Ofgem plans new measures to help the most vulnerable and looks set to backtrack on scrapping short-haul gas tariff

Growing concerns

The regulator is concerned over the increasing number of prepayment customers who are going without energy due to being unable to top up their meters.

Currently, there are 4 million households that are on prepayment meters with around one in seven self-disconnecting their supply due to an inability to pay over the past year. Ofgem said that it has been concerned about the growing number of people running out of credit since before the COVID-19 pandemic.

The Covid-19 lockdown has increased this number and has resulted in many facing financial difficulties with some having to choose between keeping the lights on or being able to feed their families.

The recent warm weather means that this isn’t as much of an issue as it could be, but when winter hits things will become far more serious.

Ofgem’s new proposals would strengthen protections during the winter months and put pressure on energy suppliers to provide extra support. 

Breathing space

Ofgem wants energy suppliers who offer prepayment meters to provide some breathing space for all customers who have informed them that they are struggling to pay their bills.

Many energy suppliers already provide such support to their prepayment customers but Ofgem now wants this service to become a formal licence requirement to ensure that no prepayment meter customers fall through the cracks.

They propose the introduction of new emergency and friendly hours credit that allows a fixed amount of credit to customers when their meters run low.

“I want to thank suppliers for their efforts during this crisis in keeping essential energy supplies flowing to customers, particularly those in vulnerable situations. These permanent protections will reduce the number of prepayment customers temporarily going without energy because they cannot afford to top up. It’s always best for customers to keep with their energy bills if they can. But at this time when many may financial hardship, these proposals mean those who are struggling to keep up are assured of some breathing space,” said Jonathan Brearley, Chief Executive.

Ofgem is seeking to make such measures a permanent requirement for all energy suppliers.

Backtracking on scrapping cheap gas tariffs?

According to a report in the Daily Telegraph, Ofgem appears to be backing down on its plans to scrap the cheap gas tariffs that many businesses in the north of the country benefit from.

The plans that were announced at the start of the month would result in a considerable change from the current system. Instead of being commodity-based charging the new plans would see revenue recovery shift to being capacity-based and the introduction of a new single entry and exit tariff introduced at every entry point regardless of the location.

The Northeast would be particularly hard hit due to its location close to the entry point of a major pipeline. For years they have benefited from their position, but the scrapping of the tariff would make that void as they would have to pay the same as a business located hundreds of miles from an entry point.

The proposals to scrap the tariff would result in a 25-fold increase in gas transmission charges and add an extra £60 million to the bills to UK industrial companies from October.

EU rules despite Brexit?

After the plans to scrap the tariff were announced there was a backlash from industry leaders who were furious that the energy regulator was cowing to European Union regulations despite the UK leaving the supranational bloc.

The removal of the tariff would be particularly harmful to the wider national economy following the impact of the lockdown caused by the Covid-19 virus.

With many industries reeling from that, the introduction of new EU rules that would hike expenses was seen by many as a step too far.

“We’ve been given to understand by Ofgem at a pretty senior level that they share our objective of having a short-haul product in place so there is no gap from October onwards. I believe they genuinely see there is an issue and they are trying to resolve it,” said Andrew Large, chairman of the Energy Intensive Users’ Group (EIUG).

 An Ofgem spokesman said: “Throughout this process, we have held ongoing discussions with those affected by the changes, including the short-haul discount. We have said that if industry brings forward modifications aimed at avoiding inefficient duplication of the gas network that could increase costs overall then we will consider them as per the usual process.”

Further Reading

Ofgem to introduce new standards for smaller energy suppliers this winter

Back to normality for the Energy Sector from July 1st and Ofgem says debt collecting can resume

Ofgem confirms gas charging reforms will be implemented in October despite criticism from business leaders

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