Ofgem today committed itself to three-monthly reviews of the default retail price cap, doubling their half-yearly frequency. The move will take effect after the cap’s next revision in October.
Following yesterday’s swingeing 54% cap raise set to afflict 22 million homes from April, pushing the minimum household bill up to £1,971 per year, the regulator’s boss Jonathan Brearley today delivered further reforms.
Ofgem’s announcement came as social equality campaigners the Resolution Foundation forecast that the cap’s lifting yesterday will double fuel poverty in Britain, pushing it to 8 million homes.
The foundation’s analysts calculate that twelve months from now Ofgem’s cap release, plus Chancellor Sunak’s mitigations of it, will leave Britain’s poorest families spending 10% of their incomes on energy, up from 7% now. In contrast the wealthiest households will pay only 4%, according to the think-tank’s evaluation of the Treasury’s market intervention.
Ofgem’s tweakings of powers and processes around the cap include:
- Introducing an uplift in the wholesale cost allowance in the price cap. Ofgem has decided its methodology did not account for additional wholesale energy costs incurred by suppliers following unprecedented volatility & rises in wholesale gas prices. The regulator stresses the adjustment represents less than 10% of the overall price cap increase.
- Giving itself more flexibility to change the price cap level more often six-monthly cap updates. In November Ofgem set itself five related tests.
- From October 2022, introducing further reforms, improving the resilience of suppliers.
Admitting the need for a full review of energy market functioning, Brearley confirmed on this morning’s BBC Radio Today programme that £68 of yesterday’s £693 hike is the cost of re-assigning four million account-holders of 2021’s twenty-nine failed energy retailers to continuing suppliers.
Shadow energy secretary of state Ed Milliband told listeners that Ofgem had received warnings as early as 2013 that it was licencing unviable suppliers. The former Labour leader repeated his colleague Rachel Reeve’s call for a windfall tax on North Sea oil and gas operators.
On the same programme E-on boss Michael Lewis agreed that market reform was needed. New entrants had been licenced to compete, he said, on the basis of how much unsustainable risk they could bear in their forward-purchasing of power.
Lewis echoed a statement from industry lobbyists EnergyUK. CEO Emma Pinchbeck had warned of “no sign of wholesale prices falling, and bills likely to remain high through the autumn”. Members were concerned for the stability of energy retail,
“A steep rise in the price cap had been widely predicted and we know a £700 increase will be extremely worrying news for many people”, Pinchbeck added.
“The record international wholesale gas price rises seen since the last price cap has led to 27 suppliers exiting the market since August. Those remaining are losing up to hundreds of pounds per customer”.
“Suppliers will continue to do all they can to help and support customers, especially the most vulnerable, but a rise of this scale needs the Government to step in. We very much welcome the support for customers announced by the Chancellor”, Pinchbeck wrote.