Fuel poor households should be shielded from SoLR costs

The government’s fuel poverty advisors have called for the poorest customers to be offered relief from the costs of supplier failures.

Ofgem last month published a consultation outlining how it is planning to spread the costs of customers transferred from energy suppliers that have gone bust over the last six months since the onset of increased wholesale gas prices.

In its response to the regulator’s proposal to mitigate a spike in costs from the Supplier of Last Resort (SoLR) process, shared exclusively with Utility Week, the Committee on Fuel Poverty has called for fuel poor households to be protected from these increased costs.

David Blakemore, the committee’s chair said: “These exceptional costs are due to regulatory failure so to penalise low-income households for regulatory failure is just wrong.

“Those who are least able to pay should be protected.”

He said if fuel poor households are required to pay the SoLR costs, these should be added to bills on a usage basis rather than applied per meter, which would hit poorer customer more than those that are wealthier.

He said that applying the costs to consumption would be “less regressive” because it would push up bills for the fuel poor less than fixed meter charges.

Ofgem recently fast-tracked a proposed modification to the Uniform Network Code that would introduce a volumetric charge on gas consumption to the recoup the costs of Last Resort Supply Payments, which are paid out by distribution networks and allow suppliers to claim back otherwise unrecoverable costs associated with being appointed as an SoLR.

The regulator said it would consider the modification alongside a previous proposal to implement a flat standing charge on gas meters.

Shortly before Christmas, Ofgem approved claims for £1.8 billion of accelerated LRSPs which suppliers will begin receiving from April. It subsequently released proposals to permit suppliers to sell their rights to LRSPs to third parties to allow them to receive the money faster, whilst also enabling the payments to be spread out over a longer period to reduce the short-term impact on energy bills.

Meanwhile, the Committee on Fuel Poverty on has also written to Kwasi Kwarteng, urging the business and energy secretary to increase the Warm Homes Discount from its current level of £140 per annum to help protect fuel poor households from rising energy bills.

In its letter to Kwarteng, the committee additionally called for a widening of the eligibility criteria for the scheme. It said both extensions to the discount should be funded by the Treasury rather than through customers’ bills.

It is “super critical” that the priority for additional assistance should be on fuel poor households, who do not currently qualify for the discount because they do not receive benefits, Blakemore told Utility Week: “Rather than just doubling protection to existing recipients, any additional protection should be prioritised at 1.5m households not on benefits.”

While the government continues to use benefits receipt as a “proxy” for fuel poverty, this doesn’t capture an estimated 45% of those who struggle to pay for heating, he said: “A lot more work needs to be done about data and statistics to really understand where these fuel poor and low-income households live: once you know that you can start to address the issue of a just transition.”

But he said that the committee had not proposed a specific figure for how much the overall discount should be increased by because this would depend on a series of factors, like whether their bills would include SoLR costs and economic and social levies.