CCW calls for wholesalers to shoulder a share of Covid bad-debt costs

CCW has said Ofwat’s decision to increase price caps from April 2022 in the-non household market to help retailers cope with bad debt costs arising from the Covid pandemic places a disproportionate burden on business customers.

Last week, the regulator confirmed levels of bad debt had exceeded 2% of revenue and therefore that it would action the plan it consulted on earlier to allow a temporary increase to maximum prices. Ofwat instructed retailers to bear 25% of bad debt costs over the 2% threshold but said the remaining 75% would be passed through to business customers through a Retail Exit Code (REC) price cap lift, with adjustments in place for at least two years to smooth bill impacts.

However CCW’s director of policy, research and campaigns, Dr Mike Keil, said: “We recognise the risk posed by bad debt needs to be shared but this places a disproportionate burden on business customers. We want to see a more equitable split between customers, retailers and wholesalers. A third of business customers have told us they have been severely impacted by the pandemic but this move could place even more pressure on them through higher bills.”

Ofwat said it had not yet reached definitive conclusions on three areas and would continue to engage through to December on:

• pooling excess bad debt costs – Ofwat has proposed the recovery of excess bad debt costs is pooled across all non-household customers, via a uniform uplift to price caps;

• keeping open the option of not pursuing a true up – for example if outturn bad debt costs are not materially higher than the 2% threshold; and

• undertaking the true up – If a true up is required, Ofwat has set out how it expects this to work in practice.

Ofwat also confirmed it will commence its wider review of the REC price caps later in 2021.