OFGEM INCREASE THE PRESSURE ON CREDIT CONTROL

Ofgem, the energy regulator, is keeping Gas Distribution Networks on their toes in an attempt to make them operate more efficiently. The proposals include price controls and efficiency targets in a 5-year plan.

Gas distribution companies will have their annual operating costs capped at an average of £628 million – 13% less than had been requested from Ofgem.

Mains replacement has been high on the agenda, and Ofgem has allowed 3% increased expenditure from its initial proposal. The allowed expenditure for mains replacement is £678.6m, even though annual average forecast expenditure for this is predicted to be nearer £800m.

Allowed expenditure for mains replacement is £678.6m,
though forecast expenditure is nearer £800m

This will place immense pressure on company finances, as they will be expected to maintain the same level of replacement yet curb costs by up to 14%.

Carlo Pegna, Legal & Operations Manage for Master Collections who has vast experience in debt recovery within the utilities sector, commented: ‘The new proposals are beneficial to distributors, customers, and the environment, yet pressure will be placed on the finance departments of the distributors’.

‘If costs are to be lowered and prices controlled, credit controllers will need to work very hard to ensure bad debts are reduced, kept to a reasonably low level, and managed very tightly. Every company will have debtors, but the management of bad debts is crucial to ensuring debtors do not become a major thorn.’

‘Our latest proposals protect customers‘

Ofgem Chief Executive, Alistair Buchanan, said: ‘Our latest proposals protect customers by requiring challenging cuts in operating expenditure.’

However it is not all bad news. The proposals will allow companies to invest £5bn in delivering a safe, modern gas network while ensuring that costs to customers are kept to a minimum.

The overall effect of Ofgem’s proposals will be an increase of around £1 a year in real terms on current gas bills, and no prizes for guessing who will be paying this pound…

Final proposals for the price controls will be published this December, but if the above is anything to go by, it’s time to make preparations now.

For expert advice on utilities debt management contact Carlo Pegna on 01992 890391.

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