Ofwat proposes raising price cap

Ofwat has launched a consultation to adjust price caps for non-household water customers and share bad debt between retailers and business billpayers.

The regulator has proposed adjusting price caps as levels of bad debt are expected to exceed 2 per cent.

At the start of the lockdown protections were introduced by Ofwat and market operator MOSL to safeguard customers during lockdown and prevent market failure.

Ofwat previously said it would review the measures if bad debt costs across the market exceeded 2 per cent, which it considered a level that retailers should have planned for.

Ofwat is consulting on amending price caps to enable market-wide bad debt costs over 2 per cent to be shared between retailers and customers.

Between 2 and 3 per cent, Ofwat proposed sharing the burden between retailers and their non-household customers with each expected to bear 50 per cent of excess bad debt costs over 2 per cent.

More than 3 per cent and the regulator again proposed sharing the costs with retailers bearing 25 per cent and customers absorbing 75 per cent.

Georgina Mills, business retail market director at Ofwat, said: “These proposals are aimed at protecting the interests of non-household customers in the short and longer term, including from the risk of systemic retailer failure as the business retail market continues to feel the impacts of Covid-19.

“In doing so we want to minimise any additional costs for customers in the shorter term by promoting efficiency and supporting competition. By setting out our proposals today we are also providing additional clarity to Retailers and their investors.”

An initial adjustment could take place from April 2022 with further adjustments based on more accurate information when it becomes available. Should bad debt remain below 2 per cent threshold the measures will be unwound.

Ofwat will consult on the preferred options in relation to the mechanism, timing and sharing factors for any interventions.