Written evidence submitted by National Energy Action (EPM0011)

National Energy Action (NEA) response to the Business, Energy and Industrial Strategy (BEIS) Select Committee Inquiry on Energy Pricing and the future of the Energy Market

1. About National Energy Action (NEA)

1.1                 NEA[1] works across England, Wales and Northern Ireland to ensure that everyone in the UK[2] can afford to live in a warm, dry home. To achieve this, we champion and deliver energy efficiency programmes, aim to improve access to energy and debt advice, provide training and co-ordinate other related services which can help change lives[3].

2. Summary of our evidence

2.1                 Public concern over the impact of rising energy prices is growing day by day. Following a record increase in October to the GB price cap, energy bills are set to rocket in April across Great Britain and could soon reach £2000 for the average household, an increase of £700 compared to prices today. Alongside similar relentless increases in Northern Ireland, further hikes will devastate the lives of the poorest households who were already struggling to pay their energy bills.

2.2                 We welcome current programmes and throughout the winter we have been working hard to raise awareness of this assistance across each of the four UK nations. We also welcome the BEIS Select Committee Inquiry on Energy Pricing and the future of the Energy Market. We hope that at this critical time the inquiry can set out how to provide further relief from soaring energy prices, in particular, for the poorest households.

2.3                 Working alongside our charity’s supporters including the utility and voluntary sectors, other consumer groups, we have identified and costed the following policy options:

2.3..1            How to provide a one-off rebate or crisis income supplement to over 4 million low-income households before April. The former can be achieved by using the previous Government Energy Rebate mechanism to provide a one off, targeted rebate. The latter would be achieved through the benefits system. Our strong preference is that any emergency relief directly helps to reduce energy bills. This is because providing direct support to reduce bills would not negatively affect existing soaring levels of inflation and reduces implications for recipients’ tax thresholds or other entitlements. In addition, if households are struggling to pay other bills and receive income supplements, they may be inclined to use any additional income to pay for other essentials but not energy. This might be necessary, but it means they would continue to underheat their homes.

2.3..2            How to expand the GB-wide Warm Home Discount so that everyone who is currently eligible automatically receives more support. Currently more than 1.5 million households across GB are theoretically eligible for WHD but don’t receive it - either because they don’t know about the programme, or they apply but there is not enough money to go round. Using existing powers, this support can already be paid automatically without households needing to apply. We have also highlighted how any wider expansion of the scheme can be Treasury funded and offset any additional costs for other bill payers.

2.3..3            How to support an additional 2.4 million low-income, working age households across the UK by expanding the Winter Fuel Payment. Importantly, this would support households in Northern Ireland who currently don’t receive the WHD and are not protected by GB price cap but have seen the average gas bill soar up to £2,000 p.a. Electricity bills have also increased significantly with the average up from £450 to £740 p.a. With approximately 80% reliant on Pre-Payment Meters (PPM) this money needs to be found upfront and is causing acute challenges that will be left unaddressed without a further targeted, UK Government intervention.

2.3..4            How to help accelerate the repayment of utility debts across the UK. This will be even more vital after April’s increases. We believe it is possible to accelerate the repayment of utility debts by using Fuel and Water Direct to provide financial support for households that have a debt repayment plan with their utility suppliers. If the UK Government matched every £1 paid by the customer by £1 of Treasury funding, this would help clear debt in half the time, freeing up income that could then be used on other essential goods and services, like food.

2.3..5            By winter 2022/23, we hope this assistance should be supplemented by deeper price protection or a new mandatory social tariff to help make energy more affordable for a discrete and well-defined set of low-income energy customers.

2.4                 While this targeted package of measures will help millions of households on the lowest incomes, we also recognise some form of universal support might be necessary. We underline however that it is vital those who will be most impacted by soaring energy bills, receive the most support. Our detailed response below sets out the positive distributional impacts our proposals would have and the phasing of this support. In summary many of these key actions can be introduced quickly and would directly reduce prices for the poorest households at a modest cost. More broadly, they would demonstrate a strong commitment to supporting vulnerable customers through the current energy crisis.

