All business customers to share Covid bad debt costs

Ofwat has confirmed all non-household (NHH) customers will bear the customer portion of excess bad debt costs that will be socialised, following Covid-19 pressures on the market.

In July, Ofwat considered the question of whether to pool these costs across all customer groups or whether bad debt costs arising for a particular NHH customer group should be attributed to, and recouped from, that NHH customer group. Following responses, the regulator said it will pool costs across the NHH customer base, via a uniform uplift to Retail Exit Code price caps from April 2022.

This followed Ofwat’s decision to allow retailers to recoup bad debt costs above 2%, with a sharing factor of 25% to the retailer and 75% to the customer.

In response to two retailers who expressed timing concerns about Ofwat’s intention to publish its final decision on REC price cap adjustments in February 2022, just weeks ahead of their taking effect on 1 April, Ofwat said it would “ endeavour, so far as we are able, to publish our decision earlier rather than later in February 2022”.

The other outstanding question posed by the regulator in July concerned a "true up" mechanism. Ofwat plans to decide on this after it has collected more information from retailers via a Request For Information later this month.