The energy industry regulator is poised to take “bold action” to overhaul the price cap protecting millions of households from rocketing bills as suppliers face a deepening energy crisis this winter.
In an open letter to the industry, Ofgem promised to open a consultation on how the energy price cap is calculated as soon as next month to make sure that it allows suppliers to recover their costs.
The regulator did not suggest any specific changes in the letter but the industry is expected to take the opportunity to call for the price cap, which changes only twice a year, to be more responsive to swings in the market by changing as often as once every quarter.
“These are challenging times, requiring bold action,” Jonathan Brearley, the chief executive of Ofgem, wrote.
This would be the first major change made to the price cap, which was introduced in early 2019 to protect households from unfair energy bills through a maximum cap based on the costs of buying and supplying gas and electricity.
The energy crisis, which has led to record market prices across the globe, has caused these costs to outpace the price cap updates, triggering the collapse of 13 energy suppliers in the last seven weeks, with many more expected to follow this winter.
Alongside Ofgem’s plan to alter the price cap, it will also begin “raising the bar” on its standards for energy supplier finances to ensure they offer “a sustainable business model” that minimises risks to consumers.
Ofgem also plans to underline its expectations on how suppliers must help households that are struggling to pay their bills by offering debt payment plans or other financial support “to their most vulnerable consumers”.
Brearley said the “unprecedented and unexpected rise in gas and electricity prices over recent months has put energy markets under severe strain”.
He said: “As this period of uncertainty continues, and the pressure on the sector grows, we are taking steps to protect the short- and long-term interests of consumers, providing greater certainty for investors and strengthening the resilience of the sector.”
The regulator plans to consult on changes in November and expects to bring in its changes as soon as February before the next energy price rise predicted for April. Up to 15 million households faced one of the steepest bill increases on record this month after Ofgem lifted the cap on standard tariffs by about 12.5%.