2.5                 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 can take. These are in line with their statutory remit and can ease the pressures on struggling households. Like the UK Government, Ofgem have committed to make the needs of vulnerable consumers their key priority but there is much more that could, and should, be done. We believe that these opportunities include:

1. Progressing work to ensure energy suppliers can consistently identify and act on financial vulnerability
2. Investigating deeper price protection or a new social tariff to help make energy more affordable for a discrete and well-defined set of low-income energy customers
3. Working to ensure that the pass through of SOLR costs are spread over a longer period and any modifications to how the energy cap is calculated does not lead to more frequent adjustments to increase the pass through of policy costs. 
4. Reducing the wider burden of energy debt on customers by ensuring suppliers promote a range of debt repayment options
5. Working with Government to maximise opportunities to accelerate the deployment of smart meters and correct the negative distributional impact of how policy and regulated costs are currently recovered by energy suppliers and energy networks.

2.6                 Our final key priority is to permanently reduce needless energy waste in our homes. One of the key reasons the poorest households are so exposed to the current crisis is they live in the least efficient homes, some of the least efficient in Europe. This has left the UK more exposed to the current soaring gas price compared to many other countries and we are wasting billions of pounds each year as heat escapes through leaky roofs, floors and ceilings. Addressing the challenge of our leaky homes must continue to be a key priority[4]. As well as honouring the full manifesto commitments on energy efficiency, NEA reinforces that any cuts to ECO - the only programme which permanently reduces bills for the poorest households across GB - would be short-sighted response to the energy crisis which we would not support.

2.7                 In conclusion, NEA is committed to working in close collaboration with the UK Government and regulator to urgently respond to the scale of the energy crisis. Without any additional support, millions will sink further into debt, and many will turn off the heating, leaving them at acute risk of serious ill-health and putting further unwanted strain our stretched health services.

Detailed response to the Terms of Reference

3. The regulatory requirements companies must meet in order to trade as a regulated entity in the retail energy market.

3.1                 NEA recognises the importance of open competition between suppliers in the retail energy market but believe that customers must be protected as a priority. The collapse of up to 30 energy suppliers since August 2021 affecting over 4 million customers cannot be a regular occurrence and companies must be sufficiently resilient to withstand market shocks such as we have seen in recent months.

3.2                 We broadly welcome Ofgem’s recent proposals on company resilience including the introduction of  financial stress testing for suppliers from this month and plans to consult on pausing supplier expansion in the event of company growth beyond certain customer milestones until financial resilience is satisfied. This would ensure company systems are sufficiently robust to honour their licence obligations regarding vulnerable customers can be adequately met and set out a clear plan to address customer indebtedness. These licence conditions include:

3.2..1            Licence Condition 0 – Treating customers fairly

3.2..2            Licence Condition 27.8 – Ability to Pay

3.3                 One particularly important aspect of these regulatory requirements is the need for evidence that suppliers can treat their customers fairly, in particular those in vulnerable situations. NEA believes that to pass customer milestones, suppliers should have to provide Ofgem a strategy for identifying their most vulnerable customers, and how they will meet their vulnerability based licence conditions. This should be in place irrespective of supplier size and Ofgem should review a strategy at the point of company licensing being granted and in the event of a supplier consumer base growing substantially.

4. The mandate, role and performance of Ofgem in setting regulation and supervising regulated entities.

4.1                 In terms of protecting vulnerable consumers, Ofgem set out its role in doing so in its 2025 Consumer Vulnerability Strategy. Within this strategy, there were five themes:

4.1.2        Improving identification of vulnerability and smart use of data.

4.1.3        Supporting those struggling with their bills

4.1.4        Driving significant improvements in customer service for vulnerable groups.

4.1.5        Encouraging positive and inclusive innovation.

4.1.6        Working with partners to tackle issues that cut across multiple sectors

4.2                 Below we assess the performance of Ofgem against each of these roles

Improving identification of vulnerability and smart use of data.

4.3                 Ofgem has made some progress in improving the identification of vulnerability and using data in a smart way. The priority services register is a key element of this, providing a way by which households with physical vulnerabilities that are relevant to the energy market can be identified, so that energy suppliers can provide adequate and tailored support.

