SoLR payments to be extended after supplier pushback

Ofgem has shelved plans to end the temporary Last Resort Supply Payment process which allows suppliers to make multiple claims.

It comes after retailers pushed back against plans to bring the scheme to an end and revert back to the single claims process which existed before the energy crisis.

In May, Ofgem launched a consultation on the proposal to end the scheme. At the time it said that the market environment has stabilised to the extent that appointed Suppliers of Last Resort (SoLRs) would no longer be exposed to immediate losses on energy purchase.

However, the regulator has now confirmed that the multi-claim process will be extended until “at least after winter 2023/24”.

It comes after Centrica and Eon opposed plans to end the multi-claim process.

In response, Centrica regulatory affairs and policy lead Tabish Khan said the “the risk of large SoLR levy claims [has not] been eliminated entirely and therefore [we] cannot see a reason for ending the multiple claims process”.

“Future market conditions are inherently uncertain and a return to those conditions seen in 2021 and 2022 – which resulted in multiple supplier failures – cannot be ruled out as a possibility. Therefore, there is merit in retaining a multiple claims process – in case it is needed,” Khan added.

As an alternative, Centrica has proposed that “Ofgem introduces a question in the standard information request that is sent to all prospective SoLRs asking whether the supplier intends to make a single or multiple claims, and the working capital costs a supplier will claim for under either a single or multiple claim. Ofgem would then use the answer to this question as one of the criteria in judging which SoLR to appoint.”

Likewise, Eon senior regulation manager Lucy McMahon suggested that “while the market is showing early signs of stability, Ofgem could retain an element of flexibility where suppliers are able to use either the single or multiple claim process depending on the circumstances of the case”.

Scottish Power and EDF also responded to the consultation, and while not directly opposing the end of the scheme both suppliers suggested that there were benefits from keeping the multi-claim process open.

Ofgem’s response adds: “We remain of the view that market conditions are much improved compared with when the temporary process was introduced, and while we accept that there has been some recent increased volatility, we indicated that this might be the case in our open letter.

“On the likelihood of sudden price increases and the potential size of them, we are of the view that this is less likely than has been seen over the past two years. While we cannot eliminate entirely the possibility of future large LRSP [last resort supply payment] claims, the risk of this is much reduced.”

It adds: “We still consider that there are downsides to the multiclaim process, such as the risk of overpayments that need to be refunded to consumers, and the short-term impact on energy bills.

“Despite this, we have decided at this point to retain the temporary multi-claim LRSP process until after winter 2023/24. On reflection, we want to ensure that our view of market stability is seen over a longer period before we implement any changes. This will ensure that we are best prepared in the event of adverse market conditions this forthcoming winter.”