CRA reports on Ofgem’s approach to determining EBIT allowance

June 28, 2023
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In 2019, Ofgem introduced a Default Tariff Cap (DTC), aimed at protecting customers against the premium set by utilities on customers’ variable tariff bills.

Ofgem introduced an EBIT allowance as part of the DTC which intended to provide a normal rate of return for an efficient supplier serving standard variable tariff (SVT) customers.

Between 2022 and 2023, Ofgem consulted on its methodology for setting the EBIT allowance. So Energy and EnergyUK retained CRA to comment on Ofgem’s approach to determining the EBIT allowance. Our work for So Energy focused on the methodology for calculating the asset beta component of the allowance, while our work for EnergyUK focused on the capital employed component.

CRA produced two reports, each making the case for a change to Ofgem’s approach using quantitative evidence. Some of our arguments and analysis were explicitly taken into account by Ofgem.

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