Business water rates are set to increase for commercial customers in England and Scotland on the 1st April 2023. This means if a business is not currently under contract with a water retailer, then they should expect an increase on their default tariff this April. The majority of business in the United Kingdom have not yet switched providers and are still on the original out of contract/default tariff. The business water market was deregulated for English commercial supplies in 2017 yet over 70% still have not switched and are still with the default supplier. The default supplier would be determined by the business location and wholesaler.
The price increase has been initiated due to the lack of awareness in the business water market, with over half not being aware that they would be able to switch water retailer and potentially receiving better customer service and more competitive business water rates. This has led to Ofwat being under pressure to act on this and trigger businesses to actively engage in switching their water retailer.
Since 2017, Ofwat have been in control of how much a default retailer can charge an out of contract business meaning the price cap is there to protect these companies. The default retailer must also publish the default costings on their website to comply with Ofwat regulations. The Price cap increase will have an affect on the businesses that have not yet switched as most of the default suppliers tend to charge up to the maximum price cap.
A business would be put into one of two groups for their business water. These groups are determined by the yearly consumption. Group one would use less than 500m3 per year, this would cover most businesses in the market. Group two would be any business that uses more than 500m3 but less than 50,000m3 per year. The retail exit code would protect both groups as this puts a cap on the maximum retail fee that a water retailer is allowed to charge. The Businesses that use more than 50,000m3 a year are not protected by the retail exit code.
The new default price cap will only affect businesses that are in group 1. So if your business uses less than 500m3 and you are not in contract with a retailer then expect an increase in business water charges in April 2023. The price cap has been calculated by each element that would contribute to a fixed service charge by the retailer. Firstly, there is the actual cost to the retailer, per customer. This includes meter readings, billing, and customer service. Secondly, the net margin would have an impact on what suppliers can charge per customer, this is the profit that a retailer can make per customer. Lastly, the bad debt allowance would be the last contributing factor to the retail exit code price cap. Since COVID-19, there has been a lot of financial difficulty with businesses being closed for months and not paying utility bills. This factors in a risk premium that would cover any bad debt in the market.
For advice and information please visit: www.thebusinesswatershop.co.uk