Increasing numbers of energy suppliers are exiting the market following the soaring of wholesale energy prices over recent months.
We are committed to managing costs efficiently to achieve value for money and limit the financial impact of recent market events on REC funding parties.
This commitment includes implementing strong credit control procedures to ensure all REC funding parties meet their financial commitment, as set out in REC, to fund their pro-rata share of RECCo costs and pay their invoices in a timely manner.
Our procedures seek to ensure the impact of supplier failures on other REC funding parties is minimised. RECCo is a non-profit making company meaning it does not have retained reserves and its income in each year must match its costs. Therefore, the REC recognises any bad debt arising, for example due to supplier failure, as a recoverable cost.
The recent supplier failures represented c.6.3% market share; the value of bad debts written off by RECCo due to those suppliers failing to pay their most recent cost share contributions amounted to c.1% of our annual budget.
We will continue to strengthen our credit control processes, implement new finance processes to protect the financial integrity of the company and register our interests with the administrators of each of the failed suppliers.
Wherever possible we will also seek to the limit the impact of a supplier failure on the remaining REC funding parties and remain transparent on steps taken.
What operational steps can we take to support the Supplier of Last Resort Process?
RECCo provides the Electricity Enquiry Service (‘EES’) to the market. The EES is a central data repository of all electricity Metering Points and contains a wealth of data on a supplier's portfolio to an MPAN level. Access to such MPAN level data is strictly controlled, must be GDPR compliant and the REC sets out the access rules.
We can see benefits of utilising this data to provider better information to support any future Supplier of Last Resort (SoLR) processes such as the production of anonymised and aggregated reports to enable validation of data provided as part of the SoLR bidding process.
We welcome stakeholder views on whether this should be further explored. Please provide your feedback to the poll included within this article.
What role does the REC now play in proactively mitigating risk in the market through assuring the entry of new organisations to the market?
The operational go-live of the REC in September 2021 introduced for the first time a Qualification and Maintenance process for gas and electricity organisations wishing to operate in the retail energy market.
This includes organisations with specific Market Roles e.g. Gas/Electricity Suppliers, Distribution Network Operators, Gas Transporter or Metering Equipment Managers (MEMs). Organisations wanting to access a specific REC Service such as the Electricity Enquiry Service also must undergo a Qualification process.
Once ‘Qualified’, organisations can access the services governed by the REC and have obligations to meet under this code or its REC Service Access Agreement.
Each organisation that has been Qualified must maintain their qualification each year. This involves submitting an Annual Statement, as well as either being asked to provide a Compliance Statement or undergoing an External Assessment by the REC Code Manager.
The REC Code Manager is also responsible for proactively working with the REC Performance Assurance Board (PAB) to operate a risk-based Performance Assurance Framework (PAF) where its assurance activities are driven by the risks to consumers and the effectiveness of the retail market.
A core principle of the performance assurance framework is that it focuses on the root causes of risks and issues, so assessment activities may be industry wide where risk information suggests problems may be pervasive or focused on the performance of a particular party or group of parties.
We believe these proactive steps will enable better identification, mitigation, and management of risk within the market and enable additional support to be given to existing organisations. For more information on the role of the REC in mitigating risk in the retail market, please contact the REC Code Manager.