Ofgem wrote to suppliers on 9 July 2025 setting out that it is exploring the options it should consider when setting the unidentified gas (UIG) allowance in the default tariff cap1. The regulator asked suppliers for their views on the Allocation of Unidentified Gas Expert (AUGE) forecast of UIG used to set the allowance, on alternative data sources for UIG costs, and on alternative approaches to setting the allowance1.
UIG is gas that is not attributed to an individual supply meter point, arising for reasons including theft, leakage or consumption by unregistered supply points1. Ofgem sets a single percentage UIG allowance for prepayment and non-prepayment customers by dividing forecast UIG by forecast consumption for meter classes that approximate domestic consumers1. The allowance is currently 1.86% for price cap period 14b, July to September 2025, and is calculated at 1.88% for period 15a, October to December 2025, under the latest AUGE Annual Statement1.
Ofgem has since consulted on replacing the AUGE forecast with a new input reflecting final UIG volumes, namely Xoserve's estimate of post-reconciliation UIG as a percentage of throughput1. It proposes to update the UIG percentage input in Annex 2 to 2.90%, based on average post-reconciliation UIG as a percentage of total throughput over the last two gas years, October 2022 to September 20241. Ofgem said this approach would add circa £4.30 per year to gas customers' bills at cap 14b, based on benchmark consumption of 12,000 kWh for gas1.
All suppliers who responded to the 9 July letter agreed that the current approach consistently leads to suppliers under-recovering costs, because the AUGE forecast quantifies only a limited portion of UIG1. Ofgem said the forecast is based on 11 contributors out of the 25 contributors of UIG the AUGE identified, and that for 2025-26 the AUGE concluded its bottom-up quantification accounted for 64.8% of benchmark UIG, down from 84.1% in the 2022-23 statement1. Xoserve also indicated that the AUGE forecast is not intended for estimating total UIG1. Suppliers made three suggestions for alternative approaches: two said Ofgem could use AUGE's forecast of total UIG based on observed levels, apportioned to domestic meter classes using AUGE weighting factors, and one said it could use Xoserve settlement data to calculate historic outturn UIG for domestic sites1.
"We propose to update the UIG percentage input in Annex 2 to be 2.90%."
| Price cap period | UIG allowance |
|---|---|
| 14b, July to September 2025 | 1.86% |
| 15a, October to December 2025, under latest AUGE statement | 1.88% |
| Proposed, based on post-reconciliation UIG | 2.90% |
Why it matters for households
The UIG allowance is one of the additional wholesale allowances that sit inside the price cap, so a change to it feeds through to the unit rate and standing charge that a household on a default tariff pays for gas. Ofgem's own estimate is that the proposed 2.90% input would add circa £4.30 a year to gas bills at cap 14b, though it notes that if it proceeds, the actual impact will be based on the wholesale index for cap period 15a1. The allowance is applied as an uplift to the combined total of the wholesale index and other additional wholesale allowances1.
Ofgem said it does not consider it suitable for the headroom allowance to cover these increased costs, given the systematic nature of UIG and its previous decision to include a specific allowance for it1. It also said the change would improve the cost reflectivity of the cap and protect customers' interests by ensuring efficient suppliers can finance their licensed activities1. For a household, the practical effect is that part of the gas bill reflects gas that is consumed but never attributed to a meter, a cost that is shared across all suppliers and therefore all customers rather than being controllable at the level of an individual home.
What happens next
The consultation on the UIG allowance closed at close of business on 13 August 20251. Ofgem said that with its next cap update taking place in late August and the consultation period ending shortly beforehand, it would consider whether it is reasonably feasible to proceed to a decision within that timeframe, taking into account any issues raised in responses1. The proposed amendment is intended as a temporary measure while Ofgem continues to evaluate a robust and enduring approach to setting the UIG allowance as part of its 2025-26 price cap programme of work; until then it proposes to maintain annual updates of the UIG percentage in August1. Ofgem said it will publish the non-confidential responses on its website1.