Retailers to wait a year for excess Covid bad debt relief

Ofwat has confirmed its preferred March consultation position to allow retailers to recover from April 2022 (rather than October 2021) a portion of Covid-related excess bad debt costs from customers, should market wide bad debt exceed the 2% threshold set to trigger regulatory protections, as it is expected to do.

Many retailers favoured the earlier date to get relief sooner. However Ofwat cited avoiding mid-year tariff revisions for customers and better data as advantages of waiting. It indicated it was minded to provide an alternative cushion for retailers in deciding on the later date too by ruling efficient working capital costs relating to the cost of financing the retailer portion of excess bad debt costs arising in 2020-21 would be included in the regulatory cost recovery calculations.

This and all other questions covered by the March consultation except that on timing will be decided later this year, following another request for information this month. Ofwat provided the following indicative timetable for after that:

• July 2021 – full decision;

• October 2021 – RFI from retailers to include assured data for the 2020-21 financial year;

• December 2021 – consult on parameters of the recovery mechanism to apply from 1 April 2022; and

• February 2022 – decision on parameters of the recovery mechanism to apply from 1 April 2022.

Given Ofwat’s minded to position is to enable debt recovery by uplifting Retail Exit Code price caps, it also took the opportunity to remind the market it will commence a wider review of REC price caps later in 2021/22, with resulting adjustments from this to be implemented from April 2023.