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ConservAqua - CPW132 consultation response_Redacted

Document Cited in Related
Date05 February 2025
1
From: Scott Dagg
Sent: 05 September 2024 07:30
To: codechange
Subject: CPW132 consultation
Categories: Tracked To Dynamics 365
Dear Ofwat,
As an independent retailer, we wish to contribute to the CPW 132 consultation, and we thank you for the
extension to consider our submission.
For context, Conservaqua currently pay cash to the wholesalers to cover our collateral commitments, but we
may use the other forms of collateral in the future and so we hope our view points are considered seriously as
we hold a dissenting viewpoint to your comments in this document CPW132-minded-to-decision-1.pdf
(ofwat.gov.uk). Accordingly, please see our comments below:
1. Impact of Wholesaler Financial Distress or SAR: I disagree with your assessment of the impact on
the water market if a wholesaler was to experience financial diiculty or be put into an SAR. In our
experience when applying for finance, the underwriters for the credit providers have cancelled our
applications mid-way through the due diligence process due to concerns over the stability of utility
markets, which significantly reduces their appetite to lend to utility firms. So, we would definitely
expect that any wholesaler failure or SAR would reduce the number of credit providers available to
water firms and we would also see the credit spreads widen i.e. it would spook the whole market.
2. Legal Considerations and Precedents: I note that your comments fail to reference any legal
precedent for a wholesaler failure or consider how any wholesaler failure or SAR instance will interact
with corporate and insolvency law in conclusive detail. In our experience the wholesalers are reluctant
to net their exposures on their balance sheet, so our view is that retailers are also creditors of the
wholesalers if they have paid cash collateral or are due leak allowance credits. So, in these cases the
retailers are exposed to the risk of failure themselves due to short term cashflow issues where these
credit balances cannot be refunded immediately because of the complicated settlement system upon
the wholesaler failure or implementation of SAR.
3. Consistency in Collateral Treatment: With regards to the type of collateral provided, we would
suggest that your views should be consistent regardless of the type of collateral provided. In our case
we are posting cash collateral, so we are most at risk of being negatively impacted by wholesaler
failure due to the cash already being received by the wholesaler, thus the legal delays and costs in
recovering these balances would be an important factor to our own financial performance. We note
that the banks / insurance companies that issue the other types of financial instruments which are
accepted as collateral will have the obligation to pay the wholesaler on demand, so we do struggle to
understand your views and must point out we side with the proposer on this point.
In conclusion, it’s unfair that the retailers are forced to provide collateral to the wholesalers in breach of their
licence conditions, especially when the breaches are circulated in the mainstream media and therefore
alerting the end clients of the real drop in service levels and value for money. Also we consider that the current
regulatory framework is heavily in favour of the wholesalers which does not protect the retailers from the
systemic risk associated with the failure of the largest wholesalers, so we urge you to reconsider your position
on these matters because the feedback from our clients suggests the lack of a clear precedent for these
situations is already causing irreparable damage to the perception of how the water market is functioning as a
whole.

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