Ofgem has confirmed plans to temporarily expedite Last Resort Supply Payment claims to relieve pressure on the finances of suppliers taking on the customers of failed rivals, whilst facing high wholesale energy prices.
The industry levy allows companies to claim back unrecoverable costs incurred by becoming a Supplier of Last Resort (SoLR). The payments are made by distribution networks and recouped through their charges.
In an open letter in October, Ofgem proposed to allow SoLRs to submit multiple claims – an initial claim focussed on wholesale costs that have already been incurred this winter and a “true-up” claim covering further wholesale costs and other types of cost.
The regulator said claims made suppliers, approved by itself and received by networks before the end of 2021 would begin to be paid from April 2022.
After considering the feedback, Ofgem has now confirmed its intention to proceed with the proposals. In another open letter, the regulator invited SoLRs appointed since 1 September 2021 to submit claims by 9am on 6 December to begin receiving payments from April. It will make a decision on whether to approve the claims by 17 December.
Responding to concerns that initial claims will still take up to 18 months to be fully repaid, Ofgem said speeding up payments even more would require changes to licence conditions that would be slower implement and would also have a greater impact on consumers’ bills.
It stressed that the faster claim process will only be used to support SoLRs during the “current extreme market condition,” adding: “We will communicate to industry when we no longer consider it necessary to use this process and when we can revert to the former single levy claim process.”
The regulator said it is considering mitigations suggested by respondents to the limit the impact of the arrangements on energy bills, including spreading the recovery of claims over more than a single year or calling on government intervention.
Ofgem acknowledged fears that the increase could put some non-domestic customers out of business or lead to more failures if they are on a fixed price contract and their supplier is unable to pass on the costs.
It noted that this issue is specific to gas after a modification to the Distribution Connection and Use of System Agreement allocated the levy to domestic tariffs only and said it is reviewing a similar modification to the Uniform Network Code.
Respondents also raised concerns that the temporary arrangements could lead to overpayment to SoLRs, which could use the process to subsidise trades for their existing customer book.
Ofgem said it will take steps to mitigate this risk, including developing a commitment for SoLRs to return any overpayment that cannot be offset using their true-up claim.
The regulator said it will consider initial claims for wholesale costs for the six-month period of SoLR appointments or the end of March 2022, whichever is earliest. It said it is open to allowing SoLRs to claim for costs beyond March but said it needs to wait until the level of the next price cap is known before making a decision.