Ofwat has stepped in to ward off the risk of systemic failure and possible collapse of the still-developing retail water market as a result of the ongoing Covid-19 emergency.

The water industry regulator has set out proposals to address liquidity challenges and increases in bad debt in the business water market .

Ofwat is stepping in to protect against systemic retailer failure and a collapse of the still-developing market in recognition of the fact that “the market is new, many companies are not yet well capitalised and the arrangements to protect customers against retailer failure have not yet been well tested.“

Ofwat is recommending a further period of liquidity support to retailers to the end of July 2020 - the period may be extended following a review and further consultation by Ofwat early in the summer.

While wholesalers will continue to invoice retailers for 100% of the wholesale charges due each month, the support will see retailers relieved of the requirement to pay the full amount of bills due for the period.

Instead they will be required to pay wholesalers each month a minimum of 60% of the wholesale bills due or a proportion equivalent to the proportion of invoiced amounts recovered from their own customers, whichever is the higher. Any deferred wholesale charges must be paid back in full by end March 2021.

However, the regulator wants to ensure that the measures to support the retail market do not come at the expense of the financial resilience of the wholesalers. The retailers will be expected to differentiate between those customers who genuinely need support and those who should be expected to pay - customers who are operating normally and can pay should be subject to normal debt recovery processes.

Ofwat does not believe that all of the additional costs resulting from Covid-19 should be passed onto business customers, saying that “both wholesalers and retailers should also be prepared to bear some of these additional costs, consistent with other sectors across the UK economy.”

“Our focus is to protect the interests of customers. We want to relieve business customers of the pressure of having to pay water bills on time if they are seriously affected by Covid-19, while ensuring all customers have access to reliable water and associated retail services now and into the future…..it is in customers interests to avoid systemic retailer failure during the current crisis.” the regulator said.

The proposals follow on from the responses to the regulator’s recent urgent 6 day consultation which closed on 21st April - Ofwat will make its final decisions after markets close today.