Citizens Advice response to Ofgem consultation on ‘Energy price cap: technical approach to market wide half hourly settlement’
Introduction taken from exec summary:
We broadly support incremental reform to the price cap, which we believe should involve maintaining a single-rate cap and introducing a ToU cap variant.
We recognise that the introduction of the MHHS will require targeted changes to ensure the cap remains compatible with market offerings. However, based on current available evidence, we do not consider there to be a case for more fundamental reform at this stage. Any future plans should be grounded in evidence, and supported by robust modelling of distributional impacts across different consumer groups.
We do not support proposals to move all default consumers onto a default ToU tariff. This approach fails to recognise that many consumers are unable to use energy flexibly. Where consumers face additional barriers to switching (e.g. because of debt), consumers may be effectively locked into tariff structures that are incompatible with their consumption patterns, which could cause their costs to rise.
Approaches to targeting should focus on consumer groups where flexibility is more established, such as users of low carbon technologies, particularly when rolling off existing tariffs. In these instances, reverting to current default arrangements may reduce incentives to use LCTs flexibly, and may not fully reflect system costs. However, this should not lead to a proliferation of highly segmented tariff or cap variants over time.
More broadly, we emphasise the need to maintain simplicity in an already-complex market. Introducing multiple default variants, or overly-granular segmentation risks increasing complexity for consumers and suppliers, and could undermine the protective functions of the cap.
We believe it is important to maintain the principle of cost-reflectivity within the price cap. At the same time, Ofgem must conduct distributional analysis to understand the impact of this principle on consumers, and where negative outcomes are identified, further intervention may be required.
We reiterate our support for Ofgem’s Cost Allocation and Recovery Review, which has the potential to deliver fairer and more enduring changes to energy charging. We encourage Ofgem to set out clearly how interactions between this work and the CARR will be managed.