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Developing a framework for assessing whether conditions are in place for effective competition in domestic supply contracts

We are seeking views from stakeholders on our proposed framework for assessing whether conditions are in place for effective competition in the domestic energy retail market. This is for the purpose of recommending to the Secretary of State whether or not the cap on default and standard variable tariffs should remain in place, as required under the Domestic Gas and Electricity (Tariff Cap) Act 2018.

The cap was introduced because the retail energy market was not working well for all consumers. Consumers on default and standard variable tariffs were paying substantially more than those who shopped around for fixed tariff deals. To protect these consumers, the government passed legislation in 2018 for a temporary cap on default and standard variable tariffs. This cap was introduced by Ofgem in January 2019. Alongside this, the government and Ofgem are working towards structural reforms to improve the competitive process in the domestic retail market and outcomes for energy consumers.

With the cap on default tariffs now in place, the Domestic Gas and Electricity (Tariff Cap) Act 2018 requires Ofgem to review whether conditions are in place for effective competition for domestic supply contracts. This review must be published by 31 August 2020 and include a recommendation on whether the cap should remain in place for 2021 or be removed. The Secretary of State will consider this review and make a decision by 31 October 2020. If the default tariff cap is extended into 2021, the process will be repeated in 2021; if the cap is extended into 2022 the exercise will be repeated for a final time in 2022 as the cap will cease to have effect at the end of 2023.

This paper proposes a framework for making that assessment. We would welcome your views on it.

We plan to hold a workshop while the consultation is open, and details will be made available here shortly.

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