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Ofgem has scrapped proposals to allow suppliers to sell their rights to Last Resort Supply Payments in light of the government’s support measures announced on Thursday (3 February).
The payments, which are made by distribution networks and recouped through their charges, allow companies to claim back otherwise unrecoverable costs incurred by becoming a supplier of last resort (SoLR) but can take months or years to come through.
Under the proposals announced by Ofgem in January, SoLRs would be permitted to sell their rights to the payments to third-party financiers, enabling suppliers to receive the money immediately whilst also allowing the payments to be spread over a longer period to reduce the short-term impact on consumers.
However, in a graph breaking down the newly announced April price cap, Ofgem confirmed that the total network costs of £371 include £68 for the recovery of Last Resort Supply Payments.
The government’s £9.1 billion support package includes a £200 rebate on electricity bills in October as well as a £150 council tax rebate in April for households in England living in bands A-D.
In a conference call with journalists on Thursday afternoon, the regulator’s chief executive Jonathan Brearley cited the government’s package of support measures as being behind the decision.
He said: “We did work across industry to develop a private financing scheme that would have spread those costs over a number of years.
“However, given the government is coming forward with a publicly financed version which is doing the same thing – their £200 in essence is taking money off bills now and then allowing that to be repaid later – it simply didn’t make value for money sense to be running a private financing scheme over and above that.”
While today’s announcement will see the price cap to rise to another record level in April at £1,971, industry analysts are already predicting October’s increase will be even bigger.
Earlier this week, Investec analyst Martin Young said the cap could rise to almost £2,450 when it is next reviewed based on forward wholesale energy prices.
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