Changeworks’ response to Ofgem’s Future Price Protection Discussion Paper on the price cap

Changeworks has submitted its response to Ofgem’s Call for Input on the Future Price Protection Discussion Paper.

The Discussion Paper

Ofgem recently published a discussion paper that reflected on the existing ‘price-cap’ model for energy price protection for consumers and lessons from the energy crisis. The paper considered the limitations of the current energy price cap, and considered how this could be reformed to better protect consumers as the energy market changes in the future. 

Ofgem asked for input from consumer groups, charities, energy suppliers and investors about how the price cap should be changed and whether there are alternatives that will better protect consumers.

Changeworks’ response 

Changeworks supports the reform of the existing energy ‘price cap’ approach to price protection.  Altering the calculations made to set the energy ‘price cap’ is not enough to protect consumers from possible increases in fuel costs in the future.  The current cap is inadequate, because: 

• The “price cap” is not a useful term, which is misleading and confusing for householders. Prices are not truly capped, and consumers can pay much more or much less depending on usage. The cap is an average, based on an increasing unit price. 
• The price cap does not tackle the problem of energy affordability for low-income or vulnerable consumers. Vulnerable consumers are still experiencing huge increases in their energy costs. Without targeting customers that need the most help, the price cap is a weak mechanism. 
• The price cap does not prevent additional costs, such as rising standing charges. 
• The cap has reduced the range of competitive unit rates and tariff options available to customers. 

A different type of intervention is now urgently needed, with the primary objective of addressing affordability for those least able to pay. 

We urge Ofgem to introduce a targeted (non-voluntary) social tariff for a defined set of customers. Changeworks believes that this is a crucial step in protecting vulnerable and low-income customers from price shocks and addressing the high levels of fuel poverty across the UK. 

Like the Warm Home Discount, the tariff can be required as an offering for people on certain benefits and can be verified through the Department for Work and Pensions. 

Our recommendations 

While there is more that the UK Government can do to help low income and vulnerable households, we also believe there are some clear actions that Ofgem should take to ease the pressures on struggling households this winter.  

We believe that these opportunities include: 

• The introduction of a non-voluntary social tariff to better shield vulnerable and low-income customers at high risk of fuel poverty. 
• Automatically identify households that are eligible as application processes are a significant barrier for vulnerable customers. 
• Progressing work to ensure energy suppliers can identify and act on financial vulnerability. 
• Ensure any modifications to how the energy price cap is calculated does not lead to more frequent adjustments and instead provides greater certainty for consumers, especially throughout the colder months. 
• Support flexible payment methods to better enable vulnerable and low-income customers to pay for their energy and to reduce the risk of further increases in energy debts. 
• Ensure there is a of provision competitive tariff options that are specific to those that are reliant on electric heating systems, and, as a result, are at greater risk of fuel poverty.