Energy price cap operating cost allowances review

Closes 14 Jun 2024

Opened 14 May 2024

Overview

We are reviewing operating cost allowances within the energy price cap, including setting allowances based on up-to-date information, different methods and updating allowances in the future.

Who should respond

We would like views from people who have an interest in how we set the operating cost allowances in the energy price cap. This includes energy suppliers and energy industry bodies. We also welcome responses from consumer groups and charities.

Background

An energy supplier's own costs for retailing energy are called operating costs. Examples of costs include running call centres and IT costs. Operating costs do not include the cost to buy energy for customers, government social and environmental schemes, or costs to fix and repair pipes and wires to transport energy (network costs).

An energy supplier's operating costs will vary between different types of customers. For example, these costs vary depending on how customers pay for the energy they use, such as by Direct Debit, Standard Credit or prepayment meter. Operating costs make up about 15% to 20% of an energy bill within each price cap period for energy bill payers who pay for their electricity and gas by Direct Debit. It is spread across three parts of the price cap.

The different operating cost allowances are:

  • operating cost allowance, an allowance for running an energy supplier’s business to serve Direct Debit customers, for example billing and payments
  • payment method uplift, an allowance for extra costs to serve Standard Credit and prepayment meter customers
  • Smart Meter Net Cost Change (SMNCC), an allowance for the rollout of smart meters

Our review and options

Our role is to protect consumers now and in the future by working to deliver a greener, fairer energy system.

This review covers the operating cost allowance and options around: 

  • core operating costs
  • debt-related costs
  • smart metering costs
  • pass-through industry charges

We are carrying out this review in response to some significant changes in the energy market since 2019. For example, changes seen in response to the coronavirus pandemic and the gas crisis, changes to how often the energy price cap is reviewed, and a range of suppliers joining and leaving the market.

The data that the allowances are based on is from 2017 or earlier.

Before you start

Read the Energy price cap operating cost allowances review consultation paper. You'll find it in the 'Related' section on this page.

The paper contains the full background for this consultation. Please refer to it when giving us your views.

Responding to this consultation

We’d like you to answer all the questions in this consultation that are relevant to you, or where you have an interest. If you do not feel comfortable answering any of the questions, you can leave them blank.

If you have any other views or comments you’d like to feedback to us on, you can also add these after the questions section.

After you have answered the questions, select the ‘Save and come back later’ option found at the bottom of each page.

If you start responding to the consultation and want to return to it later, select 'Save and come back later' to save your answers. You need to answer the questions on the 'About you' page before submitting your response.

Your responses will not be included as part of the consultation if you do not submit them using our online form before the closing date. If you miss the deadline we will still accept your responses sent to us by email.

Other ways to give us your views

If you would prefer to give us your views in another way or send us extra information such as diagrams or charts as part of your response, please email them to priceprotectionpolicy@ofgem.gov.uk.

Why your views matter

This review is part of our wider review of pricing reforms to make sure that the energy retail market is investable and resilient, and make sure that the price cap continues to protect energy customers.

We may decide to make changes to the operating cost allowances based on the responses we get from this review. If we do make changes, they will not be made until at least the April 2025 price cap period.

Give us your views

Audiences

  • Gas suppliers
  • Electricity suppliers
  • Consumer groups

Interests

  • Energy price cap