Proposed energy price cap tweak may mean household bills rise faster

Energy regulator Ofgem has set out plans to tweak the energy price cap more often to keep pace with fast-moving market prices, in a move that could mean over 15m households face higher bills more often.

In response to lobbying by energy companies, and after the collapse of 21 smaller suppliers since wholesale prices spiked in September, Ofgem has proposed a change to the rules for the first time since price capping was introduced in early 2019.

Under current rules, the cap can only be changed every six months. The plans outlined would allow Ofgem to recalculate the level more frequently, but only during “exceptional or unprecedented market changes such as the high global gas prices we have been experiencing recently”.

Ofgem is seeking the view of energy suppliers as part of its plan to take “robust action” to overhaul the energy market, which could lose scores of companies in the coming weeks due to a record in energy market prices.

The regulator will consider all proposals to tweak how it calculates the cap, which was designed to protect millions of homes using standard energy tariffs from unfair prices, so that it “reflects the costs, risks and uncertainties facing energy suppliers”.

Ofgem has asked for views to be submitted before 17 December, and plans to make a decision on a wide range of potential changes by February next year.

Energy suppliers, including Scottish Power, are expected to take the opportunity to call for the price cap, which currently changes only twice a year, to be more responsive to swings in the market by changing as often as once every quarter.

Households are expected to face some of the highest energy bills on record this winter after Ofgem hiked the price cap by about 12% to reflect the energy market highs ignited by a global gas supply crunch.

Peter Smith, a director at fuel poverty charity National Energy Action, warned that moving the price cap more often as market prices rocket “could create a desperate situation for consumers, if every quarter for example, they were hit with unmanageable price increases at a time when so many are already stretched to the limit”.

“Ofgem needs to remember millions of energy consumers will have faced a very bleak winter and the prospect of further, more regular rises will be unthinkable. They won’t know what changes to a cap methodology could mean to their own negative budgets but they will feel the consequences of allowing suppliers to pass on more costs, more frequently,” he added.

In a letter to the industry last month, Ofgem’s chief executive, Jonathan Brearley, said: “These are challenging times, requiring bold action.”