National Energy Action (NEA) published its response to Ofgem's call for input on the allowance for debt-related costs in the energy price cap on 16 May 20231. The charity said it was pleased the regulator was asking for views on how to respond to changes in debt costs in the energy market1.
Ofgem is consulting on potential changes to the allowance for debt related costs in the price cap1. NEA set out its response across three themes1. The first concerns the over-allocation of debt costs over winter 2022/23, together with any under-allocation arising from new rules on the forced installation of prepayment meters1. The second theme is who pays the costs, which NEA links to Ofgem's separate call for input on levelisation1. The third is the outcome for consumers beyond price1.
"we focus our response across three themes"
"who pays the costs is important (as per levelisation CFI)"
The response document itself is dated 16 May 2023 and is published on NEA's website1. The three themes are stated in the summary of the response; the underlying figures for over-allocation and under-allocation are not set out in the published summary1. Ofgem's own consultation documents, including the levelisation call for input, are not reproduced in the response page1.
Why it matters for households
The allowance for debt-related costs is the part of the price cap that recovers the cost of unpaid energy bills from all billpayers. How that allowance is set therefore feeds directly into the standing charge and unit rates a household pays, and into how much of the cost of bad debt is spread across the customer base rather than absorbed by suppliers1.
The two mechanisms NEA raises cut in opposite directions for a household budget. Over-allocation over winter 2022/23 would mean customers paid more through the cap than the actual debt costs justified, while under-allocation linked to forced prepayment installations would mean the cap recovered less than the true cost1. Which way that nets out is not stated in the published summary1.
Levelisation matters because it determines who carries the cost. If debt costs are spread evenly across all customers, households that pay on time still contribute to the cost of those who do not, and the burden falls on the same bill regardless of payment method. The distinction between prepayment and direct debit is central to that question, since the two payment methods already face different cap levels.
NEA's third theme, outcomes beyond price, points to consequences that do not show up in the headline cap figure, such as how debt is collected and what happens to customers who fall behind1. For a household's energy independence, the practical effect is on the fixed costs of having a supply at all, which are recovered whether or not the home uses much energy. The price cap sets those costs, and the regulator's role is to decide how they are calculated.
What happens next
Ofgem's consultation on the debt-related costs allowance was open at the time of NEA's response1. No outcome, decision date or revised allowance figure is given in the published response summary1.