Proposal to reduce gas costs for PPM customers

Ofgem has granted urgent status to a code modification that would significantly reduce a large and growing disparity in wholesale gas costs between prepayment (PPM) and non-prepayment meter customers.

The modification to the Uniform Network Code (UNC) concerns the allocation of unidentified gas that cannot be directly attributed to customers, for example, due to leakage or theft from the gas network.

This gas is allocated to all customers but in different proportions depending on their End User Category (EUC) band and metering class. For EUCs 1 and 2, there are separate bands for PPM and non-PPM customers for both domestic and non-domestic customers.

The modification proposed by Centrica (UNC0838) would merge the weighting factors for PPM and non-PPM customers in the same EUC, metering class and sector.

The latest version of the price cap methodology published by Ofgem gives an allowance for wholesale gas costs for the current period (January to March) of £1,733 for PPM customers and £1,632 for non-PPM customers – a difference of more than £100.

The figures are calculated on the basis of unidentified gas allocated to class 3 and 4 meters for domestic PPM and non-PPM customers in EUC1 in the 2022/23 gas year. The allocation to domestic PPM customers equates to 8.19% of their forecast consumption for the year. The equivalent figure for domestic non-PPM customers is 1.83%.

In both cases, class 4 meters account for the vast majority unidentified gas allocations and forecast consumption.

According to the proposal document for UN0838, the draft Allocation of Unidentified Gas (AUG) statement for 2023/24 estimates the allocations for domestic PPM customers in EUC1 will be set at 2.9% and 9.5% for class 3 and 4 meters respectively. It gives equivalent figures for domestic non-PPM customers of 1% and 1.7%.

Inputting the figures for domestic class 4 meters into Ofgem’s price cap methodology gives wholesale gas cost allowances for the current period of £1,754 for PPM customers and £1,630 for non-PPM customers.

Under Centrica’s proposals, the distinction between PPM and non-PPM would be removed. It gave indicative estimates of the allocations of unidentified gas to domestic customers in EUC1 on this basis of 1.1% for class 3 meters and 2.1% for class 4 meters.

If the figure for class 4 meters was applied for the current price cap period, the wholesale gas cost allowance would be £1,634 for PPM customers and £1,636 for non-PPM customers, almost entirely removing the large disparity between the two sets and meaning non-PPM customers would actually pay slightly more.

Nevertheless, the non-PPM customers in this hypothetical situation would only pay around £6 more when compared to the existing arrangements.

The proposal document states that ever since different weightings for PPM and non-PPM customers were introduced, the weighting factors for PPM customers have been significantly higher. It says this difference has also been growing going from three times higher in 2021/22 to four times in the current year and almost six times in the proposals for 2023/24.

“In an efficient market the costs faced by consumers should reflect the costs they impose on the system,” the document explains. “Shippers and suppliers will pass through the costs of unidentified gas based on expected AUG weighting factors.

“However, having different factors for prepayment and non-prepayment EUCs in the same sector and product class creates an unnecessary level of risk and unpredictability.”

It continues: “We do not believe it is fair and equitable to allocate almost six times more unidentified gas to small domestic prepayment consumers compared to non-prepayment consumers.

“We do not believe that applying the ‘polluter pays’ approach at a meter-type level is fair because in the case of gas theft, by definition, the polluter is not paying: the approach places the cost of theft increasingly on those who are not stealing gas simply because theft detection rates have been higher for consumers with similar meter types.”

The document says provided the central data services providers – Xoserve – have the approved weighting factors to load into the system by 1 September, the change can go live from 1 October.

Following a request by Centrica, Ofgem has granted urgent status to the modification meaning it can follow an expedited development and approval process. The UNC panel is scheduled to issue its recommendation to the regulator on whether to approve the modification on 16 March.

The modification was submitted by Centrica on 10 February. At the beginning of the month, the Times published an undercover investigation into debt collectors used by its subsidiary British Gas, which found they regularly broke into customers’ homes to force fit prepayment meters, even when customers were known to have severe vulnerabilities.