Proposal for volumetric SoLR gas levy granted urgent status

Ofgem has fast-tracked a proposed modification to the Uniform Network Code (UNC) that would introduce a new volumetric gas distribution charge for recovering the costs of Last Resort Supply Payments to gas suppliers.

UNC797 was proposed by Corona Energy, which said apportioning the costs in relation to usage would limit the impact on fuel poor households.

Last Resort Supply Payments allow energy retailers to claim back other unrecoverable costs incurred by becoming a Supplier of Last Resort (SoLR). Once approved by Ofgem, the payments are made distribution networks, which then recoup these costs from their customers.

The regulator confirmed plans at the beginning of December to expedite the payments to relieve pressure on recently appointed SoLRs that are having to buy energy for newly acquired customers at exceptionally high prices.

Ofgem said SoLRs would be allowed to submit multiple claims, with initial claims approved by the end of 2021 being paid out from April 2022. It has since approved £1.8 billion of initial claims, including £825 million to gas suppliers.

Back in 2019, Total Energies proposed the modification UNC687, which would introduce a flat standing charge on gas distribution meters to recover the costs of payments to gas suppliers.  To ensure the costs are only be recovered from the market in which they were incurred, there would be separate versions of the charge for domestic and non-domestic meters.

However, the code was put on hold and is still awaiting approval.

UNC797 would introduce a similar charge, with separation between the domestic and non-domestic markets, but would be set as a volumetric unit rate. According to the proposal document submitted by Corona Energy, this would mean “properties with a lower usage, such as small flats or businesses, would receive a smaller proportion of the overall charge than a detached multi-bedroom house or process load, which uses significantly more gas.

“While we acknowledge that there may be some properties where usage and relative size or value are not in relation, such as holiday homes, this would help drive down the impacts particularly in fuel poor households,” it added.

Ofgem has granted a request for the modification to be treated as urgent to enable the modification to be implemented before the beginning of April and with enough time for gas distribution networks to publish their charges for the next charging year on 31 January 2022.

The regulator said it considers UNC797 to be an alternative to UNC687 and will assess the two modifications alongside each other. It said it expects to make a final decision by 22 January.

Last week, Ofgem issued a consultation on proposals to allow SoLRs to sell their rights to Last Resort Supply Payments to third parties to enable the corresponding charges on consumers to be spread across multiple years, limiting the short-term impact on energy bills.