Following its March consultation on business customer bad debt in the business retail market, Ofwat has set out plans to help retailers begin the recovery of a portion of excess bad debt costs from business customers, starting from April 2022.
The regulator is proposing to amend regulatory protections in the event that the 2% threshold for additional regulatory protection is met.
The consultation sought views on the regulator’s ‘minded to’ position that:
- it appeared likely that the threshold would be met
- Ofwat’s preferred proposal to enable retailers to recover a portion of excess bad debt costs from non-household customers via a market-wide, uniform uplift to the price caps applying under the Retail Exit Code (REC).
The consultation also set out options for the timing and sequencing of the recovery, in particular whether recovery should take effect either from October 2021 or April 2022.
The regulator has now decided to amend the regulatory protections so that retailers are able to begin recovery of a portion of excess bad debt costs from non-household customers from Ofwat’s preferred option date of April 2022.
According to Ofwat, the April 2022 date will also give it a better understanding of what is happening to bad debt levels following the expected unwinding of Government support schemes for Covid-19.
The decision has been supported by the consumer water watchdog CCW. In its response on the March consultation, CCW said that an extended recovery period should be allowed to take place before any potential increase in prices were introduced and noted that the costs of bad debt are unlikely to be apparent for some time.
CCW also noted that it was important that the recovery mechanism is applied over a number of years so the impact is spread out in order to lessen the impact on business customers. It would also like to understand the likely impacts on customers of Ofwat’s anticipated wider review of REC price caps before any regulatory protections for bad debt costs are implemented.
Ofwat has now set out its proposed timetable going forward, including publishing its decision on all other consultation questions and also how it intends to consult on and amend the regulatory protections applying from April 2022.
Click here to read Ofwat’s decision document in full.
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