Citizens Advice published its response to Ofgem's statutory consultation on amending the methodology for setting the supplier profit margin allowance in the retail price cap on 13 July 20231. The consumer body said it does not support the proposals1.
The consultation concerns the methodology for setting the Earnings Before Interest and Tax (EBIT) allowance within the price cap1. Citizens Advice said it supports ensuring financeability and market stability but argued the proposals are not properly justified or evidence-based, and that the weight of evidence points to a reduction in profit margin instead1.
"We do not believe these proposals are in the interest of consumers."
The response sets out five specific concerns1:
| Concern | Citizens Advice's stated position |
|---|---|
| Risk transfer | Ofgem has taken a series of decisions that reduced risk on suppliers and generally transferred that risk onto consumers, setting an expectation of further intervention if needed |
| Comparator choice | Comparisons to airlines were preferred over evidence on the lower systematic risk in the energy sector |
| Capitalisation | Proposals rest on how Ofgem wishes suppliers to behave rather than how it requires them to or how they behave in practice |
| Stakeholder evidence | Reliance was placed on "narrative stakeholder arguments" from the suppliers who would benefit from increased profit margins |
| CEPA assessment | Evidence from the independent assessment by CEPA was used selectively; CEPA does not conclude that profit margins should be increased |
The document was published as part of the consultation process run by Ofgem1. Citizens Advice is one of the energy consumer bodies that responds to such consultations1.
Why it matters for households
The profit margin allowance is one of the components that sits inside the retail price cap, alongside wholesale costs, network charges and other operating costs1. A higher allowance would feed through into the level of the cap, and therefore into what households on default and standard variable tariffs pay1. A lower allowance would do the opposite.
The response argues that the risk environment for suppliers has already changed in ways that reduce the case for a higher margin, because Ofgem's earlier decisions moved risk from suppliers onto consumers1. For a household, that framing matters: it is a dispute about who carries the cost of supplier instability, and how much of it is recovered through bills rather than from supplier capital. The outcome of the consultation therefore bears on the energy bills and energy independence question of how much of a household's payment reflects energy itself and how much reflects the structure of the retail market.
Citizens Advice also operates the consumer service that households use for energy complaints and redress and publishes data on supplier performance1.
What happens next
The response is dated 13 July 2023 and was published as Citizens Advice's answer to Ofgem's statutory consultation1. No decision date, revised allowance figure or implementation timetable is given in the response1.