UK's Ofgem to almost double COVID cost allowance for energy suppliers

By Nina Chestney

LONDON (Reuters) -British energy market regulator Ofgem said on Friday it will almost double the allowance it grants energy suppliers to recover some of the bad debt costs from the COVID-19 pandemic, a move which will increase consumer bills.

The pandemic left many customers in Britain not being able to pay their energy bills in full and created additional debt-related costs for companies, Ofgem said.

These costs were found to be greater than previously expected and therefore Ofgem will set an additional adjustment allowance of 12.02 pounds ($14.34), taking the amount to 30.01 pounds per typical dual fuel credit customer.

It will be recovered over 12 months from April 2023 to March 2024 via Ofgem's price cap scheme which sets a maximum price that energy suppliers can charge consumers for each kilowatt hour (kWh) of energy they use and is reviewed every three months.

"We have concluded that it is in customers’ interest to allow suppliers to recover the additional debt-related costs related to COVID-19 from April 2023," Ofgem said.

"Our decision will help ensure that suppliers have the finances to continue to supply energy to their customers and fulfil their licence obligations," it added.

The increase in bills comes a day after British utility Centrica, which owns British Gas, posted a tripling in profits to a record 3.3 billion pounds last year on soaring energy prices and production.

Late last year, the British government said it could no longer deliver a two-year energy support scheme for households that had been promised by previous leader Liz Truss which would have kept annual bills at around 2,500 pounds per year.

The cost of an average household energy bill will rise to 3,000 pounds a year from April.

British wholesale gas prices, which soared to record highs last year, have fallen since last August when they hit a peak over plummeting supply of Russian gas to Europe following Russia’s invasion of Ukraine but prices remain historically high, meaning consumers are unlikely to feel much better off.

(Reporting by Nina Chestney in London, Chandini Monnappa in Bengaluru and Nora Buli in Oslo; editing by Emelia Sithole-Matarise)