Retailer's credit problems spark Ofwat action on wholesalers

Ofwat has stepped in to business retail market to press wholesalers to act in the spirit of code principles regarding alternative eligible credit support, following a case raised by The Water Retail Company.

Chief executive of The Water Retail Company, Lord Redesdale (pictured), first raised a code change proposal on 26 June on the grounds that the current key terms and templates in the Business Terms of the Wholesale Retail Code do not match how insurance-backed surety bonds work in practice.

He sought to amend the key terms of schedule 3 of the Business Terms after some wholesalers found the insurance-backed surety bond, that The Water Retail Company had put in place was unsatisfactory. The finding came despite insurance products being approved by the market.

Lord Redesdale argued resolution was needed as a matter of urgency; after18th or 24th July (depending on the interpretation of the timescale of the code) his company would formally be in dispute with the relevant wholesalers, which could lead to it losing a contract with a large multi-site customer.

The changes proposed by the retailer could take a while to explore and resolve. Ofwat seems to have stepped in with a new change proposal on 4 July to clarify wholesaler and retailer obligations in negotiating alternative credit support. It has suggested the existing schedule 3 wording is not clear and has proposed amendments requiring parties to act reasonably towards each other, without reasonable delay and to negotiate in good faith with one another. In view of the urgency of the situation, consultation on Ofwat’s change proposal ran for only three days. The regulator has asked for a panel recommendation by tomorrow (11 July).

If accepted, the amendment is likely to result in the wholesalers in Lord Redesdale’s case reconsidering their initial positions, the company keeping its large customer and, potentially, an early failure being avoided.