Citizens Advice response to the Ofgem consultation regarding an additional debt allowance in the retail price cap
Whilst we agree that it is in the interest of customers to allow suppliers as a whole to recover efficiently incurred costs, this consultation does not provide evidence that funding for debt-related costs is not adequate. Most of the options presented show a small over-allowance. We recognise that this could change as more recent data is included.
If further evidence does support an additional allowance, it is important that funding is only provided for efficiently incurred costs. In line with regulatory precedent, lower quartile should be maintained as the efficiency benchmark wherever possible. Weighted averages are not appropriate for bad debt due to the risk of outliers in supplier estimates.
This consultation overlaps with a number of other Ofgem work areas. Generally, we believe the policy issues contained should be addressed in those other areas as this consultation is largely technical in nature. Differentials between payment types can be better resolved through levelisation to avoid the commercial distortions created by adjusting how costs are allocated. The balance between standing charges and unit rates should be left to the forthcoming standing charge review.