Ofwat to review retail market credit arrangements

Ofwat has launched a review of the credit and collateral arrangements (CCAs) in the business retail market.

These are arrangements set out in the market codes to mitigate the risk of retailers who post-pay for wholesale services defaulting. Current CCAs include cash held in account, letters of credit, third party guarantees, surety bonds, unsecured credit allowances, and negotiated alternative arrangements.

Castle Water recently challenged the existing arrangements, in light of the risk of wholesaler default. Ofwat rejected that challenge, but said it would open a wider review of CCAs.

The regulator set out in a statement of intent that the key issues it plans to consider in the review are:

• Whether the current allocation of risk between wholesalers and retailers remains appropriate.

• Whether the mechanisms that underpin the current risk-sharing allocation are effectively designed. 

• Whether these mechanisms are being effectively implemented and utilised. 

  
  

It will issue a call for information in autumn, followed by a consultation in spring 2025, and anticipates concluding the review in summer 2025.