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<p>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.</p><p> </p><p>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.</p><p> </p><p>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.</p><p> </p><p>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.</p>
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