Energy regulator Ofgem has developed plans to change the energy price cap more frequently to keep up with rapidly changing market prices, which could result in over 15 million households facing higher bills more frequently.
In response to lobbying by energy companies and after the collapse of 21 smaller providers since wholesale prices rose in September, Ofgem proposed a change in the rules for the first time since the price cap was introduced in early 2019.
According to the current rules, the upper limit can only be changed every six months. The plans outlined would allow Ofgem to recalculate the level more frequently, but only in the event of “extraordinary or unprecedented market changes such as the high global gas prices that we have seen recently”.
As part of its plan, Ofgem seeks to take “robust measures” to convince energy providers renew the energy marketwhich could lose numerous companies in the coming weeks due to a record price in the energy market.
The regulator will consider any proposals to adjust the cap calculation to protect millions of households on standard energy tariffs from unfair pricing so that it “reflects the costs, risks and uncertainties of utilities”.
Ofgem has requested comments before December 17th and plans to make a decision on a variety of possible changes by February next year.
Utilities, including Scottish Power, are expected to take the opportunity to request the price cap, which currently only changes twice a year. in order to be able to react better to market fluctuations by changing up to once per quarter.
Households are expected to face some of the highest energy bills of all time this winter after Ofgem raised the price cap by around 12% to reflect the highs in the energy market sparked by a global gas supply crisis.
Peter Smith, director of the fuel poverty charity National Energy Action, warned that shifting the price cap more frequently when market prices skyrocketed could “create a desperate situation for consumers if, for example, they were hit by uncontrollable price increases every quarter.” when so many are already at their limit ”.
“Ofgem has to remember that millions of energy consumers had a very gloomy winter and the prospect of further, more regular climbs is unthinkable. They won’t know what changes to a cap could mean on their own negative budgets, but they will feel the consequences if suppliers pass more costs on more frequently, ”he added.
In one Letter to the industry last month, Ofgem Managing Director Jonathan Brearley, said: “These are challenging times that require courageous action.”