Allowance for additional support credit bad debt costs
Decision
Publication date
Industry sector
Supply and Retail Market
Decision about introducing a specific allowance into the price cap for bad debt associated with additional support credit given to prepayment meter customers.
Summary of outcome
We are introducing a specific allowance into the price cap for bad debt costs associated with Additional Support Credit (ASC), from 1 October 2023, for 12 months initially. This decision follows a statutory consultation open from 28 June to 26 July 2023.
Detail of outcome
We received feedback on many aspects of our consultation proposals, including the rationale for introducing a specific allowance for ASC bad debt, the proposed methodology for the allowance and implementation considerations. We have carefully considered all responses received and we are grateful to all respondents for their engagement in the consultation process.
We have decided to maintain our consultation position and introduce a specific allowance for ASC bad debt in the cap from cap period 11a (October to December 2023), for an initial 12-month period. To calculate the allowance, we use our central scenario as proposed in our consultation. Following feedback, we have decided to include a baseline for ASC bad debt costs we consider to have already been recoverable through the prepayment meter (PPM) cap.
In view our decisions on the methodology for the allowance, and using updated data received since our consultation, the allowance value for ASC bad debt in cap period 11a is £8.77 per typical PPM customer. This is allocated to the PPM price cap only, rather than a wider group of default tariff customers.
This represents an initial ex-ante allowance for 12 months, based on anticipated costs of ASC bad debt between October 2023 and September 2024. We will review whether it is appropriate to adjust this allowance in 2024, for example if evidence suggests the actual costs for ASC bad debt differ significantly from the value of this ex-ante allowance.
Due to the government’s commitment to remove the PPM premium through the Energy Price Guarantee (EPG) until the end of March 2024, we do not expect this allowance to lead to PPM customers paying more on their bills than comparable Direct Debit customers for the first six months of the allowance. Once the government commitment ends, this allowance will impact PPM customers’ bills directly from April 2024. However, our preference at this stage is for the cost of the allowance to be recovered across all customers, rather than just PPM customers. This is subject to our consultation on levelisation of payment methods.