Ofgem has amended price cap methodology to reflect the introduction of a new charge on gas distribution customers to recover the costs of Last Resort Supply Payments.
Last Resort Supply Payments allow retailers to claim back otherwise unrecoverable costs incurred by becoming a Supplier of Last Resort (SoLR). The payments are made by distribution networks, with the costs being recouped through their charges.
Last month, Ofgem approved a modification to the Uniform Network Code (UNC) to clarify the arrangements for recovering the costs of Last Resort Supply Payments to gas suppliers from customers of gas distribution networks.
UNC797 will introduce a new volumetric charge on gas usage, whilst also ensuring costs originating from domestic and non-domestic gas supply are charged to the corresponding market segment.
Ofgem rejected an alternative modification named UNC687V that would instead introduce a flat standing charge on gas meters.
It has now decided to amend the price cap methodology to reflect the new charge, which will come into effect for the beginning of the next price cap period on 1 April.
For customers with a typical consumption profile, the regulator estimated the cost of the levy at £33 over the next price cap period or £30 for prepayment meter customers.
Ofgem announced on Thursday last week (3 February) that the price cap on default tariffs will rise by £693 from April to £1,971 per year. Following its decision in December to approve £1.8 billion of fast-tracked Last Resort Supply Payments claims, the regulator said the new cap includes £68 of SoLR costs across both gas and electricity.
The decision to incorporate the new gas levy into the price cap was one of a number of documents published by Ofgem on Friday, which also included its decision to apply a £61 uplift to the price cap over the next two periods for wholesale costs incurred during the current one and a consultation on its proposal to move to quarterly price cap periods.
The regulator additionally issued decisions to create a new price cap allowance to cover the Green Gas Levy, introduce new end user categories for prepayment meter customers and amend the allowances for the Energy Company Obligation and Warm Home Discount to account for extensions to the schemes as well as the allowance for smart metering costs.