Vacancy flags end as charge delay is extended in Ofwat's Covid next steps

Retailers can no longer apply temporary vacancy flags for businesses hit by Covid 19, but can continue to defer some wholesale payments until the end of October, under decisions issued by Ofwat last week.

Following its consultation in early July on unwinding Covid measures in the business retail market, and the recommendations of the Codes Panel following its meeting on 28 July Ofwat decided to:

  • extend liquidity support;

  • remove temporary vacancy flags; and

  • extend the suspension of market performance charges

Liquidity support

A limited extension of liquidity support until the end of October 2020 has been allowed. The total amount any one retailer will be allowed to defer will be subject to a cap equal to 40% of primary charges due from March-July 2020, effectively limiting the total amount of liquidity available to the amount that was made available under Ofwat’s April decision. Subject to this cap, retailers can continue to defer up to 40% of wholesale charges due in August, September and October. Deferred sums must be repaid in full by March 21. Ofwat said it preferred wholesalers and retailers to agree their own repayment profiles, but made a backstop provision, should this prove impossible, where retailers should have repaid 33% of outstanding deferred income at 31 October by end of November, 66% by end of January and 100% by 31 March 2021.

Temporary vacancy flag

Use of vacancy flags was allowed to expire at the end of July, and all flags must be removed from CMOS by the end of September. Ofwat said it would introduce an incentive for the removal of the temporary vacant flag, coming into effect from 1 October, most likely a financial incentive based on each supply point that has a temporary vacancy flag still applied to it. In addition, the regulator said it would pick up wholesaler incentives in its review of incumbent support for effective markets, expected in August.

Suspended market performance charges

Operating Performance Standard charge suspension will be extended until the end of September 2020, with Market Performance Standard charge suspension extended until the end of October 2020.

Credit support – Ofwat will make a decision on credit support requirements separately on 3 August.

The decisions were implemented on 1 August via code changes CPW101 and CPM031.