Ofwat proposes increasing price cap due to higher bad debt

The water regulator is consulting on the most appropriate ways to share the costs and is seeking views and evidence until 6th April 2021

The Big Zero report

Ofwat is proposing to increase the price cap for small and medium non-household customers due to higher than expected levels of bad debt in the business retail market.

Last April, the water regulator committed to provide additional regulatory protection if bad debts across the market exceeded 2% of non-household revenue, which Ofwat considered was the level of bad debt “an efficient and prudent retailer” should have planned for.

It expects levels of bad debt across the market are likely to exceed the 2% threshold.

Ofwat is, therefore, consulting on proposals to amend the price caps in the Retail Exit Code (REC), which apply to SME customers that have not engaged in the market, with retailers expected to bear the bad debt costs up to 2% in full.

In addition, the bad debt costs of more than 2% are to be shared between business retailers (25%) and non-household customers (75%).

The first initial adjustment is planned for April 2022, with another to follow once more accurate information is available.

Georgina Mills, Business Retail Market Director at Ofwat 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.”

It is seeking views and evidence from all interested stakeholders by 6th April 2021.

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