Energy crisis: Ofgem considers changes to price cap process as gas costs continue to challenge suppliers

The energy regulator will conduct a consultation on how it caps bills, as many suppliers continue to struggle with increasing gas prices.

Thirteen energy suppliers have gone bust since the beginning of September, beaten by soaring wholesale energy costs and unable to pass those costs to customers due to the restrictions of the price caps.

According to analysts cited by news agency Reuters, the difference between wholesale prices and what suppliers can charge is currently around £400 per customer per year.

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In a letter to suppliers, Ofgem said: “The unprecedented and unexpected rise in gas and electricity prices over recent months has put energy markets under severe strain.

“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 said it would consult on how the price cap should be calculated and whether it reflects the costs, risks and uncertainties facing supplies.

It will also look at “an enhanced approach to monitoring, compliance and enforcement of licence conditions” to make sure energy suppliers “pursue a sustainable business model”.

The consultation will be launched in November and a decision on any changes will be published in February, when the next price cap will be announced but in time for any changes to be implemented before it comes into effect in April.

Some of the energy market’s big players welcomed the measures but more of their frustration appeared to be directed at smaller suppliers, rather than the price cap.

Michael Lewis, chief executive at E.ON, said Ofgem’s move is a “welcome step”, adding: “We’ve got to take a cold, hard look at the energy market to understand what went wrong and to make sure we can stop this happening again.

“Customers are already facing steep rises in bills because of the sudden jump in wholesale energy costs, made worse by the added costs from the failure of more than a dozen energy companies.

“This is a positive move towards making sure only responsible companies can play a part in our energy future and in insulating customers from picking up the tab of bad businesses.”

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A spokesperson for British Gas parent company Centrica called for increased regulation, adding: “Protecting consumers from irresponsible supplier practices is essential and therefore we welcome Ofgem’s letter, which we will review in detail.

“Ultimately lessons must be learnt to ensure what we’re currently seeing in the retail energy market never happens again.”

But Dale Vince, founder of Ecotricity, said: “I don’t see the point of this consultation, because no amount of fiddling with the way the price cap is calculated can address the fundamental problem – we’re in a situation where wholesale prices change daily and retail prices change twice a year – there will always be a disconnect.

“We have an ultra free market wholesale price and a state intervention retail price – it’s like trying to mix water and oil.

“We need to either price control both or price control neither.”