I got a reply back from OFGEM this afternoon after a fter ‘Which Magazine’ asked for people to get on their case questioning the price cap mythology.
Feedback Feedback@ofgem.gov.uk
Good afternoon,
Complaint Response (CMPT0550)
Thank you for taking the time to contact us with your concerns, which we have recorded as a complaint. I understand that you are unhappy with the price cap methodology in relation to the EBIT and Headroom allowances.
To address the concerns you have raised, I would like to provide you with the following information.
Supplier profit
I’d like to begin by addressing supplier profits. Ofgem, on behalf of customers, carefully monitors the financial health of their suppliers, and most are not currently turning a profit at all, which puts them at risk of failure, disrupting supply and increasing costs for consumers, particularly the most vulnerable, which is our ultimate concern.
The price cap applies to companies’ domestic retail business. The profits you may be referring to from some companies were not from their retail businesses, but from oil and gas extraction, which is not an area regulated by Ofgem.
- Will you change the EBIT calculation from 1.9% of other costs to a fixed £10 per household?
We are currently reviewing the EBIT allowance. We published a policy consultation on the 26 August, which is now closed. In our consultation, we considered alternative approaches to the current scaling, such as a fixed absolute term.
We noted the range of factors to be taken into account in the consultation document, which could have varying impacts, and therefore the need to assess whether the current EBIT allowance level delivers an appropriate rate of return for efficient suppliers. We intend to continue this consultation process going forward. We welcome further responses to consultations in the normal course.
You can sign up for any consultation and receive an email update when it passes from one stage to the next. All consultations are available to view on our website.
- Will you change the Headroom Allowance calculation from 1.46% of other costs to a fixed £10 per household?
The headroom allowance is one of the ways we recognise the net cost pressure of uncertainties that are not already included in our efficient benchmark. In our 2018 decision, we decided that it is appropriate for headroom to scale in line with all cost components except network costs. We think this approach is reasonable because it avoids an allowance either over-scaling and undermining protection for consumers, or under-scaling and exposing suppliers to potential risks.
We currently do not intend to review the headroom allowance. However, as with all cost components, where there is evidence of material and systematic changes in costs, we will consider cost reviews.
- How do you plan to reintroduce competition to the market and force domestic energy suppliers to once again offer cheaper fixed rate tariffs?
We regulate the energy suppliers in the way we deem best to protect the interests of consumers including by promoting competition. The Domestic Gas and Electricity (Tariff Cap) Act 2018 (the Act) sets us the objective of protecting existing and future customers who pay standard and default rates. There are currently non-SVT tariffs on the market for consumers to access that do not fall under the objective of the Act, such as fixed tariffs. Apart from limiting what suppliers can charge on standard variable and default tariffs, we have no power to dictate the prices suppliers charge. These are commercial decisions for energy companies to make based on their assessments of the wholesale and retail markets.
However, due to global market conditions, exacerbated by Russia’s actions, we continue to see much higher wholesale energy prices than normal. As a result, average fixed rate tariffs continue to exceed the cap level. We expect that once wholesale energy prices return to normal levels, suppliers will begin to offer a wider variety of non-SVT tariffs once more.
The rise in global energy prices is unprecedented and Ofgem is deeply conscious of the worrying impact high energy bills are having, and will continue to have, on consumers across Great Britain. Ofgem is completely focused on doing all we can to support consumers through this crisis.
Thank you for taking the time to raise this issue with us.
If you are not satisfied with how Ofgem have handled your complaint, you can ask for it to be reviewed. The purpose of the complaint review is to ensure your complaint was investigated thoroughly in the first instance, and that all relevant information was supplied. Please visit our website for details of complaint review process.
Yours sincerely,
Jonathan Anton
Engagement Analyst - Complaints
& have signed up to getting a renewable source of energy all the way from Morocco via a 3800km undersea cable 
