Response to Ofgem’s consultation on the framework for assessing whether conditions are in place for effective competition in domestic supply contracts
The Domestic Gas and Electricity (Tariff Cap) Act 2018 introduced a requirement on the electricity and gas regulator, Ofgem, to cap the prices that domestic customers on default tariffs pay.
The cap is only intended to be temporary, and the Act contains a requirement on Ofgem to conduct an assessment in 2020 of whether conditions are in place for effective competition for domestic customers. That assessment will inform the Secretary of State to reach a view on whether the price cap should be lifted at the end of that year, or should continue until the end of the following year, 2021.
In the event that the Secretary of State decides to continue the cap for another year this cycle will repeat in 2021, with Ofgem conducting a new assessment, and the Secretary of State again using it to help him/her decide on whether to lift the cap or extend it until the end of the following year, 2022. If extended the cycle will repeat again in 2022 but for the last time, as the Act does not allow the price cap to be extended beyond the end of 2023.
The Act doesn’t prescribe how Ofgem will conduct its annual assessment, so it consulted on a framework to set out its views on the framework it will apply, and to seek feedback.
In our response [ 280 kb], we suggested that the framework was imperfect and that there would be difficulties in applying several of the proposed assessment conditions. However we also recognised the very significant difficulties in developing a practical framework for such a complex and subjective policy area, and thought that on balance it was a credible approach given those constraints.