Citizens Advice published its response to Ofgem's call for input on the future of domestic price protection on 24 May 2024, arguing that protection for consumers on default tariffs should continue even as its form changes1. The charity welcomed the review as an opportunity to consider how price protection will need to change to accommodate market reforms, and to apply lessons from the current approach to setting the price cap1.
Central to the response is Marketwide Half Hourly Settlement (MHHS). Citizens Advice said it expects suppliers to offer more time-of-use (ToU) tariffs once MHHS is in place, and that while this will help deliver the overall benefits of a more flexible system, the changes will also give rise to new distributional impacts and some new risks1. It said these could push up the cost for individual suppliers of providing default products, and require the price cap to be set at a higher level so that suppliers whose default tariff customers use most energy at peak times can recover their efficient costs1.
The charity stated that the scale of these risks and the speed at which they could develop is not currently clear, and that further modelling is needed to underpin an assessment of which policy approach is the best way forward in the near term1. It added that ongoing protection is needed for all consumers on default products, to help ensure the costs of the net zero transition are recovered fairly and that loyalty penalties are not re-emerging, though the form of that protection is likely to need to change for some products1.
"Citizens Advice welcomes Ofgem's timely review of the future of price protection"
The response does not set out which policy approach it favours, and no specific figures for the possible effect on the price cap level are given; the document states only that further modelling is required1. Ofgem's own next steps on the review have not been reported in the response.
Why it matters for households
Most households in Great Britain are on a default tariff, so the level at which the energy price cap is set decides what they pay for each unit of gas and electricity. Citizens Advice's argument is that the shift to half hourly settlement, and the time-of-use tariffs expected to follow, could change the cost to suppliers of serving those customers. If suppliers must recover more from households that use most of their power at peak times, the cap itself may need to sit higher1.
For a household, that cuts two ways. A time-of-use tariff can reward shifting demand away from peak hours, which is where a smart meter and half hourly settlement come in. But a household that cannot move its usage, because of working patterns, health needs or electric heating, may find the default product it relies on priced differently. The charity's point is that the two groups are not the same, and that the difference is a distributional one rather than a technical detail1.
The reference to loyalty penalties concerns the gap that can open between the cheapest deals on the market and the default tariff that customers stay on when they do not switch. Citizens Advice's position is that protection against that gap should remain, and that the question is what form it takes, not whether it exists1. How any replacement would compare with the current cap, or with tracker and time-of-use tariffs, has not been reported.
What happens next
The response is dated 24 May 2024 and was submitted to Ofgem's call for input1. No date for Ofgem's decision, and no timetable for any change to the price cap methodology, appears in the response.