Citizens Advice published its response to Ofgem's consultation on the energy price cap operating cost allowance review on 28 June 20241. The consumer body said the regulator should not make the allowance more generous without clear evidence1.
The response sets out Citizens Advice's position on how Ofgem should benchmark the costs that suppliers are allowed to recover through the price cap. It argues that lower-quartile benchmarking is the right approach, describing it as well-established regulatory practice across both the original price cap and network regulation, and consistent with a focus on improving cost efficiency1.
"We believe that Ofgem should not make the operating costs allowance more generous without clear evidence."
The organisation also raised concerns about the data Ofgem uses for comparison. It said there is a risk that the costs used for benchmarking include exceptional items, such as system migration costs, which will require adjusting for1. It added that Ofgem needs to ensure ongoing productivity is taken into account, to avoid the allowance becoming more generous over time1.
Citizens Advice noted that the review sits within a wider set of interrelated reviews of pricing reforms, and split its comments into two areas1. On the balance between standing charges and unit rates, it said this should be left to the ongoing standing charge review rather than settled here1. On decisions taken elsewhere that could affect this review, it said the introduction of targeted bill support would be expected to improve consumer price protection, which would in turn affect the assessment of the trade-off between price protection and enabling competition when considering how stringent cost benchmarking should be1.
Why it matters for households
The operating cost allowance is the portion of the price cap that covers what suppliers spend on running their businesses, including billing, customer service and IT systems. A more generous allowance can mean higher bills for households on default tariffs, because those costs are recovered through the cap. A tighter allowance, benchmarked against the most efficient suppliers, is intended to keep those costs down.
For a household's energy independence, the practical effect is on the fixed part of the bill that cannot be avoided by using less gas or electricity. The balance between standing charges and unit rates, which Citizens Advice says belongs in a separate review, determines how much of a bill is fixed regardless of consumption and how much responds to usage1. That split shapes how much control a household has over what it pays.
Citizens Advice is one of the statutory energy consumer bodies that represent household interests in regulatory decisions. Its response is one submission among those made to the consultation, and Ofgem has not yet published its decision on the allowance. No outcome, timetable or revised allowance figure has been reported1.
What happens next
The consultation response was published on 28 June 20241. Ofgem's decision on the operating cost allowance review, and any change to the allowance, has not been reported1. The separate standing charge review, which Citizens Advice says should settle the balance between standing charges and unit rates, is also ongoing1. How consultations of this kind feed into final rules is set out in the regulator's own process.