4.4                 However, Ofgem has stopped short of requiring energy suppliers to identify where households have a financial vulnerability, for example where they are unlikely to be able to afford to pay their bills because of an individual circumstance. NEA has investigated whether such a requirement would be viable and has found that some suppliers have been doing so independently in a temporary way during the pandemic. We have also found that, in general, energy suppliers would  support bringing financial vulnerability into the priority services register.

4.5                 Such identification would serve two purposes – firstly, it would help energy suppliers to find their customers who need the most financial help, so that they could either provide that help themselves, or signpost them to a third party. Secondly, it would mean that those households that are financially vulnerable would not need to continually relay their situation to their energy supplier, an experience that can be exasperating and upsetting.

Supporting those struggling with their bills

4.6                 Since the launch of the Consumer Vulnerability Strategy 2025, Ofgem has implemented significant new rules relating to energy debt. These new licence conditions meant that suppliers must take account of their indebted customers’ ability to pay, both in terms of payment mechanism and payment amount, when setting repayment plans. This means that no household should have an unaffordable debt repayment plan with their supplier.

4.7                 While this has been a positive development, these new rules are seldom enforced, and Ofgem must do more to report on performance against the obligation so that consumers and advocates are aware of if and when suppliers are not taking account of their customers’ circumstances. NEA was, however, pleased to see that Ofgem have made their first enforcement regarding this new licence condition, after a supplier “did not consistently offer to put domestic customers struggling to pay their energy bills on debt repayment plans, to allow payments to be taken direct from customers’ benefits or to take into account customers’ ability to pay when calculating regular instalments as required”. Such enforcement activity will give suppliers confidence that they must adhere to the licence or face the consequences.

4.8                 Aside from these new conditions, Ofgem must be aware of the role that it plays in providing solutions to the current situation regarding high energy prices. There are two main ways in which Ofgem could, and should, play a role in the solution:

4.8.1        Ensuring readiness for any policy solution that the Government puts forward, so that it can play its facilitative role. This could include, for example, giving a rebate to all, or a subset of energy consumers through a General Electricity Rebate, mirroring the policy from 2015.

4.8.2        Raising awareness of the current support available across the GB energy market by using multiple communication channels to drive greater awareness of the support available.

4.8.3        Investigating a new social tariff to help make energy more affordable for a discrete and well-defined set of energy customers. [5]

4.8.4        Working to ensure that when a supplier exits the market:

• That prepayment users retain the ability to top up, in both the period between the exit and the Supplier of Last Resort (SOLR) being appointed, and once the SOLR takes over.
• Customers’ debts to that supplier are transferred to the SOLR so that this debt is regulated through the standard gas and electricity supplier licence conditions.
• The pass through of SOLR costs are spread over a longer period.
• Ensure any modifications to how the energy cap is calculated does not lead to more frequent adjustments to increase the pass through of policy costs. 

4.8.5        Reducing the wider burden of energy debt on customers by ensuring suppliers promote a range of debt repayment options and ensure they are taking more active steps to identify and reduce problem debt for their customers.

4.8.6        Working with Government to maximise opportunities to accelerate the deployment of smart meters for legacy pre-payment customers and correct the negative distributional impact of how policy and regulated costs are currently recovered by energy suppliers and energy networks.

4.8.7        Realising the full role of energy networks to support vulnerable customers and investigate how to repurpose help for fuel poor households in creative ways.

Driving significant improvements in customer service for vulnerable groups.

4.9      In the Consumer Vulnerability Strategy 2025 Ofgem set out that it wanted energy companies to have a corporate culture that focuses their efforts to identify and support consumers in vulnerable situations; industry to have systems to better target and to tailor their customer service to consumers with specific needs; new companies entering the market to provide the level of customer service needed by consumers in vulnerable situations; consumers to be effectively identified as eligible for priority services; and for them to receive consistent and high quality priority services in a timely way; and consumers to have easy access to relevant information on how well energy suppliers support consumer needs. This will allow them to take this into account when switching.

