A question on consumer protection

oldwiring

With all the failures of late ISTM that the cost of protection will have to rise. I'd like to know how the rate of payment is calculated. Is it on, say, kWh supplied, company turnover or ....? Is the rate fixed for all, or is it assessed on a supplier's perceived standing or track record? Some would say such matters should be considered to ensure those with suppliers, which are safer, should not bear the costs of companies with greater risk of failure.

antrobus

The way it works is this, the Supplier of Last Resort makes a Last Resort Supply Payment Claim which OFGEM ponders over and decides upon.

When Co-Op Energy submitted their claim for the takeover of GB Energy customers, this is what OFGEM had to say;

As per the supply standard licence conditions regarding LRSP claims, CEL will be able to submit a claim to each relevant distribution network, based on the amounts we have consented to and each network’s share of the total premises served by the relevant networks, in each fuel respectively. We expect CEL to do this on the basis of the data on customer numbers contained within the network companies’ regulatory reporting packs. This has the advantage of being a data source that is transparent and consistent between gas and electricity.

https://www.ofgem.gov.uk/system/files/docs/2018/01/last_resort_supply_payment_claim_from_co-operative_energy_final_decision.pdf

So the answer is that the costs are allocated by share of premises supplied i.e. customer numbers.

wavelets

oldwiring wrote: »

With all the failures of late ISTM that the cost of protection will have to rise. ....

There is not a pot of money that suppliers pay into "just in case" i.e there is no protection money being paid

It's a levy that applies to the distribution companies, where applicable. i.e. it is only collected where a SoLR makes a claim (that is approved by Ofgem)

The system was first used by the Co-op this year (for their take over of GB Energy custoners in late 2016), despite the SoLR process bing in place since 2001.

That's because Ofgem tries to appoint a SoLR that does not make any claim (i'e the supplier funds it themselves). To be fair, Co-op never gave such undertaking to waive the opportunity to claim, and there were some unusual additional costs the Co-op incurred in being the SoLR.
Co-op still paid 30% of the costs themselves.

What I'm saying is the process is so new, it's still being developed, but essentially the SoLR puts in a claim, Ofgem decide if it should be entertained, and if so, the costs are passed to the distribution companies (who ultimately charge the suppliers)
As distribution costs are normally agreed on a 8 year cycle, a derrogation needs to be agreed.

The estimated effect of the levy applied due to the Co-Op request for funds was estimated to be 0.08 pence per day, over 2 years.

How the supplier then passes that onto the end customer (i.e us) is up to them, if indeed they do pass it on. The daily standing charge would be the natural way to do this, but we know the traditional use of daily standing charges have been 'massaged' by suppliers with some charging customers nothing and others changing over £100 per year per fuel, so some may well need to reflect the charge in unit price (but of course, however they do it, those of us on a 2 year fixed tariff cannot be affected).

I don't know if anyone else other than the co-op has ever claimed yet, but as you can tell, it may not occur until about 18 months after the event. .... unless they gave Ofgem an undertaking to waive their right to apply as part of the auction process to become the SoLR, in which case no levy will be applied.

oldwiring

Thanks both! That's a lot learnt.

Cardew

wavelets wrote: »

The estimated effect of the levy applied due to the Co-Op request for funds was estimated to be 0.08 pence per day, over 2 years.

So less than 30 pence a year!

System

Cardew wrote: »

So less than 30 pence a year!

I read somewhere that the cost of the GBEnergy failure (c.£14M) resulted in all consumers paying an extra £1 on our bills. The key word is ALL: why should well run, financially sound suppliers be hit with the costs of failure. Costs which are ultimately passed on to their consumers.

More worryingly, I see nothing in the press reports of Ofgem's new supplier tests which would would have stopped any of the failed suppliers getting a Licence. One of the suppliers had been in business for over 10 years!