Retailers blocked from using parent to access unsecured credit allowance

Retailers will no longer be able to use the credit strength of their parent company to access advantageous credit terms, after a Wholesale Retail Code change initiated by Thames Water was recommended by the Code Panel and accepted (in a slightly amended form) by Ofwat.

At go-live, one of the six regulated credit options available to retailers was an unsecured credit allowance which would serve to reduce by up to 40% the credit amount required by wholesalers. This could be accessed based on the the credit strength of a retailer’s parent company, even though there was no accompanying requirement for the parent to underwrite the credit.

Thames argued this increases wholesaler risk. Following a long running debate involving three Panel meetings and two separate consultations, Ofwat has agreed to remove the reference to the parent company credit rating in the WRC credit options, as recommended by the Panel.

However, it rejected the Panel’s recommended timescale to implement the change (three months), on the basis that this is a “major change to policy” and that it could take the various affected retailers longer than that to put new arrangements in place. The regulator therefore ruled the changes must be implemented six months after the date of its decision (by 23 April 2018), though it urged retailers to act as soon as feasible.