4.10  While there has been some improvements in energy networks regarding these issues, they have yet to penetrate the supplier market, with no requirement for either a consumer champion at board level or to have a vulnerability strategy as noted above.

Encouraging positive and inclusive innovation

4.11  Ofgem has made significant steps with energy networks in encouraging inclusive innovation, The network innovation allowance is now specifically aimed at innovating for consumers in vulnerable situations, for example. However, the same cannot be said for energy suppliers, with no requirement to innovate in the interests of the most vulnerable.

4.12  This asymmetry is borne out within the smart meter rollout, where whilst there has been great effort to create an accessible in home display to complement a smart meter, suppliers are not consistently offering such innovations to their customers who would benefit the most. Inclusive innovation is scarce in the energy retail market and there is a significant risk that this could lead households behind, as suppliers rush to create net zero aligned solutions.

Working with partners to tackle issues that cut across multiple sectors

4.13  In the Consumer Vulnerability Strategy 2025 Ofgem set out that it wanted: achieve greater understanding and consistency across essential services markets for more joined up action to improve the experience of consumers in vulnerable situations; to further improve our information sharing approach with the third sector, which will help target our policy, compliance and enforcement actions and support organisations who provide advice to energy consumers; continue to improve the operation and effectiveness of the government social programmes; and or with government on common consumer challenges to complement its social policy measures.

4.14  While there has been some progress in sharing information across sectors, for example more regular engagement with the third sector, Ofgem has for two years failed to obtain information from energy suppliers regarding their social obligation supporting. This has meant that other actors have no visibility over, for example, the level of debt in the market. This hinders our ability to effectively advocate for the needs of fuel poor and vulnerable households in the energy market.

4.15  As noted in sections above, it is crucial that Ofgem can work with Government and play its role in implementing whatever the preferred policy solution to the energy price crisis.

5            The performance of previous policies introduced to stimulate effective competition within the retail energy market, and an assessment of the impact on competition of proposed future regulatory frameworks

5.8      Previous policies to stimulate competition in the energy market have been focussed on allowing new suppliers into the market to increase the amount of choice that consumers have. This has had mixed success. As proved by recent events, some new entrants were less fit to be energy suppliers. However it has introduced new entrants that have been truly innovative, and because of this now have significant market share.

5.9      The proposed future frameworks on the price cap and energy tariffs from Ofgem are a mixed picture. Our views on the short term proposals are summarised in the table below.

5.10  Our views on long term proposals are summarised in the table below.

5.11  Whichever option is taken, NEA believes that there should be a new tariff available to a set of vulnerable consumers that provides deeper protection that the price cap.[6]

6            The functioning and performance of the ‘energy price cap’ and an assessment of its use in the future, and an assessment of the role of auto-switching.

6.8      The introduction of the price cap in January 2019 was a welcome development to provide price protection to 15 million households on default tariffs, though NEA maintains that it should not be at the expense of targeted schemes to support financially vulnerable consumers.

6.9      An obvious benefit of the price cap is protection against volatility in wholesale gas prices. The Price Cap has saved customers around £1 billion a year according to Government estimates, which equates to £75-£100 per year for those on default tariffs. Ofgem’s own analysis shows that since April 2015 the big six energy suppliers were consistently charging more than the level of a default cap, with lost savings of £75 to £100 for households.  It has served to protect consumers whilst preventing excessive profits of suppliers.

6.10  NEA also supports the price cap as a means of providing greater transparency to energy stakeholders and households about the individual costs passed through to consumers. This is particularly important in times of market instability such as we are seeing presently, with Supplier of Last Resort (SOLR) costs following companies exiting the market reflected in the cap increase. Reviewing the cap every six months does mean that policy and network costs are accurately reflected in the cost of bills though the often-rapid fluctuation in wholesale prices may not be. 

6.11  While the Government have recently confirmed their intentions to extend the price cap beyond 2023 , it is not clear what form this will take or long-term approach. Even with the roll out of smart meters NEA supports continued price protection for all customers beyond 2024. Combined with targeted financial support, this will ensure the most vulnerable are protected from volatility in the market. 87% of respondents to NEA’s Call for Evidence in our 2021 Fuel Poverty Monitor agreed that there needs to price protections similar to the default price cap in existence in the UK energy market.

