Proposed methodology for Electricity Bill Discount Scheme cost allowance

What this is about

Ofgem is consulting on how to recover, through the default tariff cap, the costs that electricity suppliers will incur delivering the government's new Bill Discount Scheme. The scheme pays ongoing electricity bill discounts to households living near new or significantly upgraded transmission infrastructure: a payment to neighbours of pylons, substations and overhead lines, funded by every other GB default-tariff customer. The consultation is narrow in scope but load-bearing: it is the plumbing that turns a policy commitment to "community benefits" into a line on every bill in the country.

The trigger is timing. The Bill Discount Scheme is moving from policy design into delivery, which means suppliers need a cost-recovery route before they start incurring discount-funding and administration costs. Ofgem's answer is to add a new policy cost allowance to the default tariff cap, updating the policy cost allowance methodology to version 1.24. The consultation runs five weeks. There is one substantive question (is this the right way to recover the costs) wrapped in several technical ones about how the allowance is calculated and applied.

Options on the table

Add a Bill Discount Scheme allowance to the default tariff cap

Ofgem proposes to insert a new line into the policy cost allowance within the default tariff cap. Suppliers pay the discounts to eligible households (those living close enough to qualifying new or upgraded transmission infrastructure), incur administration costs running the scheme, and recover both through the cap. The mechanics will be set out in version 1.24 of the policy cost allowance methodology, with the methodology workbook published as Annex 4 to the consultation.

The winners and losers fall out cleanly. Households near new or upgraded transmission lines win: they get a recurring electricity bill discount on top of any one-off community benefit, planning gain or land payment already in the deal. Suppliers are made whole: their outlay is reimbursed through the cap, so they are operationally neutral once the allowance is calibrated correctly. Transmission owners are quietly helped: the scheme is designed to reduce the political and planning friction that delays new lines, which lowers their delivery risk on consented projects and improves the odds of new ones getting through. Everyone else, meaning every GB household on a default tariff that does not live near new transmission infrastructure, pays. The payment is small per household but universal, and it sits on top of the TNUoS costs those same households already fund through their unit rate.

The structural point worth flagging, even though Ofgem is not consulting on it: this is the second time the same transmission build-out is being recovered from bill payers. The capital and return on the lines themselves comes through TNUoS and the RIIO-ET price control. The discount to neighbours, designed to make those lines easier to build, now comes through the default tariff cap. Two recovery routes, one policy objective, the same payers. The consultation treats this as given and asks only how to do the second leg cleanly.

There is no alternative option in the consultation. Ofgem is not asking whether the Bill Discount Scheme should be funded this way; it is asking whether the methodology it has drafted is the right way to do what has already been decided. Respondents who think the scheme should be funded differently (through general taxation, through a transmission-owner contribution, through TNUoS itself, or through a one-off rather than ongoing payment) will need to make that case as an unprompted comment rather than as an answer to a specific question.

Questions being asked

Methodology

- Is the proposed methodology for the Bill Discount Scheme cost allowance appropriate? (The headline question. In practice this is asking whether suppliers, consumer groups and other parties accept the calculation approach in version 1.24 as a fair and workable basis for putting the discount costs into the cap.) - Does version 1.24 of the policy cost allowance methodology capture supplier costs accurately? (Two things sit underneath this: whether the allowance covers the actual discount payments suppliers will pass to eligible households, and whether it covers the administration costs of identifying eligibility, applying the discount, and reconciling with government. If either is under-calibrated, suppliers absorb the gap; if over-calibrated, customers overpay.)

Cost recovery

- Should Bill Discount Scheme costs be recovered through the default tariff cap rather than another mechanism? (This is the only place in the consultation where the funding route itself is up for challenge. Alternatives that respondents might raise include recovery through transmission network charges (TNUoS), recovery from transmission owners directly, recovery from general taxation, or a hybrid. The framing of the consultation suggests Ofgem expects the answer to be yes, but the question is technically open.) - How should the allowance be allocated between standing charge and unit rate? (A distributional question dressed as a technical one. Loading the allowance onto the standing charge spreads the cost evenly across all default-tariff households regardless of consumption; loading it onto the unit rate makes higher-consuming households pay more. Standing-charge recovery is regressive in the standard sense (low-income, low-use households pay the same as high-income, high-use ones); unit-rate recovery is progressive on consumption but weakens the price signal at the margin. Ofgem has form on this tension from the broader standing-charge debate and will be watching the responses closely.)

How to respond

The consultation closes at the end of 24 June 2026.

Responses should be sent by email to retailpriceregulation@ofgem.gov.uk.

The consultation documents are:

- *Proposed methodology for Electricity Bill Discount Scheme cost allowance* (consultation document, PDF, 189.84 KB) - *Annex 4: policy cost allowance methodology version 1.24* (XLSX, 531.98 KB), the working methodology, where the substance of the allowance calculation sits

If alternative formats are needed, the same address (retailpriceregulation@ofgem.gov.uk) handles accessibility requests.

The audience Ofgem explicitly invites is energy suppliers, other industry parties, consumer groups, charities and energy bill payers. Anyone with a view on how the default tariff cap recovers policy costs, or on the principle of socialising community-benefit payments across the GB customer base, is in scope.