Ofgem expects to consult on changes to operating cost allowances in spring 2024, following a call for input and its analysis of requests for information. The regulator set out that expectation in a decision document on involuntary prepayment meters published on 13 September 20231.
The commitment sits within a wider decision on rules for involuntary prepayment meters (PPMs), which followed a call for evidence launched on 21 February 2023, an Involuntary PPM Code of Practice published in April 2023 and a statutory consultation that opened on 28 June 20231. The decision integrates the code into Supply Licence Conditions and updated PPM guidance on what is safe and reasonably practicable1. The changes set out in the modification notices published alongside the document took effect from 8 November 20231.
On costs, Ofgem said it had confirmed in an update letter on 28 June 2023 that, on the evidence received up to that point, it considered there was not a material or systematic gap between the allowance within the price cap for debt-related costs, including bad debt, and actual costs1. It also introduced a specific allowance to the price cap from 1 October 2023 for anticipated increased costs of bad debt associated with Additional Support Credit given to PPM customers, initially for 12 months1. Ofgem said it now estimates bad debt could be £4 to £16 per household per year across a range of most likely scenarios, having earlier estimated the rise in bad debts would likely lead to increased costs at the lower end of between £3 and £14 per household1.
The decision also changed which households fall into each protection category. Ofgem moved children under two into the "do not install" category, moved over 75s with no other support in the household into the same category, and kept households with children five and under in the "further assessment needed" category1. It added chronic obstructive pulmonary disease as a collective term in "do not install", and added nutritional issues and learning disabilities, in addition to difficulties, into "further assessment needed"1. Ofgem retained expectations that suppliers satisfy themselves that a PPM is safe and reasonably practicable for households with adults aged over 65 before installing one, and retained the proposal that suppliers are encouraged to satisfy children aged under 161.
"We expect to consult on this in spring 2024."
| Category | Households |
|---|---|
| Do not install | Children under two; over 75s with no other support in the household; chronic obstructive pulmonary disease added as a collective term |
| Further assessment needed | Households with children five and under; nutritional issues and learning disabilities added alongside difficulties |
Why it matters for households
Operating cost allowances are the amounts the price cap lets suppliers recover for the cost of running their operations, including debt-related costs. A consultation is a step before any change is decided, so no revised allowance has been set. The Ofgem guide sets out what the regulator covers, and the consultations guide explains how proposals become rules.
For a household, the practical link is through the price cap: if allowances for bad debt rise, that cost sits within the cap rather than outside it. Ofgem's own figures put the possible bad debt cost at £4 to £16 per household per year in its most likely scenarios, against an earlier estimate of £3 to £14 at the lower end1. The Energy Bill Support Scheme ended in March 2023, and Ofgem said this is reflected in its forecast for the period April 2023 to March 20241.
The prepayment rules affect a narrower group: households that suppliers consider for an involuntary PPM. Ofgem said the expanded protections may lead to an increase in bad debts in the sector, and that it believes the evidence justifies protecting the most vulnerable and that the benefits outweigh the costs1. It said it will closely monitor debt levels and keep the rules under review, adjusting them if necessary1.
What happens next
Ofgem said it expects to consult on operating cost allowances in spring 20241. It also said it has committed to further assess bad debt levels and costs to serve, and to making an adjustment to the allowance in the price cap based on evidence if it considers it necessary1. The moratorium on involuntary PPM installations remains in place, with restart conditions suppliers must meet before Ofgem will support renewed installations1.
Sources1 cited
- Involuntary PPM, ofgem.gov.uk