Ofwat is asking business retailers s to provide further information about their finances with the aim of strengthening its monitoring and oversight of financial resilience in the business retail market.

In May 2023 the regulator introduced a reformed monitoring framework to increase its monitoring and oversight of retailers’ financial resilience and governance arrangements.

This included implementing a regime of biannual information requests to collect financial and other relevant information on a regular basis.

Ofwat subsequently wroteto retailers in December 2023, explaining that maintaining regular visibility of financial resilience in the market supported its ability to proactively engage with retailers where it identifies potential risks to their ongoing resilience. Thee regulator said this ensures it is best placed to protect the interests of current and future business customers.

Ofwat has now issued a formal Request for Information (RFI) - the third information request issued under the revised financial resilience monitoring framework.

Ofwat is asking the retailersto provide further information with the aim of providing further clarity in a number of areas, including:

• clarity on the balance of a retailer's interest expenditure and interest income
• clarity on retailers' ability to meet their interest obligations on outstanding debt from their earnings
• clarity on the balance of retailers' cash and cash equivalent holdings to meet current liabilities and, where relevant, satisfy loan covenants
• clarity on the balance of a retailer's current assets and current liabilities

Ofwat also wants the retailers to provide a credit balances sheet to collect metrics in relation to:

• the balance of customer credit held by retailers,
• the number of refunds made in relation to non-live credit balances
• credit write-offs made by retailers

Commenting on the new credit balance requirements, the RFI says:

“The dynamic nature of credit and credit refunds underscores the importance of continuous regular and long-term monitoring to get clearer understanding of the actual accumulated refundable credit in the market. We therefore consider that the biannual collection of metrics relating to customer credit balances and credit refunds provides us with additional insight into the stability and sustainability of Retailers' financial management. This provides insight into, amongst other things, the extent to which a Retailer may be using customer credit balances to meet its working capital requirements.”

The data and information will be used for Ofwat’s analysis and assessment of retailers' financial resilience in the market, in conjunction with the annual Certificates of Adequacy submissions provided by retailers.

Where the regulator sees concerns with, or inconsistencies between, Ofwat will seek to engage with retailers to understand the drivers of any inconsistencies, including any indicators of poor performance or potential risks, including that of retailer failure. Where Ofwat identifies imminent concerns regarding a retailer's ability to meet its licence obligations, it will also consider using other powers to ensure can best protect the interests of customers.

Writing to the retailers, Director Dan Mason says:

“Having regard to the Principles of Best Regulatory Practice, we are mindful of the need to ensure that we are only seeking information that is necessary. However, our ongoing monitoring must also remain adaptable to any developments that may affect those operating in the market, including where these reflect relevant macroeconomic factors, such that we maintain a comprehensive and up to date view of Retailers' financial resilience.”

The retailers are required to provide the additional information by 11 July 2024.