Levy Exemptions, or “Mrs Miggins £7 Million Account”

There’s a curious spin-off from the recent Government announcement that new entrant energy companies would be exempted from environmental levies if their customer base is below a specified level. Previously, the level was 50,000 customers: now it is to be 250,000 (or 125,000 dual-fuel customers.) This applies to the current levies, and it seems certain, to new levies such as the Energy Companies Obligation. Here’s what Minister Charles Hendry said about it in July, talking to the CBI Energy Conference.

‘DECC is concerned about the contestability of the supply market and the barriers small suppliers face to entry and growth. That is why yesterday I announced an increase in the threshold from 50,000 customers to 250,000 for participation in two of our environmental and social programmes – the Community Energy Saving Programme and the Carbon Emissions Reduction Target for the remainder of these programmes. It is of course vital that we improve the energy efficiency of our housing stock, but we must do so without placing disproportionate costs on small suppliers which reduce their incentive to grow’.

All good stuff, hooray etc.  If we are serious about encouraging new entrants to the energy supply market then measures like this are important – there are quite enough barriers to entry already, not least the sheer difficulty of getting your foot in the door when the inertial weight of the estimated 80% of ‘non-switchers’ on the books of the big energy companies means that they can use their collateral as a means of providing cut price ‘sign-up’ offers that the small new entrants cannot hope to match.  That and many other reasons account for the fact that, currently, 99.5% of customers get their energy supplies from the ‘big six’. New entrants such as Good Energy, first Utilities, and Ecotricity remain very small with perhaps 50-60,000 customers.

But before we go overboard in the praise, we ought to look at the small print. The company that reaches 125,000 dual fuel customers becomes liable for levies – that’s clear. But… under the arrangements they also and instantaneously, become liable for levies on all their customers. The 125,001st dual fuel customer then becomes very expensive to recruit – Mrs Miggins, of Acacia Avenue’s Dual Fuel account switching decision could cost the lucky company some £7 million, in fact. So if you are an intelligent small entrant, once – say- 120,000 customers have been recruited, the very last thing you will do is attempt to take any more on board, and certainly not Mrs. Miggins’ dual fuel account.

You would in fact, stay as a small entrant, albeit a bit bigger than you were before.  And you wouldn’t welcome the Ministers assurance that we should not place ‘disproportionate costs on small suppliers which reduce their incentive to grow’.

The Big Six pay levies on all customers, so I guess a solution would not consist in letting them off – but a graduated path to complete responsibility upon – say – a million customers could work  without discouraging new entrants from passing through the ‘glass ceiling’ of  accounts. I asked a question on this at DECC questions last week. The minister was, as ever, courteous and helpful in his response. Really very helpful would, of course be to get the problem sorted out, which I hope can be done.

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