The CEO of OFGEM has called on minister to re-think the Energy Price Caps. He stated that more rigorous framework is required to support households ready for the upcoming winter.
Jonathan Brearley will be setting a price that 29 million UK households will pay for their gas and electricity in the coming fortnight. He does, however, seem to be unconvinced that the current Energy Price Cap is the best way to assist the bill payers struggling the most.
Stating that the current price control is “very broad and crude”, he’s pushing ministers to re-consider the method of keeping bills down. Is the process used for the previous 4 years still fit for purpose to protect the UK residents from higher rises due to the energy crisis.
“The price cap was designed for a market that was much more stable – so, pre-2020 – and it worked quite well,” says Brearley. “But in this volatile market, the price cap has costs as well as benefits, so we would welcome a debate on the future of pricing regulation.”
The current Energy Support benefits can be seen in our blog here.
OFGEM implement the schemes that are set out by ministers, one solution recommended by Brearley is to put into practice a Social Energy Tariff. This would be set up below the costs of energy supply so that households stricken by fuel poverty could afford their bills.
“We work with government on all options, including a social tariff,” says Brearley. “I think we are clear that a more rigorous framework of providing support for customers is needed. But, in a sense, I accept that the government has a set of dimensions to think about that I don’t have to think about.”
After millions plunged into fuel poverty, the Price cap has given next to no protection as it was originally implemented to protect customers from “rip-off” energy bills from suppliers. But, with wholesale prices increasing so much during the energy crisis, it doesn’t mean a fair price (Energy Price Cap) is an affordable solution for many.
“The truth is, in a market that was more stable, the price cap did its job,” Brearley says. “The way it’s configured right now is one that is hard to adapt to the world changing around us.”
The price cap has also been partly to blame for the collapse of around 30 smaller energy suppliers outside of the “Big Six”. This has cost an estimated £2.7 billion to UK households as they were forced to sell energy at a loss prior to the price cap being updated.
OFGEM have been able to change slight procedures in the price cap allowing suppliers to recoup some of last year’s losses before the cap changed. This is so they wouldn’t follow suit and go bust like smaller companies and to allow them to still appear appealing to investors for their future. This allowed suppliers to have record earnings in the first 6 months of 2023. This, of course, caused controversy and criticism from consumers.
Brearley does, however, believe that this was still the right thing to do as the Price Cap is designed for suppliers to be able to continue trading and recover from market-wide crisis.
He stated – “The question is, and it’s an open question: are there alternatives? Are there other ways of doing the same thing?”