In April last year Ofwat committed to provide additional regulatory protection if bad debt costs across the UK water market exceeded 2% of non-household (business) revenue. The organisation has now signalled that levels of bad debt across the market are likely to exceed this 2% threshold.
As a result, Ofwat is consulting on amending the price caps, which apply to small and medium non-household customers who have not engaged in the market. Retailers will be expected to bear market-wide bad debt costs up to 2% in full. Ofwat proposes adjusting the price caps to enable market-wide bad debt costs in excess of 2% to be shared between retailers and non-household customers.
Ofwat proposes to make an initial adjustment from April 2022, with a subsequent adjustment once more accurate information is available. Ofwat has made it clear that if bad debt costs turn out not to exceed the 2% threshold, it will unwind any additional protections implemented.
Ofwat’s Business Retail Market Director Georgina Mills said: “These proposals are aimed at protecting the interests of non-household customers in the short and longer term, including from the risk of systemic retailer failure as the business retail market continues to feel the impacts of COVID-19.
“In doing so we want to minimise any additional costs for customers in the shorter term by promoting efficiency and supporting competition. By setting out our proposals today we are also providing additional clarity to Retailers and their investors.’
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