Ofwat proposes cost recovery mechanism for business retail interim supply

Ofwat is consulting until 1 November on introducing a cost recovery mechanism that would allow business retailers who take on the customers of other retailers exiting the market to recover their efficiently incurred costs.

The plan is to strengthen the non household retail market’s interim supply arrangements; at present, Ofwat currently has no legal means to direct retailers to take on customers in need of interim supply and retailers have little incentive to do so.

The cost recovery mechanism would be ex post. Ofwat explained that in the event of a retailer exit, any interim retailer would be able to submit a retrospective claim for additional, efficiently incurred costs arising as a direct result of taking on that role. It said the claim would need to be supported by evidence and consistent with a number of principles.

If approved by Ofwat, the value of the claim would be added to the wholesale charges paid by the retailer using the market's existing settlement arrangements, which would then be collected from all business customers through their bills. The funds collected would then be passed on to the interim retailer via MOSL.