Ofwat locks in liquidity extension and bad debt caps

On Thursday, Ofwat published its decisions on how the liquidity issues and bad debt increases arising from business closures due to the lockdown will be handled by water wholesalers and retailers. The key decisions were in liquidity, retailers' and wholesalers' exposure to bad debt and the Customer Protection Code of Practice.

Liquidity

Liquidity support from wholesalers to retailers – in the form of the deferral of wholesale charges – will be extended until the end of July (and up for review in early summer). For May, June and July, retailers will be required to pay the higher of either 60% of primary charges (up from the March code change requirement of 50%, but lower than the 70% Ofwat consulted on) or 94% of the cash they have collected from customers. Wholesalers can charge interest on deferred payments, up to a maximum interest rate of 5.98% nominal. They must be repaid in full by the end of March 2021.

Retailer bad debt exposure

Retailers will be expected to absorb bad debt resulting from customer non-payment of bills up to 2% of their annual turnover. Ofwat will provide protection for debt above this level, either through Retail Exit Code price cap adjustments or by recovering the debt above the cap from non household customers over time.

Wholesaler bad debt exposure

Wholesalers’ exposure to bad debt arising from retailer failure, after PR19 sharing factors have been applied, will be capped at a figure equivalent to the average monthly wholesaler charge for that retailer. Ofwat said this cap would stand, should liquidity measures be extended beyond July.

The Customer Protection Code of Practice will be revisited to ensure customers seriously affected by Covid 19 continue to be protected.