The UK Domestic Gas Electricity (Tariff Cap) Act: Re‐regulating the Retail Energy Market
| Author | Maria Ioannidou,Despoina Mantzari |
| Date | 01 May 2019 |
| DOI | http://doi.org/10.1111/1468-2230.12400 |
| Published date | 01 May 2019 |
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Modern Law Review
DOI: 10.1111/1468-2230.12400
The UK Domestic Gas Electricity (Tariff Cap) Act:
Re-regulating the Retail Energy Market
Maria Ioannidou∗and Despoina Mantzari†
The UK retail energy market has witnessed multiple regulatory interventions since its lib-
eralisation almost two decades ago. Such interventions reached their peak with the enact-
ment of the UK Domestic Gas Electricity (Tariff Cap) Act in July 2018. The Act puts
in place a requirement on the independent regulator, the Office of Gas and Electric-
ity Markets (Ofgem), to set an absolute price cap on poor value tariffs. As such, it sig-
nals a repudiation of the overarching paradigm of consumer empowerment that has in-
formed regulatory remedies to date. Rather than advocating for a different paradigm, this
article highlights the difficulties inherent in reconciling price caps – both practically and
conceptually – with the competitive process and consumer empowerment. It also discussses
other instruments, not necessarily exhausted in retail price regulation, that can render afford-
able energy prices, without sacrificing consumer empowerment.
INTRODUCTION
Very few sectors have witnessed such heated political debates in recent years as
the UK liberalised retail energy market, and understandably so. The provision
of energy supply is an essential service, crucial for societal cohesion. Yet, the
retail energy market has been failing consumers. Household energy bills have
increased in recent years, raising concerns in relation to energy affordability,
especially for low-income consumers.1It should, therefore, come as no surprise
that the energy market has so dramatically re-entered the political battlefield.
From Ed Miliband’s promise of an ‘energy price freeze’ in 20132to the 2017
manifestos of both the UK Conservative and Labour parties,3interventionist
measures seeking to address the level of retail energy prices have resurfaced,
∗Senior Lecturer in Competition Law, Queen Mary University of London, School of Law.
†Lecturer in Competition Law and Policy, University College London, Faculty of Laws.
1 Ofgem, ‘State of the Energy Market’ 2017, 7 at https://www.ofgem.gov.uk/system/files/docs/
2017/10/state_of_the_market_report_2017_web_1.pdf (last accessed 12 June 2018).
2 E. Miliband, ‘Labour would freeze energy prices’ 24 September 2013 at http://www.
bbc.co.uk/news/uk-politics-24213366 (last accessed 12 June 2018). For a criticism, see C.
Waddams, ‘Price Regulation is not the Solution to Unaffordable Energy Prices’ CCP Blog
post, 2013 at https://competitionpolicy.wordpress.com/2013/09/25/price-regulation-is-not-
the-solution-to-unaffordable-energy-prices/ (last accessed 12 June 2018).
3 See, ‘The Conservative and Unionist Party Manifesto 2017’ at https://www.conservatives.
com/manifesto and ‘The Labour Party Manifesto 2017’ at https://labour.org.uk/wp-content/
uploads/2017/10/labour-manifesto-2017.pdf (last accessed 12 June 2018).
C2019 The Authors. The Modern Law Review C2019 The Moder n LawReview Limited. (2019) 82(3) MLR 488–507
Published by JohnWiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 101 Station Landing, Medford, MA 02155, USA
Maria Ioannidou and Despoina Mantzari
despite ambitions that retail energy liberalisation would reducestate interference
in the energy market.4
Such an interventionist appetite reached its peak with the adoption of the
UK Domestic Gas and Electricity (Tariff Cap) Act (Tariff Cap Act),5which is
the focus of this article. In particular, the Act puts in place a requirement on the
independent regulator, the Office of Gas and Electricity Markets (Ofgem), to
set an absolute price cap on poor value tariffs, that is standard variable (SVTs)
and default tariffs.6An absolute cap requires the regulator to set a rate above
which no energy supplier can charge. It is estimated that this price cap will
protect around 11 million households in England, Wales and Scotland, which
are currently on poor value tariffs. This is on top of an already implemented
price cap that protects five million consumers on prepayment meters and the
so-called Warm House Discount that provides rebates on electricity bills for
those consumers at risk of fuel poverty.7It will be designed and delivered by
Ofgem and apply until the end of 2020, when the regulator will recommend
to the government whether it should be extended on an annual basis up to
2023.8
One of the underlying rationales for the introduction of the Act has been
the crude realisation that a significant number of consumers do not engage
with the market and therefore have not been able to reap the benefits of
competition, in terms of lower prices and better services. Those consumers
who lose from the competitive process may not be ‘empowered’ to engage
with the market and switch to better deals and/or may be ‘vulnerable’, and
thus not ‘protected’ enough. It has always been difficult to distinguish between
these two categories, not least because, as we shall see in the third section below,
disengaged consumers often exhibit characteristics of vulnerability. Whatever
the underlying reasons for the apparent consumer disengagement with the
marketplace, the result has been the same; energy firms have been exploiting
‘losers’ through their practices. This was starkly illustrated in the in-depth
energy market investigation undertaken by the UK Competition and Markets
Authority (CMA) that paved the way for the Tariff Cap Act.9The CMA found,
inter alia, that lack of consumer engagement with the energy market gave
suppliers market power over the inactive body of customers, which suppliers
were then able to exploit throughtheir pr icing practices.10 The CMA’s findings
4 T. Prosser, Nationalised Industries and Public Control (Oxford: Blackwell, 1986).
5 Domestic Gas and Electricity (Tariff Cap) Act 2018 (c 21) at http://www.legislation.
gov.uk/ukpga/2018/21/contents/nacted/data.htm (last accessed 30 July 2018).
6 SVTs are the suppliers’ default tariffs charged when consumers do not choose a specific pr ice
plan. They are normally higher than fixed tariffs, which offer guaranteed prices for the duration
of the supply contract.
7 Department of Business, Energy and Industrial Strategy (BEIS), ‘New legislation to cap poor
value energy tariffs and saveconsumer s moneyis being introduced to Parliament later today’ Press
Release, 26 February 2018 at https://www.gov.uk/government/news/government-introduces-
new-legislation-to-cap-poor-value-energy-tariffs-in-time-for-next-winter (last accessed 30 July
2018).
8ibid.
9 See CMA, ‘Energy Market Investigation: Final Report’ 24 June 2016 at https://assets.
publishing.service.gov.uk/media/5773de34e5274a0da3000113/final-report-energy-market-
investigation.pdf (last accessed 12 June 2018).
10 ibid, para 158.
C2019 The Authors. The Modern Law Review C2019 The Moder n LawReview Limited.
(2019) 82(3) MLR 488–507 489
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