Ofwat final settlement run ruling could up business back bill exposure by six months

Business customer back bill limits could rise from 16 to 22 months as Ofwat approves a delay to final settlement runs

The 16 month limit on back bills for business customers put in place when the English non household water market opened could be extended by four to six months.

The change is connected to Ofwat’s acceptance at the end of last week of a modified version of a code change proposal put forward by the Code Panel to defer final settlement runs. Final settlement runs are a complete calculation of all of the consumption data for every Supply Point (SPID) registered in the Central Market Operating System (CMOS). The process crystallises the consumption data, including data based on System Generated Reads (G Reads), which are used when SPIDs do not have an adequate meter read history. The first of these final runs was due to take place this month.

The Code Panel proposed deferring the first runs by up to a year, on the grounds that a considerable amount of consumption data is inaccurate (13% of SPIDs are currently settling on G Reads) and consequently that starting final settlement would lead to a costly and burdensome surge on reconciliatory unplanned settlement runs. The Panel said the deferral should be accompanied by the development of market wide data correction plans and the monitoring of individual trading party progress.

Trading parties who objected to the deferral argued the market should have acted to improve this data already; that a delay may not be effective in galvanising action; and one in particular flagged that there could be a knock on effect on back billing limits for customers. This is because an inconsistency was discovered between the Customer Protection Code of Practice which set the 16 month restriction, and the Wholesale Retail Code regarding provisions for post final settlement run invoicing between wholesalers and retailers, and the ability of retailers to then back-bill customers.

Ofwat decided to permit a shorter deferral – of likely four but up to six months (to 31 December 2018, or up to 28 February 2019). It stressed this was to research and deal with the billing rules inconsistency rather than to gift more time to trading parties to improve data quality. It said: “The opportunity to do this has been available since prior to market opening and should have been, and remain, a priority for trading parties.”

The regulator accepted that a knock-on effect would be a potential lengthening of the period for which businesses can be back billed. It explained: “We are aware that by approving this deferral, albeit for a significantly shorter period than recommended by the Panel, we are extending the period of time that affected customers may be back-billed. To be clear, we are absolutely committed to maintaining a restriction on back-billing and we must ensure that the market codes provide an effective, consistent framework in this regard.”