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Ofwat has confirmed its decision to raise the business retail market price cap by 0.49% on a temporary basis to shoulder the burden of bad debt costs that arose due to the pandemic.
The regulator said the increase would come into effect from April 2022 for two years.
The uplift, which has been raised from the 0.31% increase Ofwat had proposed in a consultation in December 2021, will allow retailers to increase a business customer’s total bill by 0.49% if they are subject to price caps set out in the Retail Exit Code (REC).
Georgina Mills, business retail market director at Ofwat said: “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.”
The uplift is part of a package of measures Ofwat brought in to protect business retailers and customers during the uncertainty and disruption of lockdown. At the start of the pandemic, Ofwat recognised an uplift would be needed if bad debt costs exceeded 2% of revenue, which it calculated to be a level responsible retailers should have planned for.
One retailer told Utility Week the proposed 0.31% price cap uplift was “arguing over loose change while ignoring the bigger issues” in the face of wholesale cost and energy price increases. They said the price cap being set at an industry average level, meant some customers missed out at being served under the cap because retailers had to offset losses made on other higher risk customer groups.
However, the water watchdog CCW warned of the burden being placed on billpayers when businesses were recovering from Covid-19 restrictions.
Christina Blackwell, senior policy manager, said: “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.”
CCW called for the debt costs to be shared equally across customers, retailers, and wholesalers to avoid “unfairly” penalising business customers.
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