6.12  Before the default tariff price cap, other caps were in place to protect vulnerable energy consumers. These were the prepayment price cap, as mandated by the CMA, and the safeguard tariff, implemented by Ofgem. While assurances were given that these caps would run concurrently alongside the default tariff price cap, but they were instead subsumed into it, even though they were priced at cheaper than the broader cap. NEA feels this must be remedied in light of the current crisis, with a deeper level of price protection given to the most vulnerable energy consumers.[7]

7            The future of Bulb and the recovery of public funds and the cost to consumers of other energy supplier failures.

7.8      NEA believes that consumers should not be unfairly burdened with the cost of suppliers exiting the market, and welcome’s Ofgem’s recent announcements on financial stress-testing to ensure suppliers are resilient to market shocks before expanding their customer base

7.9      However, Ofgem needs to ensure that lessons are learned from the recent crisis. The new measures are needed to rectify historic failing; in the last 3 years only 2 in 5 compliance and enforcement cases focused on consumer experience rules and Ofgem did not stop a company expanding its customer base as a result of poor service during this time.

7.10  The total costs to bill payers of supplier failures since August 2021 is £2.6 billion, or £94 per customer, outweighing costs saved from the price cap. NEA recommends that Ofgem spread the SOLR costs when a supplier exists the market over a longer period. This will soften the blow to consumers in the next update to the cap in April. and promoting a wide range of energy debt repayments for customers among suppliers.

8            The role of retail market reform in the context of the UKs net zero transition and domestic energy security requirements?

8.8      The transition to net zero necessitates costs on households and consumers. Transparency in how such costs are distributed through energy bills or other charges incurred is vital to ensure that the most disadvantaged in society are not unfairly burdened with the cost of the energy transition.

8.9      NEA recommends that greater transparency is needed in the energy retail market, and this can be achieved in a number of ways. In the most recent Fuel Poverty Monitor, NEA conducted analysis through a Call for Evidence (CfE), which gained responses from 122 respondents covering the breadth of the UK, and wider engagement with stakeholders, we have considered the opportunities, impacts and barriers for fuel poor households of decarbonising their homes. To further inform our research, we interviewed representatives from governments, regulators, and consumer advocacy groups to understand their views on the links between decarbonisation and fuel poverty. One important part aspect of the energy retail market that was consistently discussed was the need for transparency in the market that is needed to facilitate the transition to net zero.

8.10  Our stakeholders told us that: available information on the energy market could be better publicised to increase awareness; There needs to be a balance between customers paying fair prices and energy companies being able to stay afloat in a financially sustainable way. Transparency of pricing gives some way to judge this; There is a need to publish high-level indicators of the total cost to Government of the energy transition annually. Energy bill transparency necessitates strong governance, robust cost controls for Government spending, and stringent cost assessment of industry spending by regulators.

8.11  It was found that there are two important ways by which such transparency can be achieved. Firstly through price protection mechanisms and secondly through routine public assessment of distributional impacts of energy policy.

Price Protection

8.12  The Default Tariff price cap, which has been created through legislation from the UK Government and has been implemented by Ofgem, provides a key consumer protection for customers in the energy market. It not only provides some temporary relief from unpredictable price increases but greater transparency in the pass through of energy related policy costs, and other energy costs. This transparency is valuable on two levels:

1. For stakeholders with the prerequisite knowledge and interest, there is the ability to fully interrogate the cap to understand the quantum of individual costs and how they are applied to bills.
2. For households, who often have less interest and knowledge, it can provide confidence that pricing is fair, and that price increases are justified, as they are calculated by a trusted third party in Ofgem.

8.13  While the Government has announced that there is no longer a fixed end date of the price cap, there is no guarantee that the price cap, or even a reference price that could shadow a price cap without being a legal limit, will be sustained into the future.

