Ofgem has rejected a proposal by Orsted to adjust the charges faced by suppliers for failing to read a sufficient proportion of the non-half-hourly electricity meters on their books.
The regulator acknowledged concerns over the impact of the penalties on companies with larger numbers of hard-to-read meters but said the modification to the Balancing and Settlement Code (BSC), named P366, would remove part of the incentive for suppliers to meet their targets.
The charges for a given supplier reflect the proportion of electricity demand attributable to them which is covered by their meter reads to date. These percentages are calculated on a daily basis and for each grid supply point.
If they are still below 80 per cent following the third reconciliation, suppliers are charged for the shortfalls at a rate of £0.13/MWh. If they are still below 97 per cent following the final reconciliation, suppliers are charged for the remaining shortfalls at a higher rate of £2.28/MWh.
The third and final reconciliations take place around seven and 14 months after the corresponding settlement day.
In its proposal document, Orsted argued that suppliers with a disproportionately large number of hard-to-read meters are “unfairly disadvantaged” by the charges. Larger domestic suppliers can “easily lose” these meters within the targets, but the same is not true for smaller non-domestic suppliers.
The company said it is often expensive to attempt to obtain readings for hard-to-reach meters and cheaper to accept the penalties. It claimed they do not act as an effective incentive to read the meters and instead have the effect of reducing competition.
It therefore called for hard-to-reach meters to be excluded when calculating the charges.
But Ofgem has rejected the proposal in line with the recommendation of the BSC panel. The regulator agreed with the majority of panel members that the proposal would bring no material improvement to competition. Reciting a comment from one panel member, Ofgem noted that the 5,000 affected sites account for just 0.02 per cent of all electricity meters across the entire industry.