director at Ofwat said:

“Since the outbreak of Covid-19, we have initiated a number of interventions to protect the interests of business customers and avoid the risk of systemic Retailer failure, whilst ensuring our interventions do not come at the expense of the financial viability of the Wholesalers.”

“We have been clear that sector-specific liquidity support was time limited and gave Retailers time to establish what other support – including Government support – they could gain access to. As businesses start to re-open and adapt to a new normal, we too must review our interventions in the longer-term interests of customers and the market, and welcome comments and feedback on how we can continue to protect business customers in response to the effects of Covid-19.”

Notes to editors:

  1. COVID-19 and the business retail market: Ofwat consults on next steps
  2. Retailer bad debt: This consultation sets out a timetable for taking further decisions.