Final settlement runs to begin in March as Ofwat locks in back bill change rules

Ofwat will this week (28 February) implement its proposed decision to allow businesses with significant water costs and whose invoices are based on unplanned settlement runs to be back billed by up to 24 months, rather than the 16 months set out in the original Customer Protection Code of Practice (CPCoP).

Last week, the regulator approved change proposal CP0001 and published a revised version of the CPCoP on its website to reflect the amendments. It also approved CPW055 making the relevant modifications to the Wholesale Retail Code. These concern allowing a wholesaler to invoice a retailer for a positive sum based on a Post RF Settlement Report or a Settlement Report issued after a dispute, for a maximum period of eight months after the Final Settlement Report has been issued. This means that the timeframe for billing or invoicing for a positive sum based on a Post RF Settlement Report or a Settlement Report issued following a dispute only, would be limited to a maximum of 24 months from the end of the relevant invoice period.

The decisions followed a short consultation until 7 February on the plan to bring arrangements in the CPCoP on back billing in to line with arrangements in the Wholesale Retail Code governing the payment of primary charges to wholesalers by retailers. It reasoned: “Aligning the regulatory framework is necessary to ensure that retailers are not left exposed to charges which they are unable to recover from the relevant non-household customers.” The January/February consultation itself followed a 2018 request for information from the market and a November consultation.

Ofwat pointed out the usual 16 month restriction on back billing set out in the CPCoP will apply in for the majority of non household customers. It said the extension would only apply to those “who have an inaccurate read and that, either combined with other non-household customers’ inaccurate reads or in isolation, meets the relevant materiality threshold for a trading party to request a Post RF or Dispute Settlement Run. A retailer will only have up to eight months following the issue of the Final Settlement Report to issue a back-bill to a non-household customer.”

It also emphasised the need for unplanned settlement runs to be treated as a last resort by retailers; rather they should undertake data correction prior to final settlement runs and partake in sector initiatives to improve data quality.