Ofgem mulls quarterly price cap review

by | May 16, 2022

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Ofgem is considering increasing the number of times it reviews the energy price cap, the regulator confirmed on Monday.

The cap, introduced in 2019 to prevent energy companies over-charging customers for gas and electricity, is currently reviewed twice a year.

At the most recent review in April, it was hiked 54% in response to the soaring wholesale energy prices. Another increase is expected in October.

 
 

The energy bills of around 22m households are dictated by the cap.

But on Monday Ofgem said it was now considering reviewing the cap quarterly. It argued that a more frequent review would better reflect accurate energy prices, and make the market “fairer and more resilient”.

Consumers would see the benefit “much sooner” when wholesale prices fall, it added. Increases would also be passed on much earlier than they currently are, however.

 

The regulator said the proposed change – which is subject to consultation – would also allow it to support the sector through a “potentially challenging winter”. If approved, the switch would come into effect from October, meaning consumers could see their bills increase again in January.

Jonathan Brearley, chief executive, said: “Our top priority is to protect consumers by ensuring a fair and resilient energy market that works for everyone.

“The last year has shown that we need to make changes to the price cap so that suppliers are better able to manage risks in these unprecedented market conditions.”

 
 

Around 20 energy suppliers have collapsed over the last year. Bulb, the largest failure, required a government bailout that is expected to cost around £2.2bn.

The price cap prevented all energy companies from putting up bills as wholesale prices surged. But it hit smaller providers, many of whom were new entrants, harder than established players, because they had insufficient resources and credit lines to enable them to hedge energy purchases over the longer-term.

A number of personal finance experts reacted with dismay to the proposed changes. Martin Lewis, founder of Money Saving Expert, tweeted: “It feels like at every turn, in these desperate times where lives are at risk, [Ofgem] has ignored all asks for consumers and instead kowtowed to the industry.”

 

Myron Jobson, senior personal finance analyst at Interactive Investor, said: “Adjusting the cap more regularly in the current high and rising inflation environment means energy bills will go up more frequently, which could spell disaster for households already struggling to stay financially afloat.

“A more regular review would mean that prices would come down as quickly as they go up. However, high inflation means the latter will be a reality for some time.”

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