Ofwat unveils next steps for water retail protections

Ofwat has extended the suspension of market performance standard (MPS) charges but not operational performance standard (OPS) charges as trading conditions remain tough for the water retail sector.

The regulator has yet to offer a clear position on revisions to the approach to bad debt but will issue another consultation before the end of March.

MPS charges will continue to be suspended until 31 March, with Ofwat saying that under the continued lockdown it was unreasonable to financially penalise trading parties for failing to meet MPS due to factors outside their control.

In line with expectations, the regulator and market operator MOSL confirmed they would not extend the suspension of OPS further. Ofwat noted that wholesalers had performed “relatively well” on OPS regardless of restrictions and saw no evidence not to resume charges.

Similarly, there are no plans to reintroduce the liquidity support that was offered last year as Ofwat expects retailers to have a contingency plan in place from previous lockdowns.

On bad debt costs Ofwat previously said it would provide regulatory protections if these looked likely to exceed 2 per cent of turnover across the market. Following a call for information from stakeholders it will consult on the preferred options in relation to the mechanism, timing and sharing factors for any interventions. This is expected before the end of the first quarter of 2021 and a consultation on more detailed aspects would follow.

Retailers told Utility Week that clarity on bad debt was critical for investor and lender confidence in the sector.

Despite calls from retailers that temporary vacancy flags should be reimplemented, these will not be available again. Instead engagement with customers was urged to obtain meter reads. Ofwat said where consumption data cannot be obtained from customers, estimates should be obtained from the wholesaler, including using yearly volume estimates.