Gas and electricity networks agree to defer charges on cash-constrained suppliers until 2021

Electricity and gas network owners have agreed with Ofgem to defer network charges for electricity suppliers and gas shippers suffering cash-flow constraints because of the Coronavirus emergency.

In an open letter Ofgem said suppliers had provided relief to business and domestic energy consumers who had been unable to pay energy bills. But suppliers were faced cash-flow issues including network usage charges. It has agreed common features to allow the payments to be deferred until March 2021.

Suppliers and gas shippers can defer three quarters of their network bills over three months, without the need to post extra security and at 8% interest. The deferred bill has to be paid by the end of March, with interim payments where possible.

The option is only available for companies below investment grade and who have first tried to use other financing.  Companies deferring payments are expected to pay back before they pay dividends, and hold back on other payments such as executive pay.

Investment grade companies are expected to borrow on commercial terms instead, not least because they are generally the largest users and deferring their payments would quickly take up all the scheme’s capacity.

Relief for each shipper or supplier is capped at £1 million and there is a limit for each network company, sized “so as not to threaten a network’s ability to comply with its financial covenants and credit metrics”.

If the shipper goes bust the network is expected to try to recover outstanding charges through liquidation. If that proves fruitless the network companies can recover the debt from customers during 2021/22.

Read the full document here

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