Ofgem announces rise in storm compensation cap from £700 to £2,000

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Distribution Network

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Compensation for households and businesses that lose power as a result of severe weather events has risen to a maximum of £2,000 - up from £700 - under new rules announced today by Ofgem.  

Following the findings of its review into the response to Storm Arwen by distribution network operators (DNOs) - the companies responsible for linking up homes and businesses to the electricity network in Great Britain - the regulator has updated the statutory regulations all six operators are required to follow. Network companies that fail to follow the rules and protect consumers’ interests could face multi-million-pound fines.

The changes include:

  • increasing the compensation cap for loss of supply due to severe weather from £700 to £2000, and increasing the initial payment from £70 to £80
  • reducing the length of the time consumers have to wait for additional compensation from 12 hours to 6 hours after the initial payment period (24 hours for category 1 storms, and 48 hours for category 2 storms)
  • updating regulations to allow all compensation payments to be made by bank transfer to simplify and speed up the payments process
  • removing Category 3, which will increase the number of compensation payments for inconvenience, as it reduces the time consumers would need to be without power before they are eligible for payments
  • the introduction of an inflation adjustment mechanism, so compensation payments remain in line with inflation

These changes will mean more customers will be entitled to higher levels of compensation to better reflect the impact of being cut off power for extended periods.

Storm Arwen saw nearly one million homes and businesses in Great Britain lose power in November 2021, with 40,000 consumers cut off for three days and almost 4,000 having to cope without power for over a week in parts of north England and north-east Scotland.

Akshay Kaul, Director General of Infrastructure for Ofgem, said: 

“It’s unacceptable that thousands of households were left without power in freezing conditions for a prolonged period during Storm Arwen, often with poor information about when their power would be restored. Many also found it hard to get the compensation they were entitled to afterwards, and that’s why we’ve put tough new rules in place to make sure network companies prepare better for severe weather; customers get accurate and honest information about power cuts in their area; and those who are off power in bad weather are rapidly and fairly compensated.

“Lessons have been learnt by the industry following our review into Storm Arwen, but the frequency of extreme weather events is only set to increase, so we need to make sure network services are resilient.

“Network operators and suppliers should get ready for the coming winter. We will not hesitate to hold them to account if they fall short of the standards customers have a right to expect.”

Following the findings of Ofgem’s review and in recognition of the shortfalls in their response to Storm Arwen, three DNOs - NPg, (Northern Powergrid) SSEN (Scottish and Southern Electricity networks) and ENWL (Electricity North West) –  agreed to pay a further £10.3million in voluntary redress payments to the affected communities through contributions to community funds and in donations to vulnerability support charities, in addition to the £30million paid in direct compensation after Storm Arwen. 

Notes to editors

Storm Arwen

Following the findings of its review into the response to Storm Arwen by distribution network operators (DNOs) (the companies responsible for linking up homes and businesses to the electricity network in Great Britain), the regulator concluded that the existing arrangements did not fully acknowledge the impact of extended power cuts on affected consumers. As a result, Ofgem commissioned a further review specifically focusing on the customer compensation arrangements for severe weather events, as well as the effectiveness of the DNOs’ systems and processes for ensuring eligible consumers receive their compensation payments in a timely manner.

The review was informed by consultation with consumer groups and stakeholders, analysis of historical data and comparisons against compensation arrangements in other utility sectors and in other countries. To implement the reviews recommendations, the regulator has updated the statutory regulations all six DNOs are required to follow.

Compensation arrangements

Compensation entitlements are dependent on how storms are categorised in severe weather and how long consumers have been without a power supply. Under the new rules, the compensation cap has risen to the equivalent of 13 days off supply for a category 1 storm, and 14 days for a category 2 storm. This will increase the maximum compensation amount, per loss of power supply, from £700 to £2,000.

The inflation adjustment mechanism works by linking payments to the current inflation rate up to January 2023, based on CPIH index published by the Office for National Statistics, and rounding payments, up or down, to the nearest £5. 

Storm categories are defined as:

Category 1: Storm causing between eight and twelve times the daily average number of faults in a 24-hour period, as defined in the Electricity (Standards of Performance) Regulations 2015.

Category 2: Storm causing more than twelve times the daily average number of faults in a 24-hour period, as defined in the Electricity (Standards of Performance) Regulations 2015.

The new compensation arrangement works as follows: 

  • compensation amounts are dependent on how storms are categorised in severe weather and how long customers have been without a power supply for 
  • a storm’s category is defined based on the impact it has on the electricity network and there are two storm categories, 1 and 2 - if the severe weather event is deemed to be a Category 1 storm, customers will be entitled to £80 compensation if their supply is not restored after 24 hours; for Storm Category 2, consumers will be entitled to £80 compensation if their supply is not restored after 48 hours.    
  • for both storm categories customers are entitled to a further £40 for every 6 hours they are without power after the initial restoration period mentioned above (24 hours for category 1 and 48 for category 2)

The old compensation arrangement was as follows:

  • £70 compensation is available after the first 48 hours, and then £70 for every 12 hours thereafter without power, this is capped at £700 - during Storm Arwen the DNOs agreed to lift the £700 cap so that those without power for more than 6.5 days received additional compensation - during Storm Arwen almost one in five households/customers that were impacted by storm were off power for more than 24 hours
  • the payments set out above exclude additional shareholder funded investments that will be made to increase levels of network resilience
  • they also exclude costs relating to network repairs or additional welfare payments made by all affected DNOs, including the costs relating to alternative accommodation, the provision of meals and other direct support

Guaranteed standards of performance

Ofgem’s GSOPs set standards of performance levels that DNOs are expected to meet. If a DNO fails to meet the required level of service, it could be required to pay compensation to the affected consumers. Payments under the guaranteed standards compensate consumers for the inconvenience caused by DNOs’ failure to deliver services to the guaranteed standards. They are not designed to compensate consumers for subsequent financial loss. 

Companies that fail to comply with Ofgem’s Guaranteed Standards of Performance could face multi-million pound fines.

Previous enforcement announcements included the announcement that E.On Next, Good Energy and Octopus Energy were fined a total of £8million for failing to comply with the GSOP.