Overview of 19th November 2021 Price Cap consultations
Reports, plans and updates
- Publication date
- Industry sector
- Supply and Retail Market
Related links
- Price Cap – Consultation on the potential impact of increased wholesale volatility on the default tariff cap
- Price Cap – Consultation on the process for updating the Default Tariff Cap methodology and setting maximum charges
- Price Cap – Consultation on the Energy Company Obligation scheme allowance methodology in the default tariff cap
- Price Cap - Consultation on reflecting prepayment End User Categories in the default tariff cap
- Price Cap – Consultation on the true-up process for COVID-19 costs
The unprecedented and unexpected rise in gas and electricity prices over recent months has put energy markets under severe strain. We have been working with the government, the energy industry, and consumer bodies to manage the situation, protecting consumers during this challenging time. As this period of uncertainty continues, and the pressure on the sector grows, we are taking steps to protect the interests of consumers, providing greater certainty for investors and strengthening the resilience of the sector.
The additional costs and uncertainties facing suppliers are likely to be beyond what is accounted for in the existing price cap methodology. When we published our decision to implement the default tariff cap (‘the cap’) in 2018, we outlined that we would consider amending the cap methodology, where there were significant and unanticipated changes in factors determining suppliers’ costs associated with supplying energy to domestic default tariff consumers.
In light of the recent wholesale price volatility and its impact on the GB energy market, and to ensure that the cap reflects the costs, risks and uncertainties facing the supply companies we regulate, we have published a range of documents consulting industry on proposals to amend the cap.
Included in this bundle of documents is:
- Consultation on the potential impact of increased wholesale volatility on the default tariff cap
- Consultation on the process for updating the default tariff cap methodology and setting maximum charges
- Consultation on the true-up process for COVID-19 costs
- Consultation on reflecting prepayment End User Categories in the default tariff cap
- Consultation on Energy Company Obligation scheme allowance methodology in the default tariff cap
A brief summary of each document can be found below:
This consultation considers whether the recent rise in wholesale prices has caused the level of the cap to materially depart from the efficient cost level allowed for in the cap. It’s in the interests of both consumers and industry to ensure that the cap appropriately reflects the costs, risks and uncertainties facing suppliers. If the outcome of the consultation supports the case for amending the cap methodology, we also set out in this consultation the options for doing so and our minded to position.
At present, while we have the ability to make changes to the cap methodology and annex models, we cannot implement these changes outside of our six-month review cycle without a license modification. This consultation sets out proposals to modify the licence to introduce an ability for us to amend the cap outside of our routine six-month cycle, where exceptional circumstances (which are rare and would have high impacts without urgent action) occur. We consider this is important to enable us to manage the risks to the market and customers resulting from the interaction of the cap and changing market circumstances in the future.
We had previously concluded that the COVID-19 pandemic had resulted in additional material costs, specifically debt-related costs for credit meter default tariff customers. An additional allowance was included in cap periods six and seven as an adjustment allowance. This was set as a float, which we would “true up” later using final costs. This policy document consults on how we plan to true up the additional float allowance we previously set. We set out how we will determine the final additional debt-related costs as a result of COVID-19.
This consultation sets out the proposal to amend the licence conditions and our methodology to introduce the use of End User Categories (EUCs) specific to prepayment meter customers. EUCs determine the demand attributed to customers paying by a certain payment method and allow for a more granular view of the costs associated with PPM customers. This change will allow for a more appropriate reflection of efficient costs associated with PPM customers from cap period eight onwards.
We currently allow suppliers to recover the costs associated with the Energy Company Obligation (ECO) scheme through the cap. The current ECO3 scheme is coming to an end in March 2022. The Department for Business, Energy and Industrial Strategy are consulting on the introduction of the ECO4 scheme which requires legislation to be laid before Parliament. This consultation proposes a new input that will enable us to allow for the costs of the ECO4 scheme. It also includes a contingency given that the scheme is yet to be approved by Parliament.
Going forward
We invite stakeholder views on any aspect of these documents by 17 December 2021. Stakeholders’ responses will inform our decisions. We intend to have all decisions published by the beginning of February 2022 for all of the above documents, except the COVID-19 true up decision which we intend to publish by the beginning of August 2022.