Scottish Water has made financial support of up to £88 million available to Business Stream to mitigate the impact of coronavirus.
Business Stream told Utility Week the backstop is in place only as a precautionary measure.
A report by the auditor general for Scotland, whose remit includes Scottish Water as a public body, showed losses mounting for Business Stream following months of trading restrictions on its customers.
The report suggested the retailer would require between £47 million and £88 million over the next two years.
Parent company Scottish Water has agreed a contingency allowance of £30 million, an equity injection of £10 million, and a loan facility sufficient to meet the level of financial support forecast should it be required.
Chief executive Jo Dow said: “There is no certainty that additional financial support will be required but as a responsible business we have taken a precautionary approach to ensure that the right measures are in place should they be needed. The ongoing Covid-19 pandemic and containment measures are presenting unprecedented challenges to businesses and the wider economy across the UK – and we are not immune to these challenges.”
Business Stream reported an operational loss of £14 million for 2019/20, down from a profit of £0.3 million the previous year.
The company’s income rose from £372 million to £477.5 million in the same period following expansion into the English retail market however operating costs exceeded its income.
Its costs for 2019/20 included a provision of £13.2 million for doubtful debt relating to Covid-19 because Scottish Water anticipates the full effect of the pandemic on finances will not be felt until next year and beyond.
Dow said: “Our customer base includes business customers across the UK, many of whom have been directly impacted by the restrictions. We remain committed to supporting our customers, having already introduced a wide range of measures to help ease the financial burden on them.
“We are fortunate that our underlying business is strong, but there is no doubt that the year ahead will be challenging for us and many other businesses as we respond to the economic after effects of the pandemic – and its therefore right that we put in place measures to help protect the future resilience of our business.”
Scottish regulator the Water Industry Commission for Scotland (WICS) approved a temporary break on prepaying wholesaler charges and in turn Business Stream is delaying payment collection from its own customers to support businesses through lockdown.
Scottish Water said it is confident the support package to Business Stream would not affect its infrastructure investment programme and can be offered without additional funding from Scottish Government.