To ask Her Majesty's Government what assessment they have made of the use of Parent Company Guarantees by water wholesalers to their associated retailers in the English water retail market; and their impact on market (1) competition, and (2) distortion.
23 December 2020
Ofwat keeps under review the use and impact of Parent Company Guarantees (PCGs) in the water business retail market. For example, it has previously reviewed the use of PCGs in the market and wrote an open letter (in January 2019) to retailers and their associated companies reminding them of their obligations under the market codes and competition law on this.
Use of PCGs, or other forms of intra-group credit, in and of themselves should not be of concern. For example, where a retailer is obtaining credit and paying a market orientated rate for that credit, then this should not distort competition. However, if the credit provision was below the market rate, i.e. not reflecting the economic risk specifically of that retailer (as opposed to the group as a whole), this could potentially distort competition. To increase transparency around use of PCGs, a requirement was introduced (though a change to the market codes) for retailers to provide information to Ofwat including: confirmation any PCG has been provided on an arm’s length basis; and evidence which can be used to determine the commercial consideration (and any other relevant costs) of the PCG.