Business bad debts lead to 0.49% increase in water retail price cap

The price cap for water retailers will rise by 0.49% for two years from April to cover bad debt costs incurred in the non-household market as a result of the coronavirus pandemic and national lockdowns. Ofwat has raised the uplift from the 0.31% increase proposed in December.

Ofwat’s decision does not affect household customers.

The small and temporary amendment increases the maximum prices that retailers are allowed to charge business customers who are subject to price caps by 0.49%. This uplift has been recalculated from the 0.31% uplift consulted on in December 2021, to incorporate a proportion of bad debt costs reported by retailers during 2019/20. The uplift will take effect from April 2022 and last two years.

In April 2020, and in recognition of the unfolding Covid-19 pandemic, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded levels which an efficient and prudent Retailer could reasonably have been expected to plan for – which it assessed as 2% of industry revenue. Following consultation, in July 2021 Ofwat agreed to allow a small and temporary uplift to the business retail price caps.

Georgina Mills, Business Retail Market Director at Ofwat said “During the pandemic, we have implemented measures to continue to protect the interests of business customers. Implementing this small and temporary upward adjustment to the business retail price caps aims to protect business customers, including by maintaining strong incentives on retailers to keep bad debt costs as low as possible.”

CCW has warned that a decision to temporarily increase the price caps in the retail water market by 0.49 per cent will put a disproportionate burden on business customers at an already difficult time.

Christina Blackwell, Senior Policy Manager at CCW, said “This increase in the price caps will put a disproportionate burden on business customers at a time when many are still recovering from the impact of Covid-19. We believe the debt costs should be shared equally across customers, retailers, and wholesalers to avoid unfairly penalising business customers – many of whom are still not enjoying a positive experience of the retail water market.”

“Systemic retailer failure would be undesirable, but protecting retailers appears to have taken precedence over alleviating the pressure on business customers, most of whom will not enjoy the same protection in their own sectors that water retailers are being given.”