Ofwat and MOSL are drawing up a package of initiatives aimed at minimising disruption to the operation of the business retail water market as a result of coronavirus and warning that the impacts are already being felt.

A joint open letter published by the water regulator and the business market operator on Friday says:

“We are clear that both MOSL and Ofwat, and the water sector as a whole, must step up and focus on doing whatever is necessary to maintain essential services to customers and the environment throughout this period and to avoid any disruption to supplies.”

“We are already aware of the significant disruption to the activities of many businesses, charities and other non-household customers across the country, and recognise that this presents an unprecedented challenge to us all. In particular, the impact on the operation of the business retail market is already being felt and we agree that there are some very significant issues which the sector needs to look at collectively as an industry, and swiftly.”

The organisations are developing a package of initiatives to address the issues - some which should be addressed “as a matter of urgency”, while others are likely to require more thought and consultation with the sector.

Given the Government request to limit all non-essential contact, it is likely that meter reading activities will continue to decrease, and should only be undertaken where it is feasible and safe to do so in the context of social distancing, the letter says. However, during the pandemic it would be unreasonable to "penalise trading parties for failing to meet market performance standards due to factors outside of their control."

The proposed changes to the market codes include:

• postponing the levy and collection of charges for market performance standards for a time-limited period commencing 1 March 2020
• easing the cash burden on trading parties by allowing retailers to offset 2020/21 Market Operator Charges against the performance charges
• ensuring that performance charges which have already been invoiced, are available for redistribution to members in accordance with the Market Arrangements Code rather than using them for longer term market improvement projects.

However, it will not be possible to extend this benefit to wholesalers “in order to protect MOSL’s cash flow” - the Market Arrangements Code (MAC) enables MOSL to maintain a “combined” reserve of at least £2m of charges to fund its working capital requirements and ensure it can continue to operate.

Payment terms, delayed payment and reduced demand for water are also covered in the letter, which says that despite the code change, retailers could still experience cash flow issues – at least in the short-term.

“We are aware that the consequential impact on retailers in the business retail market could be significant, and that there is a high likelihood that there will be a number of retailers who will be unable to collect sufficient funds from customers in order to meet wholesale payments as they fall due.” the letter says, adding:

“During this time, we do not think it is reasonable for retailers to request disconnection for non-payment where the delay in payment is caused by factors related to coronavirus.”

Ofwat and MOSL go on to say that they are “mindful of the need to limit the exposure of wholesalers to unreasonable financial risk” and recognise that there will “inevitably need to be an element of ‘pain sharing’ between parties.”

The organisations say it is essential that wholesalers work actively and swiftly with retailers to consider and develop solutions, calling on them to work collaboratively to propose solutions to challenges due to delayed bill payments by business customers.

“Due to timing constraints we would welcome joint proposals from wholesalers and retailers as soon as possible”, the letter states.

Ofwat and MOSL intend to carry out continuous monitoring and review of market data in order to ensure that charges are reintroduced at the appropriate time. This includes monitoring the market closely to understand whether coronavirus ultimately leads to nonpayment of bills as opposed to delayed payment.

“We will engage further with industry and interested stakeholders about what further actions could be required to address this risk materialising.” the letter concludes.

Click here to read the letter in full.