Ofwat proposes a small and temporary adjustment to business retail price caps due to excess Covid-19 bad debt costs
Ofwat is today proposing a small and temporary increase to the price caps in the business retail market. The temporary increase is intended to allow retailers to share some of the unexpected costs associated with bad debt that have arisen following the Covid-19 pandemic. These proposals do not affect household customers.
The amendment would temporarily increase – over the next two years – the maximum prices that retailers are allowed to charge business customers who are on default tariffs by 0.31%.
National measures introduced since March 2020 to contain the spread of Covid-19 have led to retailers facing unexpectedly high levels of business customer bad debt costs, as businesses have been impacted by the pandemic. Retailers are prevented from sharing unexpected cost increases with some business customers due to the price caps.
In April 2020 Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of industry revenue, which it considered was the level of bad debt an efficient and prudent retailer should have planned for. Following consultation, in July 2021 Ofwat agreed to allow a small and temporary uplift to the business retail price caps.
Georgina Mills, Business Retail Market Director at Ofwat said:
“During the pandemic, we have implemented measures to continue to protect the interests of business customers.
“This small and temporary upward adjustment to the business retail price caps aims to protect customers in the longer-term by promoting stability of the business retail market, whilst maintaining strong incentives on retailers to keep bad debt costs as low as possible”.
Ofwat is seeking views and evidence from all interested stakeholders by 5pm Wednesday 12th January 2022. A decision on the amendments will be published in February 2022 with adjustments taking effect from April 2022.
Notes for Editors
- These proposals are in respect of retailers of water and wastewater services who serve business customers; they do not affect household customers.
- Our proposals give retailers additional flexibility to increase a customer’s total bill by 0.31%, where the customer is subject to REC price cap
- For illustrative purposes, a small customer (0-9 employees or <0.5Ml per year) with an average annual bill of £500 could be paying up to £1.55 more
- Ofwat’s July 2021 PN – PN 22/21: COVID-19 and the business retail market – Ofwat makes final decisions on how to address increases in bad debt, and seeks views on three outstanding issues – Ofwat
- View the consultation document.
- Maximum price restraints (i.e. price caps) relating to certain types of business customers on schemes of terms and conditions are set out in the Retail Exit Code.
- April 2020 Covid-19 and the business retail market: Proposals to address liquidity challenges and increases in bad debt – decision document
- July 2021 Decision and consultation
- October 2021 Update: Business retail market – Customer bad debt
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