Changes made by Ofwat to market retail codes have been branded “ambiguous” by a water retailer who called on the regulator to provide clarity.
The change to list customer premises as vacant if they have been forced to close because of coronavirus was part of a package of code changes made by Ofwat and MOSL to protect customers from unexpected bills.
The change stipulates customers with 95 per cent reduction in activities will be treated as vacant and not charged, however in a letter to retailers Ofwat said any water consumption will be charged.
John Reynolds, chief executive of Castle Water, told Utility Week it was still not clear who would be responsible for the difference.
For a property to be classified as vacant, customers are required to submit evidence stating they are closed. This would be reliant on customers being aware of the obligation but in empty premises the notification may not have been received.
The code change stipulates that premises can be listed as vacant from 16 March however many businesses closed their doors before that date on government advice and therefore may not be aware of the changes or the requirements without seeking out information from Ofwat or their water retailer.
Reynolds said the disconnect between what is required in the water retail market and advice about closing businesses could lead to complications when the premises re-open and customers are faced with unexpected bills.
He suggested more changes will be required as the situation evolves to ensure sufficient cashflow around the market and to better understand the scale of business closures because of the outbreak.
At present retailers are not allowed to use methods such as debt collectors to ensure customers pay bills but retailers are still required to pay wholesalers for consumption, something Reynolds believes will cause problems the longer the lockdown continues.
The partial deferment of wholesale charges is a short-term fix with further consultation underway for Ofwat to find a long-term solution.
“The issue will be with how long the lockdown is and the impact that has on businesses. The amount of funding that’s made available for businesses and the duration of lockdown will impact the solvency of many. Customers that are insolvent will inevitably have debts they are unable to pay to retailers, so that needs to be addressed,” Reynolds explained.
He called for a solution that remains flexible for all parties during this unprecedented situation because the financial integrity of the market will not be maintained without cash being able to flow between parties.
He said the non-household market would have been very vulnerable if the “very sensible” decision had not been taken to allow premises to be listed as vacant.
He added: “The interim measures are in place to protect the market and protect customers, but these won’t protect the market longer term if other measures are not put in place.
“The ambiguities need to be resolved to avoid the problem where there are code requirements referring to MOSL guidance documents but the documents conflict and Ofwat and MOSL need to get their act together to provide clear advice.”
Urgent changes to the market codes were implemented last month to lessen pressures across the market. These included allowing customer premises to be listed as vacant if they are temporarily closed due to coronavirus and offering a percentage deferral on settlement (March – May 2020).
A longer-term solution to unwind the cash flow impacts of the pandemic is expected from Ofwat later this month. It will include proposals for addressing levels of bad debt that exceed “normal” levels, which retailers are compensated for under existing market codes.
MOSL said it recognised the substantial impact coronavirus will have on the business market in both the immediate and longer term and has worked closely with Ofwat to develop supportive initiatives.
Director of market design Adam Richardson said: “Following the implementation of a number of urgent changes to the market rules to support trading parties’ cashflow and liquidity during the pandemic, we have issued a number of guidance documents to provide further clarity on these changes. We are now working with Ofwat and wholesalers and retailers to develop a longer-term solution to managing liquidity and bad debt – ensuring it is a solution that works for the market as a whole.
“We have been encouraged by the collaboration we have seen across the market to-date to tackle these urgent issues and will continue to engage with trading parties to provide clarity and additional guidance, where required.”