Britain’s energy regulator will consult in November on reform to the Price Cap mechanism regulating energy sales to 15 million UK domestic consumers.
Ofgem wrote today to licenced suppliers, setting out areas for possible reform of retail regulation.
Alternative ways of assessing the cap will be considered, it confirms, amid fears that the current, backward-looking method will spark yet more painful price hikes when it’s next due to be calculated in April. A concluding report in February from the consultation may mitigate or forestall that problem.
The regulator’s open letter comes in the wake wholesale gas prices rocketing 250% this year, driving 16 out of around 70 UK energy suppliers out of business to the wall. Pessimistic observers predict no more than 10 may survive into 2022.
At least temporarily, no new supply licences will be issued, Ofgem director chief executive Jonathan Brearley confirms today.
As holding measures, Brearley says Ofgem will:
- “further develop our regulatory approach to risk in the retail market. This includes exploring a move towards a more prudential approach, recognising that energy suppliers are managing complex financial risks”
- look at the Price Cap, “examining how (its) current design and operation might evolve given increased volatility of energy prices”
Energy leaders have called for a variety of reforms to the Price Cap. ScottishPower boss Keith Anderson called last week for it to be scrapped. This morning Octopus founder Greg Jackson suggested on BBC Radio 4 that its assessment calculations should be made every quarter, instead of half-yearly, and by evaluating expected future price movements alongside historical prices.
The cap’s future is a matter for government, Brearley reminds his readers today.
Against calls for the scrapping or suspension of green levies and social obligation elements within retail prices, Brearley robustly defends them.
“Suppliers must continue to comply with their scheme payments, and we will take appropriate enforcement action where suppliers do not comply”, he writes.
Brearley promises Ofgem will work with benefits ministry the DWP to “ensure suppliers of last resort (SoLR) (are) provided with Warm Home Discount (WHD) Core Group customer data from the failed supplier”.
“As Core Group rebates are to be included within the Core Group Reconciliation Process, suppliers may not claim costs for these through the SoLR levy. Suppliers should in the first instance use the overspend provisions to accommodate additional broader group rebates for customers”
Loss-making tariffs must continue to be honoured, Brearley states, including by suppliers who take on customers from bankrupt firms.
“Protecting consumers, especially those in vulnerable circumstances, remains our priority,” Ofgem’s boss insists.
- In a separate development, market maker Elexon today reports three more suppliers – Omni Energy, Simply Your Energy and Maxen Power Supply – are the latest to default on payments necessary for continued membership of the Balancing and Settlement Code. Default is seen as a near-certain precursor to a firm ceasing supply. Elexon said its panel now considered Omni to be a defaulting party. The two others have had their rights to register new meters or Balancing Mechanism Units removed.
