Ofgem to claw back £24m from Shell Energy

Ofgem has proposed to claw back more than £24 million from Shell Energy as part of the true-up process for Last Resort Supply Payment claims.

The regulator also said it is minded-to deny requests by Octopus Energy – which recently acquired Shell’s UK retail arm – to claim more than £13 million of additional payments.

Energy companies are able to claim Last Resort Supply Payments (LRSPs) to recover certain costs incurred by becoming the Supplier of Last Resort (SoLR) for the customers of failed suppliers. SoLRs receive the payments from distribution networks which recover the costs from all suppliers through their charges.

Following a spate supplier failures towards the end of 2021, Ofgem introduced an expedited process for dealing with LRSP claims, which enabled SoLRs to make an initial claim followed by intermediate claims and/or a true-up claim.

Ofgem has now issued a series of minded-to decisions on true-up claims as well as some intermediate claims.

The most notable minded-to decisions concern Shell Energy, from which the regulator has proposed to claw back almost £24.3 million. This is despite the company actually seeking more than £1 million of additional payments as part of its true-up claims to cover customers’ credit balances.

Whilst Ofgem said it is minded-to approve these specific items, the regulator has also sought to claim back millions of previously approved payments for wholesale and working capital costs. In particular, Ofgem has sought to claw back £14.6 million of wholesale costs and £4.5 million of working capital costs in relation to Pure Planet.

Ofgem has also proposed to deny claims by Octopus Energy for an additional £13.2 million, including almost £8.9 million for funds withheld by the administrator for Avro Energy. These funds were collected from customers by a third-party debit provider after Octopus was appointed as the SoLR for Avro. In previous events, these payments have been held by the third party until final billing was completed and then returned to the SoLR.

However, these funds were instead received by the administrator of Avro at its request. Octopus told the regulator it had subsequently taken legal action to recover the money from the administrator but had been unsuccessful. It therefore submitted an LRSP claim for both the funds and its legal costs.

Ofgem said although Octopus is entitled to claim these costs in principle, the supplier has not supplied evidence to support its claim.

The regulator has additionally has proposed to approve £11.7 million of additional payments to British Gas, including almost £9.8 million as part of an intermediate claim for Together Energy.

Furthermore, Ofgem has proposed to terminate Scottish Power’s true-up agreement for Entice Energy after the supplier sought no additional payments as part of its true-up claim. The regulator said it is satisfied that the claim meets all the criteria to be treated as final.

Ofgem has likewise proposed to terminate Scottish Power’s true-up agreement for Orbit Energy after the company withdrew its previous true-up claim for £3.3 million. The regulator said it would have otherwise applied a £1.8 million deduction but the company’s decision to absorb the losses means it is now satisfied there is no excess or deficit to be recovered by or from Scottish Power.

The deadline for responses to Ofgem’s minded-to decisions is 17 November.