Ofgem has announced it has given the modification of the supplier of last resort (SoLR) arrangements the green light following a statutory consultation.
In an open letter written on 5 November by the regulator’s head of industry codes and licensing, Lesley Nugent, said Ofgem has decided to modify the gas and electricity supply licences as set out in the formal licence modification notices.
The modifications will take effect 56 days from the notice of the letter. The proposed changes aim to enable a potential SoLR to recover costs associated with honouring credit balances for customers who switched away from the failed supplier shortly before or at the date of failure.
Present arrangements do not allow appointees to recoup these costs.
Other changes to ensure claims for credit balances represent the actual amounts owed to customers by the failed supplier and flexibility in the timings for making a claim have also been given the go-ahead.
Ofgem received six non-confidential responses plus one confidential response during the consultation.
Nugent said: “With one exception, there is broad support for the intention behind our proposed changes to the SoLR licence conditions.” The regulator recognises several respondents “continue to have concerns” on certain aspects.
Big six supplier Npower said it was not supportive of the proposed changes and believes “additional consideration” needs to be given about credit balances irrespective of if customers remain with the SoLR.
Matthew Keen, regulation lead at the company, said: “Aside from any legality we believe that there is greater merit in compensating customers who wish to move from a defaulting supplier.
“Currently they are locked in if they believe that their supplier may default, as they lose the protection if they switch.
“This is clearly not in the interest of any consumers.”
Concerns were raised about Ofgem’s proposal to extend the deadline for submitting a last resort supply payment (LRSP) claim from no more than six months from the date of the last resort supply direction having effect, to a date notified by Ofgem, or five years if no date is given.
Keen said the proposals to allow the claim window for LRSP to remain open for a five-year period “need justification”. Npower believes this will heighten the level of uncertainty and increase the level of financial risk.
Eon suggested an LRSP submitted so long after the SoLR event may result in an “unexpected financial obligation” making it difficult to forecast or plan for.
The supplier also said Ofgem should prioritise its review of both the licensing arrangements for new suppliers as well as ongoing monitoring.
It stressed that new entrants “should be able to function as a supplier and fund their regulatory obligations.”
Richard Sweet, head of regulatory policy at Scottish Power said the company remains supportive of the regulator’s overall review of its approach to licensing suppliers.
The company had concerns with the amendments to the timings for when a SoLR direction would end and when an appointee must submit a claim for a LRSP. However, it noted that the consultation sets out its expectation that claims will likely be made much earlier than the five-year backstop proposed by Ofgem.
Sweet added that Scottish Power had felt there was “some ambiguity” in the licence conditions on the costs that would be considered in claims for a LRSP. But it said the regulator clarified that it does not consider the licence conditions would preclude such claims from the industry levy, and that all claims will be considered on a case by case basis.
Scottish Power believes licence conditions could be drafted “more clearly to avoid potential ambiguity and/or unintended consequences”.
Writing on behalf of Energy UK, Steve Kirkwood, policy manager, said the trade association “retains its support for the intent of Ofgem’s proposed amendments” and recognises the rationale for a SoLR to be able to recover costs.
But he expressed concern that Ofgem has “not provided sufficient rationale for its decision to use five years as a backstop or reassurance that it will not become the default”.
He said the proposed definition of “credit” is too narrow.
Kirkwood added:”Ofgem should reassess its decision to dismiss including an explicit provision within the definition for goodwill payments. In not doing so, Ofgem could risk confusion for both consumers and suppliers further along in the SoLR process.”
Meanwhile smaller supplier Foxglove Energy agreed with Ofgem’s proposals.