Energy price cap operating cost and debt allowances consultation
Consultation
- Upcoming
- Open
- Closed (awaiting decision)
- Closed (with decision)
- Publication date
- Closing date
- Industry sector
- Supply and Retail Market
We want to hear your views on our proposals to update the operating cost and debt allowances in the energy price cap.
Who should respond
We would like views from people with an interest in how the operating cost and debt allowances within the energy price cap are set. This includes energy suppliers and energy industry bodies. We would also like responses from consumer groups and charities.
Background
In May 2023 we published our initial call for input on the Energy price cap operating cost allowances review. This is the first review of the allowances for operating costs since the introduction of the cap in 2019. Since then, we have also gathered feedback about the review from suppliers, industry bodies, consumer groups and individual consumers. We got this feedback from our working paper and the last consultation.
An energy supplier’s own costs for retailing energy are called operating costs. Examples of costs include running call centres and IT costs. Operating costs do not include the cost to buy energy for customers, government social and environmental schemes, or costs to fix and repair cables. Operating costs also include the costs associated with customer debt, which has risen significantly in recent years. These costs make up about 15% to 20% of the overall customer bill within each energy price cap period.
In this review we are also focusing on debt-related costs. These are costs incurred by suppliers that are associated with non-payment of bills, known as bad debt, the administration of debt and costs associated with working capital.
Our proposals
We propose to update the existing operating cost allowance's structure using the latest data on the average cost across a representative range of suppliers. We are proposing four allowances:
- Core operating cost allowance
- Debt-related cost allowance
- Smart metering net cost Change (SMNCC) allowance
- Industry charge allowance
We have detailed our proposed approach across each of these areas covering strategic themes including benchmarking, stringency and allocation. This consultation includes discussion on our proposed approach to the true-up of the current adjustment allowance for additional debt-related costs, which includes our proposal to extend the current adjustment allowance. It also includes our decision not to move a further £20 to £100 of costs from the standing charges to unit rates.
Why your views matter
This consultation is part of our wider review of pricing reforms to make sure that the energy retail market is investable and resilient. It is also part of our work to make sure that the energy price cap continues to protect energy customers.
We plan to publish a decision on the operating cost allowances in May 2025.
We plan to make updates to the operating costs in July 2025. These dates may change depending on the feedback received.
How to respond
You can respond to this consultation in two parts.
Please respond with your views to our proposals to extend the current debt-related costs adjustment allowance by 23 January 2025.
Responses on all other proposals must be submitted by 6 February 2025.
Please tell us your views using our webform. Alternatively, you can send us your views and extra information such as diagrams or charts by emailing priceprotectionpolicy@ofgem.gov.uk.