Retailers must keep credit support at March levels until Covid flags go

Ofwat has implemented the proposals it consulted on in July regarding credit support requirements in light of Covid 19, rejecting an alternative proposal put forward by Castle Water.

Under CPW101-part b, implemented on 5 August, Ofwat said retailers will be required to maintain credit support requirements at March 2020 levels until they have removed all their temporary vacancy flags from CMOS. Retailers will be required to provide wholesalers with a minimum of the credit support requirement for March 2020 until the credit support requirement calculated in September 2020 for the October 2020 P1 Settlement Run. From that point, where a retailer has evidenced all of its sites as no longer vacant in line with the requirements of the Code, they can return to the normal rules for calculating credit support set out in Section 9.11 of the Business Terms.

The requirement to maintain credit support requirements at pre-Covid (March 2020) levels was introduced via CPW095 and CPW096 to address an unintended consequence of other Covid-related measures in the market which had increased risk to wholesalers arising from a potential reduction in the level of credit support required through retailers’ applying the temporary vacant flag. And to protect retailers from “encountering a cliff-face in the provision of credit support when vacant flags are switched off and consumption begins to rise”.

The credit proposal formed part of CPW101, but Ofwat’s decision on the credit element was delayed (decisions on other aspects were published on 30 July) while an alternative code change proposal from Castle Water was considered. This (CPW100) sought to reduce the credit support requirements for retailers who have not deferred any of their wholesale charges. Ofwat has now rejected that plan.