Citizens Advice published its response to the Ofgem consultation on an additional debt allowance in the retail price cap on 17 November 20231. The consumer body said the evidence put forward by the regulator does not establish that suppliers need more money to cover debt-related costs1.
The response states that most of the options in the consultation show a small over-allowance, meaning the existing settlement already covers more than the costs suppliers incur1. Citizens Advice acknowledged that this picture could change once more recent data is included1.
"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."
If Ofgem does find further evidence for an additional allowance, Citizens Advice said funding should cover only efficiently incurred costs, with the lower quartile kept as the efficiency benchmark wherever possible1. It argued that weighted averages are not appropriate for bad debt because of the risk of outliers in supplier estimates1.
The response also addresses how the consultation sits alongside other Ofgem work. Citizens Advice said the policy issues it raises should generally be handled in those other areas, describing this consultation as largely technical1. It said differentials between payment types can be better resolved through levelisation, to avoid the commercial distortions created by changing how costs are allocated, and that the balance between standing charges and unit rates should be left to the forthcoming standing charge review1.
| Point raised by Citizens Advice | Position taken |
|---|---|
| Evidence for an additional debt allowance | Consultation does not show funding is inadequate; most options show a small over-allowance |
| Efficiency benchmark if an allowance is added | Lower quartile maintained wherever possible |
| Weighted averages for bad debt | Not appropriate, due to risk of outliers in supplier estimates |
| Differentials between payment types | Better resolved through levelisation |
| Standing charges versus unit rates | Left to the forthcoming standing charge review |
Why it matters for households
The debt allowance is a component of the retail price cap, the mechanism that sets the maximum a supplier can charge a domestic customer on a default tariff. If Ofgem were to add an allowance for debt-related costs, that cost would sit inside the cap and be recovered through household bills. Citizens Advice's position is that the evidence presented so far does not justify such an addition, because the existing allowance already appears to exceed efficiently incurred costs1.
For a household, the practical question is whether the cap reflects costs that a well-run supplier would actually face. The consumer body's argument that only efficiently incurred costs should be funded, benchmarked at the lower quartile, is a test of that principle1. Its view that payment-type differentials belong in levelisation, and that the split between standing charges and unit rates belongs in the standing charge review, means the debt consultation is not the place where those parts of a bill are settled1.
The price cap is set by Ofgem, and consultations of this kind are how its rules are proposed and changed1. Citizens Advice is one of the statutory energy consumer bodies that responds to them, and it also handles energy complaints and redress alongside its energy help service1.
What happens next
The response was published on 17 November 20231. Ofgem's decision on whether to introduce an additional debt allowance, and the timing of any change to the cap, has not been reported.