Ofgem has announced its intention to extend the provision for bad debt support in the energy price cap beyond September 2024.
This decision comes in response to increasing levels of debt and arrears among domestic energy customers, driven by the ongoing cost of living crisis.
Data from the end of 2023 indicates a significant rise in customer debt and arrears across all payment methods, with a marked increase in the number of prepayment meter (PPM) customers repaying debt.
By Q4 2023, 58% of PPM customers were repaying debt to their suppliers, up from 51% in Q3 2023.
The initial allowance for bad debt associated with additional support credit (ASC) was introduced in October 2023 for a 12-month period.
This was based on the expected costs of ASC bad debt and the anticipated differences between winter 2022/23 and winter 2023/24.
Recent industry data shows a significant increase in ASC issuance and bad debt provisions, reflecting higher energy bills and broader financial pressures.
Ofgem is considering three potential approaches for managing ASC costs beyond September 2024: ending the ASC allowance as originally scheduled, extending the current ASC allowance, or reviewing and adjusting the size of the ASC allowance using the most recent data.
The regulator’s preferred option is to extend the current allowance.
This approach would ensure continued support for suppliers to assist vulnerable customers through the ongoing financial challenges, particularly during the winter months.
Ofgem’s analysis indicates that the bad debt provisions have been in line with initial estimates and the extension of the allowance would provide stability until the operating cost review is completed.
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