Ofwat adds a fast cash recovery tool to its retail market interim supply plan

Ofwat is to press on and introduce a cost recovery mechanism (CRM) that would allow business retailers who take on the customers of other retailers who exit the market abruptly to recover their efficiently incurred costs. But in addition, the regulator said another tool to enable such interim suppliers to recoup costs quickly would be needed on top.

The regulator confirmed in a decision paper that it will introduce an ex-post CRM, under which any interim retailer would be able to submit a retrospective claim for the efficient costs arising as a direct result of taking on the customers of an exiting counterpart. Costs can be recovered for two years from the date of appointment, with retailers able to make an initial claim followed by a final true-up claim, to help recover costs as quickly as possible. Costs will be recovered from all business customers, collected by retailers in the form of a flat rate per supply point.

Ofwat then went further and said an additional tool would be developed to support retailers with short term cashflow issues arising – such as sourcing additional credit support for wholesale charges, making payment for additional wholesale charges themselves and incurring operational costs, all of which may be prior to receiving any payment from the transferring customers.

It plans to raise a code change proposal to consider the options for the development of this tool, which it said could include a temporary deferral of wholesale charges, extended payment terms between wholesalers and retailers, or other features.

Decisions on both changes are anticipated for Q1 2025.