Ofgem consults on changes to supplier of last resort rules

Industry regulator Ofgem has launched a statutory consultation on changes to the supply licence conditions that underpin the supplier of last resort (SoLR) arrangements.

The regulator is principally focusing on the process for making a claim for a last resort supply payment (LRSP).

Ofgem said it continues to consider its proposed changes, outlined in June, are appropriate and is therefore proceeding with a statutory consultation.

In an open letter, Lesley Nugent, head of industry codes and licensing, said: “Our proposed changes seek to enable a potential supply of last resort to recover costs associated with honouring credit balances for customers who have switched away from the failing supplier at the date the supplier fails.

“We also proposed a range of other changes to both ensure any claim for credit balances represents the actual amounts owed to customers by the failed supplier and provide appropriate flexibility in the timings for the process for making a claim.

“Having carefully considered all comments (which are summarised in the appendices to this letter), we continue to consider our proposed changes are appropriate, and are now proceeding with a statutory consultation on the proposed licence changes.”

The regulator proposed new definitions to clarify that any costs which a SoLR may recover for protecting credit balances limited to the actual amounts owed to customers by the failed supplier, taking into account any unbilled gas and electricity consumption.

This, it says, will help ensure that any claim for credit balances: takes account of consumption that has not been billed for at the date of the SoLR’s appointment and represents the net position of the customer across both gas and electricity.

While the majority of respondents did not provide a view on this specific aspect of the proposed changes, one respondent raised concerns that Ofgem’s proposal would be “overly burdensome for the SoLR given they may not have sufficiently clean data on which to calculate the net credit balance position for each customer”.

Ofgem responded by stating it intended to proceed with the licences changes, saying it believed companies should ensure that “any claim for credit balances represents an accurate aggregate credit position of each of the customers in question, as far as possible”.

The regulator suggested extending the period during which a supplier of last resort is able to make a claim, from six months to 12 months (or five years if no date is given) after the SoLR event to enable them to recoup as much costs as possible through the liquidation process.

Responses to this particular proposal were mixed, with respondents having concerns over the five-year backstop limit or stated they wanted costs to be recovered more quickly.

Seven respondents supported the proposal to allow the recovery of costs from all customers, rather than those in the geographic areas in which the premises supplied by the failed supplier were, when making LRSP claims.

One respondent accepted that there are benefits to this proposed change but stated the geographic area should “still be a consideration when allocating the costs of a LRSP” because the failed supplier may have focused their operations in one area and offered a tariff and/or service there that consumers in other geographic areas could not access.

Stakeholders have until 8 October to respond to the statutory consultation.

If the regulator decides to make the proposed modifications they will take effect not less than 56 days after the decision is published.