England-wide national retail price cap proposed for small business users

Retail price caps for the smallest business water users on deemed contracts are set to move from regionally varied to England-wide under plans published for consultation by Ofwat.

The regulator has proposed in its Retail Exit Code (REC) review consultation that while price caps for Group Two customers (0.5Ml-50Ml a year) should remain unchanged, caps for Group One customers (less than 0.5Ml a year) should be standardised England wide.

Currently, default tariffs do not exceed: the wholesale charge + the allowed cost to serve + a net margin. The current REC sets allowed retail costs per customer and allow

ed net margins, which both differ by wholesaler region and tariff type, leading to over 50 separate price caps for Group One customers.

Under the new plans, the tariff will comprise the elements shown in the chart above (source: Ofwat).

Ofwat said there would be some incidence effects for customers, with some paying more and others less. But that on average, across all regions in England, the changes will see average business retail allowances increase by around 0.5% before inflation. It estimated this will lead to an increase of 0.1% to an average metered customer bill.

The consultation said: “To reduce the risk of bill shocks for customers, we propose glide paths that limit annual movements in the retail allowance for 2023-24 and 2024-25 for any one customer (upwards or downwards) to 25% in real terms (i.e. before inflation). This should help to limit customer bills changes on average to a maximum of 5% for these years in real terms.”

Elsewhere, Ofwat said it did not intend to amend the REC’s non price protections or expand its use to incentivise water efficiency. The consultation runs until 14 October.