Credit Committee Closure
The Credit Committee was closed on 15 December 2020 at Panel Meeting (P50) (having been created at Panel Meeting (P22) on 28 August 2018, where the Panel agreed the Credit Committee’s Terms of Reference and appointed its Members).
The Panel reviewed the Credit Committee (“Committee”) Closure Report (P50_07) (below), which outlined the work the Committee had carried out to fulfil its remit and how any future work might be undertaken.
- APPROVED the Committee Closure Report, confirming that the Committee was, with effect from that day (15 December 2020), dissolved; and
- AGREED to determine the appropriate route for further work (i.e. whether it would be via a Panel Sub-Committee or Subgroup(s)) when such time came to review/undertake the work currently identified in the Committee Closure Report and/or any new credit matters raised.
Credit Committee’s Remit
As the Credit Committee’ Terms of Reference (below) set out, the purpose of the Credit Committee was to best manage the areas of work on improving the credit arrangements set out by KPMG and supported by Ofwat for the Panel including its committees to take forward.
On 15 June 2018 Ofwat published the results of its review of credit arrangements for the non-household retail market, which it had commissioned KPMG to undertake in December 2017. The review sought to establish whether the current arrangements created undue and unfair barriers to entry, in particular how they affected smaller new entrants, and whether any areas could be clarified or improved.
KPMG made a number of recommendations, described as proposals, for areas of work for the Panel to take forward which Ofwat supported. These KPMG proposals were:
- Proposal 1: Ensure greater transparency of PCGs and alternative credit arrangements;
- Proposal 2: Reflecting payment history in order to access an unsecured credit allowance;
- Proposal 4: Clarifications around credit assessment scores;
- Proposal 5: Review of termination, default and interim supply processes; and
- Proposal 8: Pooled credit models.
Ofwat asked the Panel to focus on:
- Taking forward the transparency aspect of the PCG and Schedule 3 alternative credit arrangements-related proposal with a future request for the Panel to gather evidence and to assess whether all retailers were able to compete, specifically whether associated retailers were deriving an unfair advantage from PCGs (Proposal 1).
- Recommendations that related to the use of credit scores and unsecured credit allowance for payment history potentially packaging these together given the interdependencies (Proposals 2 and 4).
- Taking forward work relating to the timelines for default and termination following initial testing of interim supply processes by Ofwat and MOSL (Proposal 5).
The objectives of the Credit Committee were to:
- Carry out required investigation and evidence gathering from trading parties and others;
- Engage with third parties, i.e. credit rating agencies, as necessary;
- Liaise with Ofwat regarding the review of the Retail Exit Code, if appropriate; and
- Make recommendations on Code Change Proposals to the Panel.
Credit Committee’s Work
Credit Committee Change Proposals
The Credit Committee took forward these areas of work to improve the credit arrangements in the business retail market by developing and proposing Change Proposals.
Proposal 1: Ensure greater transparency of Parent Company Guarantees (PCGs) and Alternative Credit Arrangements (ACAs)
CPW052 – Improving the transparency of Alternative Credit Arrangements was implemented on 29 March 2019. It seeks to improve the level of transparency of Guarantees between Wholesalers and Retailers in the market and improve market confidence regarding the use of Guarantees by requiring Wholesalers to notify Ofwat and MOSL of its ACAs and for MOSL to publish them on its website.
CPW057 – Improving the transparency of Credit Guarantee Arrangements was implemented on 30 September. It seeks to improve the level of transparency of Guarantees between Wholesalers and Retailers in the market and improve market confidence regarding the use of Guarantees by requiring Retailers to provide the details of the Guarantee and a signed declaration, that the Guarantee is at arm’s length and the requisite details have been sent to Ofwat, to MOSL for it publish on its website.
However, in approving the Change Proposal, Ofwat stated that, whilst an improvement to the existing situation, it did not go far enough in providing sufficient transparency for the market to operate efficiently. Therefore, it has requested that the Credit Committee carry out a further review of the extent of the commercial sensitivity attached to the publication of the full details of all Guarantees, including costs, considering solutions to allow for the terms of such Guarantees to be made available without compromising the commercial sensitivities associated with the information.
Proposal 2: Reflecting payment history in order to access an unsecured credit allowance
CPW061 – UCA reflecting payment history was rejected by Ofwat on 27 November 2020. It sought to introduce a new route for Retailers looking to gain an Unsecured Credit Allowance (UCA) with their Wholesalers based on Payment Performance. A new proposed and alternative solution to CPW061 were resubmitted to the Authority on 1 April 2020. This followed the Change Proposal being returned by Ofwat to revise and re-submit a Final Report responding to Ofwat’s issues in September 2019.
Proposal 4: Clarifications around credit assessment scores
CPW060 – Clarifying credit scores and ratings for the purpose of UCAs was implemented on 30 September 2019. It seeks to improve the process by enabling Retailers to choose their credit scores or ratings as well as enabling Wholesalers to apply amended credit scores or ratings where they have not been notified of a credit downgrade.
Proposal 5: Review of termination, default and interim supply processes
CPW080 – Simplification of the Default and Termination Process is awaiting decision by Ofwat. It seeks to clarify the termination provisions and improve and simplify the default provisions.
CPW079 Issue 1
Following the approval of Change Proposal CPW079 Protections for Credit Support Security, the Credit Committee’s remit under its Terms of Reference was extended to include the issue of security of Retailers’ credit support funds and consideration of methods of ring-fencing them as well as of the creditworthiness of Wholesalers. It was asked to consider these issues and report its findings to the Panel. The presentation of the Issues 1 Findings Report to the Panel on 15 December 2020 concluded this work.
Credit Committee Meetings
The Credit Committee Meetings’ Agendas, Minutes and Papers are provided below.
Information on the Credit Committee
If you would like further information on the Credit Committee, please email email@example.com
Credit Committee Meetings
|Meeting 1||23 October 2018||Download||Download||Download|
|Meeting 2||21 November 2018||Download||Download||Download|
|Meeting 3||11 December 2018||Download||Download||Download|
|Meeting 4||22 January 2019||Download||Download||Download|
|Meeting 5||19 February 2019||Download||Download||Download|
|Meeting 7||23 April 2019||Download||Download||Download|
|Meeting 8||21 May 2019||Download||Download||Download|
|Meeting 9||31 July 2019||Download||Download||Download|
|Meeting 10||17 September 2019||Download||Download||Download|
|Meeting 11||21 November 2019||Download||Download||Download|
|Meeting 12||21 January 2020||Download||Download||Download|
|Meeting 13||18 February 2020||Download||Download||Download|
|Meeting 14||24 March 2020||Download||Download||Download|
|Meeting 16||15th October 2020||Download||Download||Download|