In light of the ongoing COVID-19 crisis, the UK government has circulated guidance in March 2020, imposing premises and businesses to close down unless deemed essential. Also, non-essential travel, large gatherings, and other similar activities are to be avoided at all costs.
The industry regulator Ofwat issued a Change Proposal allowing retailers to apply for a ‘Temporary Vacancy’ flag to prevent them from accruing high charges despite not using water and wastewater services.
The said decision was presented to the public on 30 March 2020 and was set to continue until 30 June 2020. Recently, the regulator announced an extension to the COVID-19 Temporary Vacancy flag until 31 July 2020 so that retailers only pay for a certain level of consumption during this pandemic.
Ofwat recently issued a notice of decision that enables businesses to apply for a Temporary Vacant flag in the CMOS or Central Market Operating System. It aims to match the current situation, wherein Meter Reads reflected on the CMOS are likely to be lower than average. Therefore, the historic consumption estimates would be ill-fitting to use in the present situation.
Businesses and premises that have significantly reduced water consumption due to temporary closure can opt to avail of this leeway. It ensures that their future primary charges more precisely reflect the water and wastewater services they have consumed throughout the Covid-19 crisis.
The Change Proposal was first introduced last 30 March 2020 and was set to take effect until 30 June 2020. However, the regulation authority saw the need to extend the said decision to help struggling businesses, which is why consumers can still be flagged ‘Temporary Vacant’ until 31 July 2020.
This new regulation was made possible since Ofwat modified some of the market codes. CSD0104 Section 3.1.6 defines a business as a ‘Vacant Premises’ if:
The regulator has continuously monitored the COVID-19 situation, and taken into consideration the re-opening of non-essential shops from 15 June as lockdown measures are gradually eased. However, it notes that many retailers are still unable to bring back their normal trading activities. There is also the possibility of local lockdowns, which will force businesses to close again to stop the spread of the coronavirus.
The decision also aligns with Ofwat’s prior decision in April to grant liquidity support to retailers until the end of July.
Furthermore, the regulator encouraged businesses to use the extension period to review and update their operational status and customer portfolios to ensure that they are ready should the temporary vacancy flag ceases to apply to their case.
Ofwat received fifteen responses, five from retailers and nine from wholesalers, with the Consumer Council for Water also sending in their input. Every response, except for one wholesaler, expressed support to the extension of the deadline to 31 July 2020.
The responses also raised significant points that Ofwat intends to review and consider as July comes closer. Some of them suggested that restrictions could either be imposed or lifted not on a national basis but rather regional. They also called for improved visibility on the vacancy flag and corresponding adjustments as they are applied to the market.
Additionally, the responses asked for clarity on the process to be followed by trading parties after the temporary vacancy flag expires.
Ofwat is set to convene with trading parties once more this July to discuss the next steps concerning liquidity measures in the market. The regulator will be deciding whether a further extension of the Change Proposal is appropriate and necessary, given the current situation.
The consultation will also determine the timescale and suitable process to use when winding down the temporary vacant flag. Stakeholders’ inputs will be taken into account to ensure that the regulator arrives at a sound decision that is agreed upon by everyone in the market.