8.14  87% of our CfE respondents agreed that there should be price protection mechanisms, such as the Default Tariff price cap in the energy market. An alternative view was offered by some stakeholders. They said that given the current situation regarding rapidly increasing price rises, price caps that only update every six months do not necessarily represent the most current costs of providing energy to households. While this is true for the wholesale element of the market, policy and network costs tend not to change so rapidly, meaning that for those components, the price cap is usually relatively accurate. While we and our stakeholders place significant value on the transparency of the price cap, capping prices does little to impact the fairness of pricing mechanisms. For example, price caps do not currently determine the proportion of costs that are fixed (and therefore part of the standing charge) and variable (part of the unit rate). How costs recovered also forms an important part of fairness and affordability is a consideration that should not be forgotten.

Routine public assessment of distributional impacts

8.15  93% of respondents to our call for evidence stakeholders agreed that the overall policy costs recovered through consumer bills should be published and 93% of respondents agreed that there should be routine public assessment of the distributional impacts of decarbonisation policies funded through energy bills.

8.16  According to Ofgem, policy costs currently make up 15% of the average dual fuel bill, an amount that is not insignificant. While it is useful to know the total quantum of policy costs that consumers contribute through their bills, it does not paint the whole picture.

8.17  Each decision that the UK Government, devolved Governments, and energy regulators make about the energy market will have different impacts on different sets of consumers. In many cases, Governments will conduct an impact assessment, which looks to investigate the overall cost of a decision, who that might impact, and how. The groups that these assessments consider are relatively variable, and any consistency is mainly achieved through adherence to the Equalities Act, where the impacts must be assessed for the following characteristics:

8.17.1    Age

8.17.2    Disability

8.17.3    Race

8.17.4    Marriage/civil partnership status

8.17.5    Sex, gender reassignment, religion or belief, and pregnancy and maternity

8.17.6    Income

8.18  Beyond these characteristics, assessment of impacts is varied, and often minimal. The now defunct UK Department of Climate Change (DECC) previously provided an annual assessment of the estimated impacts of energy and climate change policies on energy prices and bills.[8] This report was tied to the timing of HM Treasury’s Annual Energy Statement and therefore provided a consistent and routine assessment of distributional impacts. This annual analysis included:

8.18.1    Recent developments in UK energy prices and bills.

8.18.2    International comparisons.

8.18.3    How policies impact energy bills.

8.18.4    The specific impact on household energy bills.

8.18.5    Analysis of how different fuel prices would change the impact.

8.19  This robust analysis explained the policy costs that were added onto bills, and how those policies would likely impact on consumer bills. For example, while funding for energy efficiency is an initial cost on bills, it reduces average demand, so overall, over a period of time, reduces the average energy bill.

8.20  This analysis is no longer published, meaning that there is a lack of transparency as to the impact that levies have on bills, making the costs of the transition to net zero, as well as who pays these costs, harder to scrutinise. As we move towards net zero, with the potential for more of the costs of decarbonisation to be paid for through bills, this lack of annual analysis presents a gap in transparency.

8.21  In recent years, Ofgem has introduced their own model for assessing the distributional impacts of their economic regulation decisions.[9] This framework uses three groups of data to help us assess impact:

8.21.1    Disposable income and energy expenditure – to assess how a policy may affect how much consumers spend on energy as a proportion of their income.

8.21.2    Socio-economic factors such as age, disability status, and employment status – to assess how a policy may affect vulnerable groups.

8.21.3    Attitudinal and technology adoption, such as engagement in the energy market and electric vehicle uptake – to give insight into how policies may affect those with different attitudes towards and experiences of the energy market.

8.22  Within these groups, the model assesses:

8.22.1    Absolute financial savings or costs.

8.22.2    Savings or costs as a percentage of disposable income.

8.22.3    Equity-weighted financial savings, capturing the fact that an additional unit of income improves the welfare of a low-income household more than that of a higher income household.

8.23  This is a valuable model that increases the understanding of how economic regulation impacts on vulnerable groups. However, it should be noted that either the modelling is not completed for all decisions, or it is not always made public. For example, results of the modelling are not published for changes to the price cap for domestic electricity and gas prices in Great Britain.