Ofwat has launched a new consultation on its proposals to revise credit and collateral arrangements in the Business Retail Market - the CCA arrangements (CCA) have played a key role in allocating financial risk between Retailers and Wholesalers and in promoting market stability.

CCA requirements also carry costs: for Retailers in financing security instruments to meet their obligations, and for Wholesalers if a Retailer were to default., with costs ultimately borne by business customers through prices, reduced competitive intensity, and barriers to market entry and innovation.

Introducing the consultation, Ofwat said the current CCA arrangements were largely calibrated ahead of market opening, based on the information available at the time, following consultation.

After nine years of market operation, the regulator says it is appropriate to review whether they remain fit for purpose.

Ofwat has focused its proposals on three areas:

Backstop credit security and risk sharing

Under backstop arrangements, a Retailer paying in arrears must post credit security equivalent to 50 days of its monthly wholesale payment. This reflects a ≈60/40 sharing of default risk between Retailer and Wholesaler. Ofwat says nine years of evidence and market and regulatory evolution - including tighter licensing requirements, demonstrated Interim Supply arrangements, and enhanced financial resilience monitoring — together suggest that the probability of Retailer default and a Wholesaler’s exposure to any single Retailer are now materially lower than assumed at market opening. In addition, interim supply arrangements have proven effective in the two small Retailer failures since 2017.

Ofwat is proposing to rebalance the risk allocation by reducing the backstop security requirement to 40 days.

Enhancing backstop Unsecured Credit Allowance

Retailers and Wholesalers have made extensive use of Alternative Eligible Credit Support (AECS) to negotiate arrangements beyond the backstop, typically by agreeing an Unsecured Credit Allowance (UCA) — a portion of credit support that is uncollateralised. However, stakeholders have raised concerns about inconsistency, administrative burden, and insufficient reflection of creditworthiness and payment history in AECS terms.

To mitigate some of the concerns raised Ofwat proposes to enhance the backstop UCA arrangements based on its review of the terms offered by Wholesalers in negotiated arrangements currently available in the business retail market. The new UCA framework would be available to all Retailers without the need for bilateral negotiation.

Monitoring Parent Company Guarantee arrangements

Parent Company Guarantees (PCGs) can play a legitimate role in reducing financing costs for Retailers. Where a Retailer obtains intra-group credit on arm's length terms that reflect its risk profile, Ofwat says it would in the first instance see this as being broadly consistent with the outcome of standard competitive processes. However, where PCG arrangements are not on arm's length terms — for example, where credit is provided at rates that do not reflect the Retailer's specific risk, enabling it to price below its true economic costs — there is a potential for competitive distortion. A number of Retailers have continued to raise concerns about their transparency and oversight.

To further enhance the transparency and oversight of PCG arrangements, Ofwat is seeking views on its proposals:

• requiring Retailers relying on PCGs to provide more information related to how they determined the arm's length nature of their PCG arrangement as part of their Schedule 2B's Guarantee Details and Declaration of Assurance.
• requiring the Guarantor to co-sign this declaration;
• publication of a non-confidential summary of PCG arrangements in a standard format by the Market Operator; and
• Ofwat conducting a risk-based review of those statements, publishing its assessment where concerns are identified.

Deadline for submission of responses is 5pm on Friday 3 July 2026. Ofwat intends to publish its decision later in 2026.

Ofwat is seeking responses from retailers, wholesalers, and other interested parties, for example, customer groups.

Responses should be emailed This e-mail address is being protected from spambots. You need JavaScript enabled to view it , with the subject: Credit and Collateral Arrangements BRT Consultation, or sent by post to:

Credit and Collateral Arrangements BRT Consultation response

Ofwat

Centre City Tower

7 Hill Street

Birmingham

B5 4UA

Stakeholders who wish to discuss any aspect of the consultation should email Ofwat at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Click here to download the consultation paper