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Water Companies: Competition

Question for Department for Environment, Food and Rural Affairs

UIN HL11287, tabled on 9 December 2020

To ask Her Majesty's Government what measures Ofwat has taken to enable new entrants to the English water retail market to meet their credit support requirements.

Answered on

23 December 2020

In 2017 Ofwat with KPMG undertook a review of the credit arrangements in the business retail market to establish whether the arrangements created an undue barrier to entry. The review found that, in principle, requiring collateral is not a barrier to entry in and of itself.

Ofwat has supported (and on occasions sponsored) market code amendments aimed at improving transparency and flexibility and reducing barriers to new entrant retailers. For example, Ofwat sponsored a code change to Wholesale Retail Code CPW021 (Negotiating Alternative Eligible Credit Support reasonably and in good faith) implemented in July 2017. This change provided greater certainty on wholesalers’ obligations to negotiate ‘alternative eligible credit support’ and increases the scope for retailers to provide the required eligible credit support via a mechanism which suits their particular circumstances.

In some cases, Ofwat has rejected proposed market code amendments on credit where such proposals are not considered – on the basis of the evidence presented - to better facilitate the principles and objectives of the market codes.

In Ofwat’s ‘review of incumbent company support for effective markets’ published in August 2020, it asked wholesalers to explain their approach to offering alternative credit arrangements and alternative payment terms and the extent to which they tailor their offerings to the characteristics of individual retailers. In its report Ofwat highlighted examples of good practice and where performance could be better. It emphasised that where different retailers have different risk profiles, a wholesaler is able to reflect this by offering these retailers’ different or tailored terms, so long as the differences in terms objectively reflect the differences in risk. Ofwat plans to provide further guidance on this in early 2021.